May 13, 2021
The 17th amendment of the Foreign Trade and Payments Ordinance (“AWV amendment”) came into effect in the first week of May 2021. It marks the third fundamental revision of the German FDI regime since April 2020. FDI scrutiny in Germany therefore continues to witness a significant amount of attention.
On 30 April 2021, the AWV amendment was published in the Federal Gazette and came into effect the day after. The German Ministry of Economic Affairs and Energy (“BMWi”) had published a draft of the amendment in January 2021, which was open for public consultation. The AWV amendment follows two earlier revisions to the German FDI regime in 2020 which were triggered by the COVID-19 pandemic as well as the EU Screening Regulation. FDI regimes across the globe, in particular in EU Member States, such as Austria, France, Italy, and Spain have seen substantial expansion in recent months.
The AWV amendment is mainly driven by the aim of reflecting in national law the categories of critical technologies and activities mentioned in Art. 4(1) of the EU Screening Regulation. By its nature, the EU Screening Regulation has a directly binding effect so that a transposition into national law is not formally required. However, the EU Member States are not obliged to consider these categories as a ground for a mandatory filing and have some discretion with respect to their implementation. The German regulator has added almost twenty critical sectors to the list.
In more detail:
Cross-sector review increased significantly
The AWV amendment expands the cross-sector review significantly and introduces a new investment threshold. A mandatory filing in the newly covered business sectors is only triggered if a non-EU/EFTA investor acquires 20% or more of the voting rights in a German target. The 10% threshold remains the applicable threshold for the business sectors previously covered. The “new” business sectors include:
Scope of sector-specific review also broadened
In addition, Section 60 of the AWV amendment expands the sector-specific review and now includes a reference to the entire part 1, section A of the export list [Ausfuhrliste]. It also captures developers or manufacturers or modifiers of goods in the field of defence technology, and those who have actual control over such goods which are within the scope of protection of a patent classified or a utility model classified. Both cases also apply to undertakings which have developed, produced or modified or had actual control over the respective goods in the past and which still have knowledge or other access to the underlying technology.
The acquisition of certain control rights opens the scope for ex officio investigations
The scope of the FDI review now also extends to acquisitions of control rights. Section 56(3) of the AWV amendment provides that the regime also applies to acquisitions of effective control over a German target, even if the voting rights threshold of 25% is not exceeded. This is particularly the case if an acquisition of voting rights is accompanied by (i) the guarantee of additional seats or majorities in supervisory bodies or in the management; (ii) the granting of veto rights in strategic business or personnel decisions; or (iii) the granting of information rights. Such rights must go beyond the influence which would ordinarily result from a 25% stake.
Increasing shareholding may trigger another filing obligation
The AWV amendment also clarified that share increases may lead to new filing obligations. If, for example, a non-EU/EFTA investor initially acquired 10% in a German target which operates a critical infrastructure and intends to increase its stake to 25%, 40%, 50%, or 75% (25%, 40%, 50%, or 75% in case of the 20% threshold for “new” business sectors, respectively) a mandatory filing is triggered.
The decision of the German regulator to introduce specific business sectors instead of referring to the broad categories mentioned in the EU Screening Regulation promotes legal certainty. However, it also significantly increases the regulatory burden for inbound M&A. First, the business sectors now covered by the German FDI regime will often require a sophisticated qualitative filing assessment. Secondly, since the categories of control are rather vague, a voluntary filing (to obtain a certificate of non-objection) will more often be considered as the only prudent course.
In light of this, investors should analyse potential FDI filing requirements at an early stage to avoid any time constraints impeding the completion of the transaction.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. For further information, please feel free to contact the Gibson Dunn lawyer with whom you usually work, any member of the team in Frankfurt or Munich, or the following authors:
Georg Weidenbach (+49 69 247 411 550, [email protected])
Michael Walther (+49 89 189 33 180, [email protected])
Wilhelm Reinhardt (+49 69 247 411 520, [email protected])
Linda Vögele (+49 69 247 411 536, [email protected])
Jan Vollkammer (+49 69 247 411 551, [email protected])
© 2021 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.