New “Investment Control Act” in the pipeline

When the coronavirus crisis first started, the Austrian Federal Ministry of Economic Affairs unveiled details of a new investment control law intended to prevent a "sell-off" of Austrian companies. This law has now been passed by the Austrian National Council and Federal Council and will enter into force shortly after its ratification by the Federal President and subsequent announcement (publication) in the Federal Law Gazette. However, what changes will the new law introduce and what impact will it have on corporate transactions?

The objectives of the Act

Firstly, the new Investment Control Act will transpose into Austrian law the European Union’s Foreign Direct Investments Regulation, which will fully enter into force with effect from 11 October 2020. The implementation of the FDI Regulation will create a mechanism designed to ensure the EU-wide exchange of information and cooperation between the Union and its Member States on foreign direct investments.

Furthermore, it also aims to control or prevent investments from EEA third countries if and to the extent that such investments pose a threat to public order and security. An investment may be blocked in all cases, where the acquisition in question would result in acquiring control in a security relevant company.

The most significant changes

These objectives are to be achieved by means of the following key elements:

• The applicable provisions in Section 25a of the Foreign Trade and Payments Act, which until now have regulated the area of foreign direct investment subjected to control, will be repealed, respectively transferred (as amended) into the new Investment Control Act. This is because the previous regulations only provided a general and from the view of the legislator too narrow description of security-relevant areas. Protected critical infrastructure now includes technologies with dual (civilian and military) uses as well as infrastructure sectors that help maintain public order and security.
   
• The main voting rights thresholds triggering a permit requirement are generally 25% and 50%. The voting rights of all foreign acquirers are decisive here as the transaction must always be viewed from a commercial perspective. In other words, the voting rights of foreign parent companies and subsidiaries as well as companies associated through syndication agreements must be aggregated.
   
• The current threshold for participations will be lowered to 10% in particularly sensitive areas. These areas include the defence equipment industry, the energy and water supply sector, as well as the operation of critical digital infrastructure (such as the 5G network in particular).
   
• The approval requirement not only covers the direct and indirect acquisition of shares (Share Deal), but also the purchase of material assets belonging to the respective company under the terms of an asset deal.
   

The procedure

Foreign investors may request a clearance certificate for a direct investment that may potentially be subject to the Investment Control Act. If issued, the transaction does not require approval under the Investment Control Act.

If a transaction requires an authorization, an examination procedure is initiated, which will be divided into two phases:

During the first phase, the European Commission and the Member States may give their opinion on the transaction, and the Austrian authority must take these opinions into account. After the end of the first phase, the authority can either carry out an in-depth examination (second phase) or approve the transaction by issuing an administrative decision concluding that there are no public policy concerns.

Legal consequences

Besides the criminal consequences for conducting a transaction without approval, the consequences under civil law also need to be taken into account. The transaction is provisionally suspended until the approval procedure is completed.

In the event that the transaction has been unlawfully carried out without approval, official measures may be adopted up to the reversal of a transaction if there are reasonable grounds to suspect that public order and security are at risk in view of the transaction.