FRANCE IS ABOUT TO TOUGHEN THE LEGAL REGIME APPLICABLE TO FOREIGN INVESTMENTS

The Action Plan for Business Growth and Transformation (the “PACTE”), a new law which is set to pass in France by early 2019, provides for the expansion of the 2014 decree related to foreign investments subject to prior authorization by the French Ministry of Economy and Finance.

This 2014 decree already requires foreign investors, seeking to invest in a French company, to obtain the Ministry’s prior authorization if the target’s activity falls within certain sectors, such as gambling (excluding casinos), private security services, counter-terrorism, wiretapping, IT, national security secrecy, cryptology, weapons, energy, public health, transport, and telecommunications.

Under the PACTE, such prior authorization requirement will expand to include, among other new sectors, key artificial intelligence technology, space industry, data storage, and semiconductors.

The PACTE also provides for the strengthening of the financial penalties if the foreign investment has been made without the required prior authorization, or is in breach of the conditions imposed by the Ministry for the planned transaction.

The Ministry will have a greater power of injunction (subject to a financial penalty if not complied with), and will be authorized to take precautionary measures, such as suspending the voting rights attached to the shares subject to the required prior authorization, prohibiting and limiting the dividend distributions, suspending, limiting or prohibiting the free disposal of strategic assets and/or appointing an agent who will ensure the protection of national interests and prevent certain decisions of corporate bodies.

In addition to the foregoing, the amount of the financial penalties will be increased. In case of breach, the foreign investor will pay the greater of (i) twice the amount of the irregular foreign investment, or (ii) 10% of the annual turnover (taxes excluded) of the company, or (iii) 5 million euros for each legal entity and 1 million euros for each individual.

Considering the expanded scope of this protective law, and these heavy financial penalties, a thorough legal analysis must be carried out for each foreign investment project sought to be carried out.