Ireland’s Investment Screening Regime

The Screening of Third Country Transactions Bill 2022 (the Bill) will introduce the State’s first investment screening regime for foreign direct investment (FDI), which gives effect to the EU Screening Regulation (EU) 2019/452) (the Screening Regulation). Once the Bill is signed into law, it will be implemented by way of Ministerial Order, which is anticipated to occur in early 2023.

Impact of the Bill

The Bill seeks to carefully balance the longstanding strategy of promoting and maintaining Ireland as an attractive place for inward investment with Ireland’s interest in fending off potential threats to public order and national security.

Under the Bill, the Minister for Enterprise, Trade and Employment is empowered to review certain transactions that may pose risk to security or public order of the state and to prevent or mitigate such risks. The Bill details the kind of transactions, assets, sectors and activities (including transactions involving energy or renewables assets) that are to fall within the scope of the screening regime and could trigger a screening event.

This may have impacts on or complications for foreign investors from ‘third countries’ seeking to acquire or invest in energy or renewables assets in Ireland. The regime may also impact on the sale of these assets to foreign buyers from ‘third countries’.

The Bill operates similarly to the Irish merger control regime, where certain review timelines are imposed. The Bill creates a mandatory and suspensory notification regime for transactions meeting certain criteria. The screening regime will impact on transaction timelines and activity.

Key features of the new regime: criteria to be met

Outside investors

The screening regime only applies where an undertaking of a ‘third country’ (i.e., a non-EU country), or a person connected with such an undertaking, is a party to the transaction. It does not apply to domestic only transactions.

Financial threshold

A transaction value threshold of at least €2 million is to be met for the regime to apply.

Type of transactions that come under the scope of the regime

Transactions relating directly or indirectly to, or that impact on, the broad categories of sensitive and strategic activities referred to in the Screening Regulation, that are likely to effect “security” and “public order” come under the scope of the screening regime. This includes transactions relating to the following:

• Critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure.
• Critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies,
• Supply of critical inputs, including energy or raw materials, as well as food security.

Control Threshold

Transactions involving the acquisition of shares or voting rights in an undertaking will be caught in the following circumstances:

• Where the percentage of shares or voting rights changes from 25% or less to more than 25%, or
• Where the percentage of shares or voting rights changes from 50% or less to more than 50%.

Where the transaction centres around an asset, such as an energy asset, the regime will apply if there is a change in control of the asset. However, the asset must be deemed to be ‘in the state’, which is described as physically located in the State. If a transaction involves an intangible asset, it must be owned, controlled or otherwise in the possession of an undertaking in the State. An undertaking is ‘in the State’ in this context when it, or the undertaking controlling it, is incorporated or otherwise governed by the laws of the State or is controlled by a person ordinarily resident in the State.

Implications for Energy Transactions

Notification

The main impact of the regime is to deal timelines. Once the relevant criteria are met, all parties to a transaction will be legally required to obtain approval for the transaction prior to its completion.

Notification must be made not less than 10 days prior to completion. Parties to a notifiable transaction that is initiated, but not completed, before the commencement of the relevant provisions of the Bill, will be deemed to have complied with the notification obligation if they provide the required information to the Minister before the later of 30 days after (i) completion or (ii) the coming into force of the relevant provisions of the Bill.

Under the regime, similar to the Irish merger control regime, the Minister may “call in” for review notifiable transactions that are not notified and transactions that are not notifiable, where the Minister has reasonable grounds for believing the transaction affects, or would be likely to affect, the security or public order of the State.

Due to these notification obligations under the regime, standard foreign investment and clearance notification may become a standard condition precedent in transaction documentation, where the foreign investment review process will need to be factored into the timeline to completion and the longstop date.

Request for information and Review timeline

Similar to the Irish merger control regime, the Minister may issue a request for further information in respect of a transaction. If the parties to a transaction fail to comply with an information request or if false information is provided in response to such request, it is a criminal offence under the Bill.

Within 90 days from the date of notification (or, in the case of a transaction that is ‘called-in’, within 90 days from the date on which the Minister issues a screening notice), the Minister is required to make a screening decision. In certain circumstances at the discretion of the Minister, the 90-day review period may be extended to 135 days. The review period is suspended by the issuance of a notice of information and resumes on the date that the notice is complied with.

Outcome / remedies

The Minister may prohibit the transaction, or parts of it, or impose conditions. Conditions can include divestment requirements, behavioural requirements, ring-fencing requirements, and compliance reporting obligations.

Failure to comply under the regime

Under the Bill, it is a criminal offence to complete, or take steps to complete, a non-notified transaction or a notified transaction under review by the Minister prior to the Minister issuing a screening decision clearing the proposed transaction or making it subject to conditions. If a transaction is subject to a conditional screening decision, it is an offence to complete the transaction other than in accordance with the conditions imposed by the Minister.

An appeal of a screening decision may be lodged to an independent adjudicator by the parties to a transaction, provided that they notify the Minister that they are appealing no later than 30 days after being notified of the screening decision. The appeal must be submitted to the adjudicator within 14 days after providing notice to the Minister. A decision of an adjudicator may be appealed on a point of law to the High Court

Key takeaways

Foreign investment notification and clearance may become a standard condition precedent in transaction documentation for the sale or purchase of, or investments in, energy and renewables assets in Ireland involving parties from ‘third countries’, where the foreign investment review process will need to be factored into the timeline to completion and the longstop date. Investors should inform themselves of the new regime to be prepared prior to the enactment and commencement of the legislation which is likely several months away.

Certain key questions can be asked to help address any concerns about whether a transaction will be caught under the new regime:

• Are the relevant criteria met which would make the transaction notifiable?
• Will it be necessary to provide for notification under the regime as a condition precedent in transaction documentation given notification timelines?
• How does the notification timeline impact on the transaction?
• Could any remedies (such as, reporting obligations) be offered to address any public order and/or security concerns?
• Have the risks of whether the transaction could be ‘called-in’ for review by the Minister in circumstances where the transaction is not mandatorily notifiable, has completed, or is likely to complete prior to commencement of the relevant legislation been assessed?

For more information on successfully navigating the proposed regime once commenced, contact a member of our Corporate or Energy teams.

The content of this article is provided for information purposes only and does not constitute legal or other advice.