The Screening of Third Country Transactions Act 2023 (Act) was signed into law on 31 October 2023. The Act creates a screening procedure for transactions which may present a risk to the security or public order of the State and gives effect to EU Regulation 2019/452 which establishes a framework for the screening of foreign direct investments into the EU, particularly investments into critical utilities and infrastructure sectors.
New Notification Regime
The Act introduces a new mandatory and suspensory notification regime for transactions involving third country (or foreign-controlled) undertakings (ie outside the EU, EEA and Switzerland) which meet certain criteria.
A third country undertaking is (i) an undertaking constituted or governed by the laws of a third country, (ii) controlled by a third country national or person constituted or governed by the laws of a third country or (iii) a third country national. An undertaking is regarded as being in Ireland when it is (i) constituted or governed by the laws of Ireland and (ii) controlled by a person constituted or governed by the laws of Ireland or by a person ordinarily resident in Ireland.
An asset is regarded as being in Ireland if it is physically located in Ireland or, in the case of an intangible asset, if it is owned, controlled or otherwise in the possession of an undertaking in Ireland.
What Types of Transactions are Caught?
A transaction is notifiable where:
- a third country undertaking acquires control of an asset or undertaking in Ireland or increases its percentage shareholding or voting rights from 25% or less to over 25% or from 50% or less to over 50%.
- the cumulative value of the transaction and other transactions between the parties or connected persons in the preceding 12 months is at least €2 million (the Minister can prescribe a different threshold);
- the transaction relates, directly or indirectly, to critical infrastructure, critical technologies, critical inputs, sensitive information or media (see further below); and
- the transaction relates, directly or indirectly, to an asset or undertaking in Ireland.
The concept of 'control' is aligned to that under EU and Irish merger control, ie the ability to, directly or indirectly, exercise influence over the activities of an undertaking, for example through voting rights.
The notification regime will not apply to intra-group transactions.
What are Critical Infrastructure and Technologies?
Transactions which directly or indirectly relate to one of the following sectors are caught by the notification obligation:
- Critical infrastructure, both physical and virtual, including energy, transport, water, health, communications, 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, nanotechnologies and biotechnologies;
- Supply of critical inputs including energy, raw materials and food security;
- Access to sensitive information, including personal data, or the ability to control such information;
- Freedom and pluralism of the media.
What are the Notification Requirements?
A qualifying transaction must be notified by all parties to a transaction to the Minister for Enterprise, Trade and Employment (Minister) at least 10 days before completion. The notification must include certain prescribed information, including the identities, ownership structure and economic activities of the parties, the value of the transaction, source of funding and details of any sanctions or restrictive financial measures which might be in place against the parties. The Minister can request further information from the parties.
Similar to the EU and Irish merger control process, a standstill obligation applies until the Minister has cleared the transaction. This means that the parties cannot complete, or take steps to complete, a transaction until clearance from the Minister has been obtained.
Failure to notify the Minister is a criminal offence with fines of up to €4 million and/or up to 5 years imprisonment. In addition, if the Minister is not notified of a qualifying transaction, he or she may still review it within five years of completion date.
What is the Review Process?
The Minister has 90 days from the date of notification to issue a screening decision (or, where the transaction has been called-in (see below) within 90 days from the date on which the Minister issues a screening notice). This review period can be extended to 135 days. In addition, the Minister may issue a request for further information during the review, in which case the review period is paused and resumes on the date that the notice is complied with.
The Act sets out the various factors which the Minister should consider during the review process. If the Minister concludes that a transaction affects, or would be likely to affect, the security or public order of Ireland, he or she can:
prohibit the parties from completing the transaction, or parts of it;
make completion of the transaction subject to conditions, for example divestments, behavioural commitments, protection of competitively sensitive information and compliance reporting; or
where the transaction has already been completed, direct the parties to take such action as the Minister may specify to protect the security or public order of Ireland (eg not to complete the transaction or part of the transaction, to sell certain assets, or to modify or cease conduct).
Can the Minister 'Call in' Transactions?
The Minister may 'call in' non-notifiable transactions for a period of 15 months post completion where he or she has reasonable grounds for believing that the transaction affects, or would be likely to affect, security or public order in Ireland. In addition, the Minister has the power to review notifiable transactions which have not been notified before the later of 5 years from completion or 6 months from the Minister becoming aware of the transaction.
The Minister may also call in transactions completed in the 15 months prior to the commencement of the call in provisions of the Act.
Can the Decision be Appealed?
If one of the parties wishes to appeal the screening decision of the Minister, it must notify the Minister in writing within 30 days of being notified of the decision. The appeal must then be submitted to an adjudicator, from a panel of adjudicators appointed by the Minister (comprising judges and other senior lawyers). A party can appeal the decision of an adjudicator to the High Court on a point of law within 30 days.
The Act is likely to have a significant impact on corporate transactions in Ireland, due to the low financial threshold and the wide range of sectors covered. It is important to note that both the UK and the US are third countries and transactions involving undertakings or nationals from these countries may therefore be subject to the new regime.
The Department of Enterprise Trade and Employment are in the process of completing the various implementation workstreams. It is likely that the screening regime will commence in Q2 2024, but business should bear in mind the ability of the Minister to review transactions closing in the 15 months prior to commencement.
For more information please contact John White or your usual contact in Beauchamps.