Ireland's Screening of Third Country Transactions Bill (now the Act) finally completed its passage through the Houses of the Oireachtas (the Irish Parliament) last week and was signed into law by the President of Ireland today (31 October 2023). The Act requires commencement by Ministerial Order, and it is anticipated that the screening mechanism will be commenced during Q2, 2024.
This highly anticipated legislation introduces a foreign direct investment (FDI) screening mechanism into Ireland for the first time. Once commenced, it will empower the Minister for Enterprise, Trade and Employment (the Minister) to scrutinise a range of transactions where a non-EEA (EU plus Norway, Iceland and Liechtenstein) or non-Swiss undertaking (a third country undertaking) acquires control of, or a prescribed share in, an Irish asset or undertaking. The focus of the Act is on national security and public order only (not competition or other public interests) and it will enable the Minister to review investments in certain critical Irish industries that may present risks to the State's security or public order.
Under the Act, it is mandatory to notify transactions to the Minister at least ten days prior to completion where four criteria are satisfied:
a third country undertaking, or a person connected with such an undertaking, as a result of the transaction: (i) acquires control of an asset or undertaking in the State, or (ii) changes the percentage of shares or voting rights it holds in an undertaking in the State from 25% or less to more than 25%, or from 50% or less to more than 50%
the value of the transaction is €2m or greater (subject to a cumulative assessment of transactions involving the same parties over a 12-month period)
the same undertaking does not, directly or indirectly, control all the parties to the transaction (i.e. it is not an intra-group transaction)
the transaction relates to, or impacts upon, one or more of the key areas set down in Article 4(1) of the EU FDI Screening Regulation (the Regulation)
The new cumulative test outlined at (2) above means that a transaction below €2m may be notifiable where the cumulative value of transactions between the same parties in the preceding 12 months is equal to or greater than €2m.
The exclusion of intra-group transactions and internal restructurings from the scope of the Act was a welcome amendment made in the Dáil earlier this month.
Article 4(1) of the Regulation sets out the industries and resources where screening activity is likely to be focused. These categories are broadly drafted and include critical infrastructure (including transport, health, defence, and communications), critical technologies (including artificial intelligence, semiconductors, aerospace, energy storage, and biotechnologies), the supply of energy or raw materials, food security, access to personal data and freedom of the media.
Outside of transactions where notification is mandatory (notifiable transactions), any transaction may also be screened if the Minister has reasonable grounds to believe that it affects, or would be likely to affect, Ireland’s security or public order and the transaction has resulted in (or would if completed result in) a third country undertaking acquiring, or changing the extent to which it has control of (or exercises certain rights over) an Irish asset or undertaking.
The Act also prescribes a look-back period, which empowers the Minister to review transactions that have completed within 15 months of the Act coming into force. This means that transactions that are currently under way may be reviewed whether they meet the mandatory notification criteria or not. However, transactions which meet the criteria, and which could be perceived as presenting a risk to national security and public order, are likely most at risk of being called in for review.
The Act has a suspensory effect on notified transactions, which means that such transactions cannot be completed until a screening decision has been issued by the Minister. The 90-day review period (extendable up to 135 days) between notification and decision has been a source of some concern, but the Minister of State, Dara Calleary, recently indicated that this is the “upper limit” and it is anticipated that the majority of transactions will be cleared in much shorter periods.
While the legislation has now been enacted, it is not expected to be in force before Q2, 2024. Those currently conducting transactions involving certain critical industries, and with potential public order or security concerns, should be prepared for their transactions to be called in for review once the screening mechanism is operational. Those anticipating completion, in the first months of 2024, of notifiable transactions must factor the requirements of the Act into their schedules. Notifiable transactions that are completed within ten days of the commencement of the Act must be notified within 30 days of the transaction being completed.
We will be publishing further analysis and guidance on this important legislation in the weeks and months ahead. If you have any questions on the legislation, please contact Michelle McLoughlin, Knowledge Consultant, Liam Murphy, Senior Knowledge Lawyer, Anne O’Neill, Senior Knowledge Executive or any other member of ALG’s Corporate and M&A team.