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Foreign Investment: Tightening of the French Control System

A strengthened defence in the face of the covid-19 crisis


In line with the guidelines issued by the European Commission on foreign direct investment and the protection of European strategic assets, France is strengthening its national control system in response to the current health crisis. Let's take a look at these developments.

Against the backdrop of the Covid-19 crisis, France announced at the end of April 2020, through its Minister of the Economy, Bruno Le Maire, the strengthening of the foreign investment control mechanism. Essentially, France's response to the health crisis resulted in extending the scope of protected activities and investments subject to the control procedure.

This announcement is consistent with recent European Commission guidance on this issue. In a Communication of 26 March 2020 entitled “Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe's strategic assets”, the Commission had indeed encouraged Member States to equip themselves with adequate screening tools for third-country investments. Moreover, it had urged them to be very cautious in order to prevent the Covid-19 crisis from causing large-scale takeovers of European companies and industries, including SMEs, by investors or third-country governments, especially in the healthcare and digital sectors (see our article on this topic) " Foreign investment and the Covid-19 crisis").

The Commission's recommendations were very quickly acted upon: France, which already has one of the strictest foreign investment control mechanisms in the European Union, has agreed to bolster its ability to protect strategic assets and enterprises in the face of the health crisis.

First, this strengthening was reflected in the adoption of a decree on 27 April 2020 to extend the scope of protected activities to biotechnology.

This Decree amends Article 6 of the Decree of December 31, 2019 relating to foreign investments in France to include biotechnologies in the list of critical technologies falling within the scope of protected activities listed in Article R.151-3 of the Monetary and Financial Code.

One of the reasons for this development is the desire to protect companies in the research and health sector. For example, this increased protection could benefit companies and laboratories whose work could help discover effective molecules or a vaccine.

Secondly, with respect to investors from third countries, the Minister of the Economy declared that the threshold for holding shares initiating the authorisation process would be temporarily lowered to 10% for listed French firms.

As a reminder, the foreign investment control regime applies, in addition to the acquisition of control, to any participation carrying more than 25% of the voting rights of an enterprise, even without acquisition of control.

The Treasury and Economic Policy Directorate General has specified the terms and conditions for the forthcoming lowering of the threshold to 10%:

  • it will only concern French listed companies;
  • it will not concern European investors;
  • it should apply for the second half of 2020, until 31 December 2020;
  • it will be carried out according to a special procedure: any third-country investor who crosses the 10% holding threshold will have to so notify, whereupon the Minister of the Economy will have 10 days to decide whether or not the operation should be subject to further examination on the basis of a full application for authorisation.

As a result of this detailed examination, the foreign investor may not be allowed to hold more than 10% of the voting rights in the listed company concerned.

Note that the control mechanism for foreign investment in France was strengthened at the end of 2019 by Decree No. 2019-1590 of 31 December 2019.. This substantially modified regime came into full force on 1 April 2020 and is codified in Articles L.151-3 and seq and .R.153-1 et seq. of the French Monetary and Financial Code (see our article on this point :Foreign investment: France adjusts its control system).").

Lastly, it should be noted that the European Commission's calls for effective tools to secure European businesses and strategic assets in times of crisis have also been followed in other States. Italy strengthened its foreign investment control mechanism by Decree-Law No. 23 of 8 April 2020, as did Spain. Similarly, Germany has extended the scope of controlled activities to the health sector. The United Kingdom is also considering tightening its system.

In light of recent reforms in France's control of foreign investment, as set out in the Commission's guidelines, our national system now appears to provide a shield for protecting essential infrastructures, goods and services, especially in times of crisis, from the risks arising from the acquisition of certain strategic assets and capabilities, particularly in terms of public health.

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