France ups investment screening

France has tightened its foreign investment screening processes, publishing a decree at the start of 2020 that builds on regulations put in place in 2014 and in line with a general EU movement towards increasing foreign investment controls. The new rules widen the scope for scrutiny of FDI deals and give the government greater enforcement powers. 

The French government declared rules revising its FDI regulations on December 31, 2019. Essentially, these new terms implement the Action Plan for Business Growth and Transformation and bring French law in line with EU regulations establishing a framework for the screening of FDI. The legislation also clarifies and expands the scope of controlled activities, streamlines authorisation procedures and speeds up approval timelines, and lays out tough new sanctions for non-compliance. 

In announcing the new legislation, the French treasury promoted it as “a simpler, clearer and faster procedure” for foreign investment authorisation. 

Among the changes, the government will now be able to block the acquisition by a foreign investor of a holding in a French entity operating in a strategic sector if that acquisition relates to at least 25% of the voting rights. This amounts to a lowering of the threshold for control, following the lead of other European countries. Previously, regulations triggered the authorisation process when an investor acquired a stake of at least 33.33% of the capital or voting rights in a French company.

Meanwhile, the scope of activities subject to control has been broadened to include the printed press and online press services for political and general information, food safety, energy storage and quantum technologies.

According to Pierre Guillot, a partner at law firm Linklaters in Paris, this latest change is less dramatic than when France introduced a foreign investment regime back in 2014, and it should not hurt investment in France, nor should it discourage foreign investors from investing in the country. “It’s more or less the existing rules with a few updates and an extended scope,” he said.

Mr Guillot believes that the main change in the regulation is in the speed of response times for applications for mergers and acquisitions. The response to a request for opinion submitted to the minister by an entity under French law or by an investor remains subject to a two-month deadline but should be expedited in most cases, and requests can now to be submitted by one of the members of a chain of control on behalf of all investors who are part of that chain, a change to the previous rules. 

“Under the previous rules, the timeframe was two months from the filing of [an] application, and now, In most cases, it should be faster and take six weeks, rather than two months for it to be reviewed,” sais Mr Guillot. “But on paper, it could take longer than that. One other important change is, if you don’t get an answer, it meant an implicit no, whereas, under the previous rules, lack of an answer meant an implicit yes.” 

Penalties will become harsher under the new legislation. “Under the previous regime, the domain penalty on paper was twice the amount of your investments. But that created some problems for distressed assets. Now, new rules are very similar to what you would find under merger controls.” 

Mr Guillot believes that investors and companies alike should pay special attention to foreign investment issues when considering an investment in a French company, but not necessarily as a result of the recent change in the rules. This new regulation for foreign investments in France will apply to any application that is filed from April 1, 2020. Current rules will regulate pending applications at this date.

According to fDi Markets, greenfield investment into France increased from $12.3bon in 2017 to $17.4bn in 2018 but then fell by 12% in 2019. There was a 49% decrease in the number of greenfield projects from 2017 to 2019.