A recent amendment to Germany’s foreign direct investment ordinance adds new businesses to the existing catalogue of critical infrastructures—in particular, in the health sector—that will be subject to foreign direct investment screening going forward.
Germany is taking several legislative measures to tighten its foreign direct investment (FDI) screening regime as a result of the coronavirus (COVID-19) pandemic. As a first step, the German government on May 20 adopted a COVID-19-related amendment to the government’s FDI ordinance.
Envisaged amendments to the Foreign Trade and Payments Act (Außenwirtschaftsgesetz (AWG)) and the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung (AWV)) aim at tightening the German FDI reviewing regime and align the national law with the EU FDI Screening Regulation that will fully apply as of October 11, 2020.
The 15th Amendment to the AWV (15th Amendment), adopted on May 20, is mainly a reaction to the COVID-19 pandemic. The 15th Amendment extends, among others, the catalogue of critical infrastructures that will be subject to foreign direct investment screening, in particular, in relation to the health sector. This amendment gives the German government the opportunity to review acquisitions by non-EEA investors of voting rights of 10% or more of German domestic businesses operating in the health sector, including the development and production of material medicinal products and medical devices.
The 15th Amendment will apply permanently and does not to expire when the COVID-19 pandemic ends. We expect the adoption of the updated AWG and a 16th AWV amendment over the next couple of months.
The 15th Amendment in particular extends the catalogue of critical infrastructures subject to the so-called cross-sectoral FDI review, adding the following sectors:
The 15th Amendment clarifies that the German FDI screening mechanism applies also to asset deals. The Federal Ministry for Economic Affairs and Energy (BMWi) had already interpreted the existing FDI regime to include asset deals, which the AWV now clarifies explicitly.
The 15th Amendment clarifies that the BMWi can consider as part of its review the following factors related to the acquirer (nonexhaustive list):
Non-EEA investors who intend to acquire at least 10% of the voting rights (directly or indirectly) in a German business to be considered as operating a critical infrastructure are subject to an FDI notification obligation. For the first time, this covers a wide range of businesses in the health industry.
The failure to notify bears civil law risks for the contract, including unwinding risks in case of a prohibition order. The consequences and sanctions for failure to notify may be further tightened by the upcoming changes to the AWG, in particular by possibly including a gun-jumping prohibition, which currently does not exist.
The 15th Amendment will enter into force after publication in the Federal Gazette. We will keep you abreast of the upcoming AWG update and 16th amendment of the AWV.
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Dr. Axel Spies