Germany ends its longtime liberal approach to foreign investments by increasing its intervention possibilities at the national level and by lobbying a stricter regime at the EU level. Since the takeover of German robotics champion KUKA by a Chinese investor last year, the public and political pressure on increasing protection against certain foreign investment was high. The expected change now has taken off through a set of new and amended provisions, and it will affect not only non-EU investors eying German targets but also owners of German businesses who are now facing additional hurdles when selling those businesses.
Under the current German Foreign Trade Regulation ("FTR"), the German Ministry for Economic Affairs and Energy ("Ministry") has the power to examine whether the public order or security of Germany is endangered if a person not resident in the EU or an entity not based or headquartered in the EU acquires a German company (e.g., by acquiring the shares or assets of such company) or directly or indirectly acquires an equity participation of 25 per cent or more in a German company. Only in transactions where this threshold is met may the Ministry assert jurisdiction to prohibit or restrict such investments. Foreign investors may, in advance of entering into a definitive acquisition agreement, voluntarily apply for a certificate of non-objection (negative clearance) in order to obtain transaction security as soon as possible.
On 12 July 2017, the German government adopted an amendment to the FTR regime, which came into effect on 18 July 2017. The amended FTR rules bring about two major modifications of the examination procedure that may have an impact on a number of inbound investments in Germany, especially with respect to the regulatory approval timetable of such transactions. First, the obligation to report investments by non-EU residents to the Ministry is extended to certain non-military industry sectors, signaling the importance attributed to companies of these sectors for the German public order and security. The areas of business now explicitly covered include, inter alia, companies operating important ('critical') infrastructure facilities in the following sectors: IT and telecommunications, transport, healthcare, water supply, nutrition, finance and insurance. Furthermore, the new reporting requirement also applies to, e.g., companies developing software for such infrastructure facilities and to certain cloud computing service providers. Previously, such reporting requirements were restricted to companies in the defense and IT security sectors only (so-called sector-specific investment control regime). The amended rules also subject certain additional reconnaissance and sensor technology products to the sector-specific control regime.
Second, the time periods for the examination of foreign corporate acquisitions by the Ministry have been extended, allowing the Ministry to investigate the transactions in more detail. This indicates more thorough reviews by the Ministry, which reviews will take into account information from other German governmental entities (including the German secret services). As a result, longer time lags have to be expected until transactions are cleared or, as the case may be, restricted or prohibited. The deadline for the Ministry to investigate an investment now starts to run only upon the Ministry having gained actual knowledge of the signing of an acquisition agreement. In case the Ministry does not obtain such knowledge, the newly introduced final time limit for the opening of an examination procedure is five years following signing of the agreement. Furthermore, the time lag in obtaining a certificate of non-objection to the acquisition from the Ministry is now extended from one month to two months. Also, the time period for the examination procedure itself is extended from two months to four months following receipt by the Ministry of the complete documentation on the acquisition – and the Ministry may stop the clock when negotiating with the parties about contractual provisions meant to safeguard public order and security.
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Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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