COVID-19: Control of Foreign Direct Investments in France

May 07, 2020

Evidence is growing of a hardening of French public policy regarding the need for political control of acquisitions of French companies and other foreign direct investment (FDI) transactions.

In part this is prompted by a hardening of policy at the European level. On March 25, 2020, the European Commission asked EU member states to reinforce their foreign direct investment screening mechanisms to avoid the coronavirus (COVID-19) crisis leading to “a loss of critical assets and technology.”

Examples of the application of the French FDI screening procedure resulting in the French government making a determination to block a transaction have historically been very rare. However, last month, the French Ministry of the Economy indicated that it would be blocking a proposed acquisition by a US acquiror of a leading French manufacturer of military night vision devices from a French private equity house. The media coverage this case received served as a reminder of the government’s power to determine, as well as influence, the outcome of M&A deals in France involving foreign bidders and acquirors.

COVID-19 Crisis Measures

On April 29, 2020, Bruno Lemaire, the French Minister of the Economy, announced that the French government would be extending its control of foreign investments in French companies engaged in strategic sectors and technologies, as follows:

  • By including biotechnologies in the list of so-called “critical” technologies subject to government screening. This measure, which is in force since April 30, 2020 pursuant to a April 27, 2020 administrative order on foreign investment in France[1], is intended to ensure that biotechnology companies fall within the scope of the French FDI screening regime.
  • By lowering temporarily the threshold which triggers the screening of investments in listed companies engaged in sensitive businesses or activities falling within the scope of the screening regime by investors from non-EU countries from 25% of the voting rights of the French company to 10%. This measure is expected to enter in effect by the second half of 2020 and to remain applicable until December 31, 2020. It is also envisaged that in such cases, foreign investors will benefit from a fast-track procedure: the foreign investor crossing the 10% threshold will have to notify the proposed transaction to the French Ministry of the Economy, who will have 10 days to decide whether the transaction requires further in-depth examination.

These two amendments to the French FDI screening regime supplement a series of other changes[2] which came into force on April 1, 2020.

Overview of Foreign Direct Investment Screening in France

Principle: Freedom of Investment in France

As a general rule, acquisitions of controlling interests in French companies and businesses by foreign acquirors are not subject to authorization or approval by the French government: France is an open economy[3].

As an exception to the general rule, prior authorization by the French Ministry of the Economy is required for certain foreign investments made in sectors which are categorized by law as “strategic” and “sensitive” or if the activities of the French company involve “public order, public safety or national defense interests.”

According to data published by the French Ministry of the Economy on its website, 184 transactions were screened in 2018, in the following sectors: (i) defense (35%); (ii) energy, transport, public health, electronic communications, etc. (45%) and defense and activities (20%). Half of the screened investors were European and the balance were non-European.

Scope of Screening Regime

Three cumulative conditions must be met for a transaction to fall within the scope of the screening regime and subject to the filing obligation:

Definition of Foreign Investor

A foreign investor under the French FDI regime (a Foreign Investor) is:

  • an individual of foreign nationality;
  • an individual of French nationality who is not a French tax resident;
  • a foreign legal entity; or
  • a French legal entity, which is under the control of one or more individuals or entities listed above.

In addition, individuals or entities within a “chain of control,” i.e., the line of individuals/entities between the acquisition vehicle and the individuals/entities controlling such acquisition vehicle, directly or indirectly, are also deemed Foreign Investors.

In-Scope Investments

Investments within the scope of the French FDI regime are:

  • the acquisition by the Foreign Investor of control of a French company;
  • the acquisition by the Foreign Investor in whole or in part of the business (branche d’activité) of a French company;
  • the acquisition by non-EU/non-EEA investors, directly or indirectly, alone or in concert, of 25% or more of the voting rights of a French company (see section “COVID-19 Crisis Measures” above: the French government has announced that this threshold is to be temporarily lowered with respect to listed companies).

In-Scope Sectors

The sectors within the scope of French foreign investment regime include defense, energy, transportation, public health, space and aircraft industries, telecommunications, storage of sensitive data, activities relating to certain key technologies, including R&D activities for semiconductors, artificial intelligence, cybersecurity, robotics, additive manufacturing, dual-use goods and technologies and – since April 30, 2020 – biotechnologies, print and online press services for political and general information, food safety, energy storage, and quantum technologies.

Preliminary Request

The French company (or, with the approval of the French company, the Foreign Investor) may file a preliminary request with the French Ministry of the Economy to determine whether the French company falls within the scope of the regime and that a filing is accordingly required. The French Ministry of the Economy has two months to reply to this request.

FDI Screening Procedure

The FDI screening procedure is organized in two phases:

Phase I review – maximum 30 business days – for all applications

The French Ministry of the Economy has 30 business days following the date of receipt of the Foreign Investor’s complete application for approval to indicate whether (i) the transaction falls within the scope of the French FDI regime (this step will not be required if a preliminary request for a determination of this point has been filed – see above), (ii) is authorized unconditionally or (iii) requires further in-depth examination. The French Ministry of the Economy determines freely when the Foreign Investor’s application is complete.

Phase II review – maximum 45 business days – for applications in respect of which an in-depth examination is required

If further in-depth examination is required, the French Ministry of the Economy has an additional period of 45 business days to provide the Foreign Investor with its final decision i.e., refusal of the transaction or clearance subject to conditions or the giving of undertakings by the Foreign Investor to ensure that the contemplated transaction will not adversely affect public policy (ordre public), public safety or national security (such undertakings might for example be to ensure that the French company continues to perform its obligations under certain contracts or to sell part of the shares acquired in the French company or sell, in whole or in part, strategic assets or activities, to a third party approved by the Ministry).

No response from the French Ministry of the Economy within the relevant time period means that the request for approval is rejected.

Sanctions and Remedies

If a transaction is closed without obtaining an authorization where one was required, the French Ministry of the Economy may order the Foreign Investor to file an application a posteriori or modify or unwind the transaction at the Foreign Investor’s cost. The French Ministry may also (i) suspend voting rights and dividend distributions with respect to a portion of the French company’s shares held by a Foreign Investor, (ii) appoint a special trustee responsible for preserving the national interest at the French company level; and/or (iii) restrict the Foreign Investor’s ability to dispose of sensitive French assets.

The French Ministry of the Economy may also impose on the Foreign Investor daily penalties for noncompliance (“astreintes”), of a maximum amount of €50,000 per day and a fine of an amount equal to the higher of the following values: twice the value of the transaction, 10% of the annual turnover (excluding tax) of the French company, €1 million for individuals or €5 million for legal persons.

In addition, any interested party can seek to have declared null and void a transaction completed without the prior authorization from the French Ministry of the Economy in violation of French law. There are also potential criminal sanctions (imprisonment for up to five years and a fine of up to twice the value of the transaction) for breach.

For additional information, please see our LawFlashes related to UK and Germany FDI screening regimes. 

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:


CFIUS Contacts

Washington, DC
Kenneth Nunnenkamp
Giovanna Cinelli
Ulises Pin

Carl Valenstein

[1] Text no. 22 of the French Official Journal no. 0105 dated 30 April 2020.

[2] Decree no. 2019-1590 dated 31 December 2019 and administrative order dated 31 December 2019

[3] There are of course sector specific procedures for certain regulated industries such as banking and insurance and in certain cases national or EU merger control procedures may be applicable.