Irish law means more screening of corporate transactions

The Screening of Third Country Transactions Act 2023, which implements the EU Screening Regulation, is expected to take effect in the second quarter of 2024. 

Corporate law experts Sarah Hope and Neil Keenan of Pinsent Masons in Dublin said that the new regime will require parties to transactions involving investors from third countries to assess whether a filing obligation arises, and plan for a review period before completion – including for transactions that are already in the pipeline but not expected to complete until after the new regime commences.

The Act is designed to address security and public order concerns arising from foreign investment and to equip the state with powers to monitor and respond to potential threats.

To achieve this purpose, the Act primarily provides for the operation of a mandatory notification regime, under which certain transactions must be submitted to Ireland’s minister for enterprise, trade and employment for review. The Act sets out criteria to help businesses to determine whether a transaction they are involved in is notifiable under the new regime. Transactions are notifiable if all the criteria are met.

One of the criteria is that the cumulative value of the transaction and any related transactions is at least €2 million, while another criteria is that the transaction relates to or impacts on one or more ‘sensitive and strategic activities’, as categorised in the EU Screening Regulation. This includes critical infrastructure, such as energy, transport, water, health, and defence, as well as critical technologies and ‘dual use’ items, such as artificial intelligence (AI), cybersecurity, and biotechnologies.

Transactions that impact on activities pertaining to supply of critical inputs, like energy, raw materials, and food security, are also caught by the criteria, as are those impacting access to sensitive information and the freedom and pluralism of the media.

If the financial and activities criteria are met, notification of transactions would be required if, when completed, they would result in a party from a ‘third country’ acquiring control of an Irish entity or asset, or increasing their shareholding or voting rights in the entity above specified thresholds – from less than 25% to over 25%, or from less than 50% to over 50%. Third countries, for the purposes of the Act, are any countries other than EU member states, members of the European Economic Area (EEA), or Switzerland. It is noteworthy given the level of investment to Ireland from both jurisdictions, that both the UK and US are  third countries for the purposes of this legislation..

Notification must be made no less than 10 days prior to completion of the transaction – it is the responsibility of all parties involved in the transaction to meet the notification requirements. There is an exception to the notification requirement where the transaction concerns an internal reorganisation.

The minister has a duty under the Act to review transactions notified “as soon as [is] practicable” and made a screening decision within 90 days, or 135 days if an extension is required. The minister has powers to authorise, condition, or prohibit transactions from completing where they have reasonable grounds for believing the transaction affects or would be likely to affect national security and public order.

It is a criminal offence to complete or take steps to complete a notifiable transaction prior to the minister issuing a clearance decision, or to complete a conditional decision other than in accordance with the conditions outlined. Possible conditions could include divestment, behavioural, ring-fencing, or reporting requirements.

Parties can appeal screening decisions to an independent adjudicator. They have 30 days to notify the minister of their intention to appeal, and a further 14 days to submit the appeal to the adjudicator. There is a further right of appeal, solely on a point of law, to the High Court.

The Act also provides the minister with ‘call-in’ powers to allow them to scrutinise notifiable transactions that are not notified to them as well as non-notifiable transactions where they have reasonable grounds for believing the transaction affects or would be likely to affect national security and public order.

The new regime is expected to come into effect in the second quarter of 2024. For transactions initiated but not completed before commencement, parties will be deemed to comply if they provide the required information for notifiable transactions within 30 days of completion. For transactions completed before commencement, the mandatory notification regime will not apply, but the minister can call-in any transaction completed up to 15 months before the commencement of the Act, for review.  

Sarah Hope said: “This is key legislation for Ireland which will align us with other jurisdictions across Europe and the UK. It will have a significant impact on the structure of Irish transactions, which will need to be factored in to timelines by overseas entities looking to transact in Ireland.”  

Neil Keenan said: “Very many Irish corporate transactions, including M&A and equity investments, are going to be impacted by this notification requirement – which is in addition to the existing obligation to notify certain mergers to the Competition and Consumer Protection Commission. Parties considering an in-scope transaction do need to start planning for this requirement and ensure that the legal documentation contains the necessary wording to allow for it.” 

Giles Warrington also of Pinsent Masons, a specialist in competition law and merger control, said: “Ireland will now join a growing list of jurisdictions across Europe, and further afield, that have in place regimes for screening foreign investments and transactions that could potentially raise national security or public interest concerns. For example, in the UK, new national security and investment control rules came into force in early 2022.”  

“New FDI regimes can create additional layers of complexity in corporate transactions. Recognising this, the UK government recently launched a consultation seeking comments on ways of simplifying the current UK regime, less than two years after it first commenced,” Warrington said.