Some transactions are quite well-known, whereas others, such as the sale of drainage systems to American investment funds (through the so-called sale-and-leaseback) are not. And then there’s the media frenzy surrounding the Chinese government entity State Grid’s possible investment in Eandis, which is still quite fresh in our minds, as well as Ping An’s investment in Fortis. The issue of foreign investment takes on an extra dimension for companies that affect national security, especially if the investor is not a European party.
At EU level, Regulation (2019/452) establishing a framework for the screening of foreign direct investments that can have a negative impact on the security or public order of the Member States of the Union has now entered into force. The Regulation doesn’t actually create a European screening mechanism but rather lays down a framework of basic requirements that a screening mechanism must satisfy if the Member States decide to create one. Furthermore, it obliges Member States that do have a screening mechanism in place to exchange information and to cooperate. As part of this European cooperation mechanism, the Federal Ministry of Economy is the national point of contact for the European Commission, and it is responsible for following up on other Member States’ notifications.
This Regulation led to the Cooperation Agreement of 1 June 2022 “introducing a mechanism for the screening of foreign direct investments.” In the meantime, the authorities concerned have already taken various initiatives to organize the approval of this Cooperation Agreement. There should be an outcome of it in autumn, with a view of having it (probably) enter into force on 1 January 2023.
Contents of the Cooperation Agreement
In this article, we briefly discuss the main provisions of the Draft Cooperation Agreement, which legal practitioners should flesh out.
The cooperation agreement intends to safeguard national security, public order, and the strategic interests of the federal government, the various communities, and regions. It lays down the procedures and terms regarding the screening of foreign direct investments. As expressed in multiple opinions, there must be a balance between the interest of an open economy, on the one hand, and the (potential) risks that this implies for the interests of security, on the other hand.
The Cooperation Agreement contains the following relevant definitions:
- Control is essentially the exercise of a decisive influence directly or indirectly, in fact or in law, over the company’s activity (e.g., rights to the company’s assets or one or more corporate organs’ composition, voting pattern, or decisions);
- Sensitive information is information whose disclosure would impair the defence of the Belgian territory’s inviolability, defence and armed forces, external and internal security including nuclear energy, the upholding of the democratic and constitutional order, international relations, scientific and economic potential, …;
- Foreign investor is a natural person whose principal residence is outside the EU, a company from a non-EU country, or a company whose principal place of business is outside the EU;
- Strategic interests are those that safeguard the continuity of vital processes, prevent certain information from ending up in foreign hands, and ensures a strategic choice.
An Interfederal Screening Commission (“ISC”) has been set up. It consists of 9 members who represent the different authorities involved in the Cooperation Agreement (FPS Finance, FPS Internal Affairs, FPS Foreign Affairs, the Flemish Region, the Walloon Region, the Brussels Capital Region, and the three Communities).
Scope of Application.
The Cooperation Agreement applies to foreign direct investments that can have an impact on security, public order, and the strategic interests of the governmental authorities concerned, and that are aimed at creating or maintaining direct relationships between the foreign investor and the company.
Foreign investments are classified into two types.
- The first type is investments that directly or indirectly result in the acquisition of at least 25% (which can be lowered to 10%) of the voting rights in companies or entities that are based in Belgium and whose business activities relate to the vital infrastructure (there is a list of categories of infrastructures), technologies, and raw materials that are essential for the interests relating to security and public order, the provision of critical input, access to sensitive information, the private security sector, freedom of press, and technologies of strategic interest in the biotechnology sector if they meet certain extra conditions;
- The second type is investments that directly or indirectly result in the acquisition of at least 10% of the voting rights in companies that are based in Belgium and whose business activities relate to the sectors of defence (including energy, cyber security, …) whose annual turnover in the financial year before the acquisition of at least 10% of the voting rights was more than EUR 100 million.
Foreign investors who intend to acquire control must notify the ISC and its secretariat about this after closing but before the performance of the contract, on the public announcement of the offer to purchase or exchange, or on the acquisition of a controlling share. Parties may submit a draft agreement as well. Any acquisition of equity interests via the stock exchange must also be notified.
After the ISC has received the dossier (the Cooperation Agreement lists all the information that must be submitted), the members responsible proceed to the assessment procedure. At this stage, the ISC assesses whether the investment could have a possible impact on public order, national security, or strategic interests. If appropriate, a screening procedure takes place afterwards. The ISC’s decisions on the permissibility of the investment or the decision on launching a screening procedure must be served on the parties within forty days after it has received the dossier. If this 40-day period is exceeded, a screening procedure may no longer be launched and the investment is considered allowed. There are several specific rules on the consequences of incomplete or misleading information.
During the assessment and screening procedures, the foreign investor and the Belgian company must stop the performance or completion of the investment until the time the decision has been served on the notifying parties in which it states that no further screening procedure is launched or that the investment is permitted. The time periods can be extended under exceptional circumstances. The screening procedure and its findings culminate in the opinion to the ministers responsible.
Any objection to a decision not permitting foreign investment can be brought exclusively to the Market Court. The Market Court has full jurisdiction to decide on the fines that were imposed by the ISC. The appeal has no suspensive effect. If the Market Court annuls a decision, the case (whether or not restricted) is sent back to the ISC, and the ICS investigates the foreign investment again.