The Screening of Third Countries Transactions Bill (the Bill) in Ireland will introduce a screening mechanism for foreign direct investment (FDI) into Ireland for the first time. The focus will be on transactions in sectors that could present risks to national security or public order.
This article explores the key considerations of the incoming regime for private equity deals in Ireland, with a particular focus on practical implications for sponsors considering transacting in Ireland.
The legislation will introduce a mandatory notification system for certain transactions.
A transaction will be mandatorily notifiable if it satisfies each of the following criteria:
A third country undertaking, or a person connected with such an undertaking, acquires control of an asset in Ireland or changes the percentage of shares or voting rights it holds in an undertaking in Ireland from 25% or less to more than 25%, or from 50% or less to more than 50%.
The value of the transaction is equal to or greater than €2m.
The transaction relates to or impacts upon one or more of 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.
Access to sensitive information, including personal data, or the ability to control such information.
The freedom and pluralism of the media.
The reference to “third country” means any country that is not a member state of the EU, a member of the EEA, or Switzerland. Private equity deals with a non-EU component may meet the above requirements and be notifiable transactions.
Making a Notification
Parties must notify the Minister for Enterprise, Trade and Employment of the transaction not less than ten days before the date on which the transaction is completed. Any notification must be accompanied by an extensive amount of information, and the Minister retains the discretion to request any other information that is necessary to review the transaction.
While all parties to the transaction are responsible for complying with the regime, it may make commercial sense for one party (likely the sponsor) to assume responsibility for fulfilling the notification requirements. Sponsors should engage with local counsel early on to understand the regime’s potential application to any transactions involving an Irish target or assets.
The Minister will have the power to review transactions that have completed within 15 months of the Bill coming into force. This means that transactions that are currently underway are likely to be reviewable given the expectation that the Bill will be commenced this year.
If the Minister chooses to review the transaction, the Minister will be required to issue a written “screening notice” to the parties as soon as practicable. The screening notice will summarise the reasons for which the transaction is being reviewed and inviting parties to make written submissions. A “screening decision” must then be made within 90 days of the issuance of the screening notice (which can rise to 135 days by notice of the Minister). Once a screening notice is issued, parties to the deal cannot complete or take action furthering the transaction until a screening decision is issued. Where the Minister finds that a transaction affects or would be likely to affect the security or public order of the State, the Minister is empowered to take several measures, including directing parties not to complete the transaction or parts of the transaction specified by the Minister, or to sell or divest themselves.
Failure to comply with the notification requirements could result in fines of up to €4 million or criminal sanctions. Sponsors should be aware of the potential penalties for non-compliance.
Private equity sponsors should consider the potential application of the regime to any transactions involving an Irish target or assets. Sponsors should engage with local counsel early on to understand the regime’s potential application and ensure compliance with the notification requirements. Sponsors should also factor in the lookback review mechanism into their deals, notwithstanding that the legislation is not yet in force.
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