Introduction
On 31 October 2023, the Screening of Third Country Transactions Act 2023 (the “Act”), which establishes a new foreign direct investment ("FDI") screening regime in Ireland, was enacted. The Irish FDI screening regime was introduced in light of Regulation 2019/452 and, while the new regime will allow the Irish Government to assess the national security impact of transactions involving non-EU investors for the first time, the Irish Government has emphasised the country's continued openness to FDI from outside the EU which remains central to Ireland's competitiveness.
Notwithstanding enactment, the Act has not yet been commenced (ie, come into force). Commencement is now expected to occur at the start of January 2025 based on the latest updates (more specifically, in and around 6 January 2025). While mandatory notification requirements will not arise until the regime comes into force, there will be no exclusions for transactions that have signed but not completed pre-commencement.
Accordingly, the possibility of an Irish FDI filing should be considered for all transactions with an Irish nexus that may sign but not close by the time the new regime comes into force (ie, the start of January 2025). Where a filing may be required, a 'springing' condition precedent should also be included in the transaction documents to cover off the possibility of a mandatory notification after the regime commences.
Notification Requirements
Mandatory notification thresholds
A transaction is mandatorily notifiable to the Minister for Enterprise, Trade and Employment (the “Minister”) if the following conditions are met:
- A third country (ie, non-EU) undertaking or a connected person as a result of the transaction: (i) acquires control of an asset in the State; or (ii) changes the percentage of shares or voting rights that it holds in an undertaking in the State from below 25% to above 25% and from below 50% to above 50%;
- The value of the transaction is at least €2 million (taking into account all transactions between the parties in the last 12 months); and
- The transaction relates to, or impacts on, one or more of the sensitive matters/sectors set out in Article 4(1)(a)-(e) of Regulation 2019/452, namely:
- 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 as (now) defined in Regulation 2021/821, 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;
- Access to sensitive information, including personal data, or the ability to control such information; and/or
- The freedom and plurality of the media.
The concept of 'control' is consistent with the similar concept in respect of relevant ‘mergers or acquisitions’ under the Irish Competition Acts 2002-2022.
Following publication of the Department of Enterprise, Trade and Employment’s (the “Department”) updated draft guidance in May 2024, there remains some uncertainty about whether non-full function joint ventures and certain inter-group restructuring transactions will be caught by the definition of a notifiable transaction. There also remains some uncertainty about how widely the Department will interpret the scope of the sensitive matters/sectors set out in Article 4(1)(a)-(e) of Regulation 2019/452. It is hoped that these points will be clarified in the Department’s final guidance that is due to be published before the regime commences.
Call-in power in respect of ‘below threshold’ transactions
The Minister may 'call in' a transaction for review where the following conditions are met:
- Where the Minister has reasonable grounds for believing that the transaction affects, or is likely to affect, security or public order in the State; and
- Where the transaction results in a third country undertaking acquiring control, legal rights or the ability to exercise effective participation in the management or control of an asset or undertaking in the State (ie, a lower threshold compared with the mandatory thresholds).
The Minister may exercise this power in the case of non-notifiable transactions for a period of 15 months post-completion, and in the case of non-notified transactions for a period of the later of 5 years post-completion or 6 months after the Minister becomes aware of the transaction.
Review process
Decision maker
The Investment Screening Unit within the Department of Enterprise, Trade and Employment (the “Department”, as referenced herein) is responsible for administering the regime.
The Minister for Enterprise, Trade and Employment (the “Minister”, as referenced herein) is the addressee of notifications and the decision-maker (subject to appeal mechanisms before the Irish courts – see below).
Review periods
After a notification has been made, if jurisdiction is accepted, the Minister will issue a screening notice to the parties which will have suspensory effect (ie, the parties should not take any action for the purposes of completing or furthering the transaction).
The Minister will conclude the review within 90 days of the date of the screening notice. This may be extended to 135 days by notice in writing. Where the Minister issues a notice of information (ie, RFI), the review period is suspended until the parties fully comply with the notice of information and the Minister certifies compliance.
At the end of the relevant period, the Minister must issue a screening decision providing reasons as to why the transaction was considered to affect or not affect security or public order in the State. If the Minister fails to issue a screening notice by the end of the relevant period, the transaction shall be deemed to be subject to a screening decision that it does not affect security or public order in the State. The Minister may decline to give reasons where security or public order is affected.
Appeals
Decisions taken by the Minister can be appealed either directly by way of judicial review or to adjudicator(s) appointed by the Minister. Decisions of an adjudicator(s) may, in turn, be appealed by way of judicial review or to the High Court on points of law.
Substantive test
The substantive test which the Minister must apply is whether the transaction affects, or would be likely to affect, the security or public order of the State.
The Act provides for a (relatively long) list of considerations to which the Minster must have regard, including whether or not a party to the transaction is controlled by a government of a third country and, where relevant, the extent such control is inconsistent with the policies and objectives of the State; the extent to which a party to the transaction is, at the time the transaction is being reviewed, already involved in activities relevant to the security and public order of the State; and whether or not a party to the transaction has previously taken actions affecting the security or public order of the State.
In carrying out its review, the Minister shall also consult the advisory panel made up of other relevant Government departments, as well as any other person the Minister considers appropriate.
If the Minister concludes that the transaction affects or is likely to affect security or public order in the State, the Minister can direct that certain other steps are undertaken by the parties (eg, divestment of assets, cessation or modification of certain practices, restrictions on the flow of competitively sensitive information etc.), or otherwise prohibit the transaction.
Penalties
Any person or undertaking that fails to notify a notifiable transaction, fails to comply with a notice of information or intentionally or recklessly provides information that is false in a material particular, shall be guilty of an offence.
The potential sanctions are: (i) on summary conviction, a maximum fine of €5,000 and/or a maximum sentence of 6 months imprisonment; or (ii) on conviction on indictment, a maximum fine of €4 million and/or a maximum sentence of 5 years imprisonment.
Key developments
The current trends and outlook include the following:
- Notwithstanding enactment, the Act has not yet been commenced (ie, come into force). Commencement is now expected to occur at the start of January 2025 based on the latest updates (more specifically, in and around 6 January 2025). While mandatory notification requirements will not arise until the regime comes into force, there will be no notification exclusions for transactions that have signed but not completed pre-commencement.
- The Department has made clear that it is not minded to engage with parties about any specific transaction until commencement of the regime, so it is for the parties to decide on what notification (if any) is needed based on the text of the Act, the Department’s latest draft guidance of May 2024 and the transaction timeline.
- From now on, the possibility of an Irish FDI filing should be considered for all transactions with an Irish nexus that may sign but not close by the time the regime comes into force (ie, start of January 2025). Where a filing may be required, a 'springing' condition precedent should also be included in the transaction documents to cover off the possibility of a mandatory notification after the regime commences.
Calum Warren, Partner, Matheson LLP
calum.warren@matheson.com
