Foreign Investment Under the Magnifying Glass: Unveiling Ireland's Third Country Transactions Act 2023

Introduction

On 31 October 2023, Ireland joined fellow EU Member States by signing into law legislation which gives effect to EU Regulation 2019/452, more commonly known as the EU Foreign Direct Investment Regulations (the “Regulations”).

The Regulations establish a framework for the screening of foreign direct investment (“FDI”) into the EU by third countries. FDI plays a crucial role not only in the EU but in Ireland, contributing to job creation, competitiveness, and market expansion. The aims of the Regulations are threefold:

1. to establish a framework for Member States to create better procedures for the screening of FDI into the European Union;
2. to encourage Member States to enhance existing procedures, and adopt new mechanisms for screening FDI; and
3. to promote cooperation among Member States in relation to FDI screening.

It is important to note that while the Regulations have the above aims, they do not affect a Member State’s ability to maintain their existing inward investment screening mechanisms. The new Regulations provide a framework for Member States to work within when it comes to FDI from third countries, while not imposing on current internal screening mechanisms of Member States. Member States will maintain the right to have the final say on whether any specific investment can take place in their territory.

The Regulations will introduce additional scrutiny to transactions, potentially making cross-border mergers and acquisitions more complex. The impact of the Regulations remains uncertain but the added compliance hurdles are likely to cause delays in transaction timelines and potentially necessitate specific provisions in deal documentation.

Screening of Third Country Transactions Act 2023

To comply with the requirement to implement the Regulations, Ireland enacted the Screening of Third Country Transactions Act 2023 (the “Act”). On 6 January 2025 the Act commenced, empowering the Minister for Enterprise, Trade and Employment (the “Minister”) to review transactions involving FDI which may impact on security or public order in Ireland.

Under the Act, FDI screening will take the form of a mandatory notification to the Minister when a transaction involves an investor from outside the EU, EEA, or Switzerland (a “Third Country”), and the Third Country is seeking to acquire control of a sensitive or critical asset or undertaking within the State. The Act will apply to any transaction where:

1. investors are constituted or governed by Third Country laws;
2. entities are controlled by at least one director, member, or another person who is ordinarily resident in a Third Country; or
3. natural persons or partnerships are ordinarily resident in a Third Country.

Application of the Act

The Act differentiates between a mandatory notification to the Department of Enterprise, Trade and Employment (the “Department”) of the transaction and where parties to a transaction might have some discretion depending on the nature of the transaction. A transaction which meets the following criteria will be required to make a mandatory notification under Section 9(1)(a)-(d) of the Act:

• a person connected with the transaction or undertaking: (i) acquires control of an asset or undertaking in the State; or (ii) the undertaking increases the percentage of shares or voting rights to more than 25% or from less than 50% to more than 50%;
• the overall cumulative value of the transaction is equal to or greater than €2 million in the 12 months prior to the date of the transaction (including where there are multiple investments over 12 months);
• all parties involved in the transaction are not controlled by the same undertaking. An example of this would be in a transaction involving internal restructuring; and
• the transaction relates to or impacts one or more of the critical sectors within the State (Article 4(1)(a)-(e) of the Regulations), which include:

1. critical infrastructure; or
2. critical technologies or dual-use items; or
3. supply of critical inputs; or
4. access to sensitive information; or
5. freedom and pluralism of the media.

This notification is in addition to any notification required under the Competition Act 2002, as amended, which requires a separate review by the Competition and Consumer Protection Commission in respect of certain transactions.

Parties that are involved in the sale or purchase of real estate should note that the guidance from the Department refers to ‘critical infrastructure’ when it comes to these transactions. This infrastructure is defined as; “an asset, a facility equipment, a network or a system, or a part of an asset, a facility, equipment, a network or a system, which is necessary for the provision of an essential service”. Certain infrastructure involving energy, transport, and communications would be highly likely to be subject to the notification procedure given their critical importance to the State. Parties who are part of a transaction involving such infrastructure should note that such a transaction will be reviewed critically by the Department.

Applicable Transactions

When assessing if a transaction meets the threshold for mandatory notification the following should be considered (amongst other things):

1. whether the undertaking is providing one or more essential services;
2. whether the undertaking operates and involves critical infrastructure is located within the State; or
3. whether the undertaking would have significant disruptive effects where in case of an incident with one or more essential services.

Notification Process

The obligation to notify the Minister is on all parties to a transaction, however in practice, it will most likely be a purchaser who would manage the notification process. When notifying the Department, the following timelines are applicable:

1. Notification: Parties to a transaction which meet the requirements under section 9(1) of the Act must prepare and submit a notification form through the Department’s case management system no later than 10 days prior to the completion of the transaction (the “Notification”). The Minister will issue a notice to the parties advising them that their notification has been reviewed and that the transaction is a notifiable transaction (the “Screening Notice”). If it is deemed that the transaction falls within scope of mandatory notification the parties to the transaction must obtain approval from the Minister prior to completion of the transaction.
2. Notice of Information: Following an initial review, the Minister may issue a request for further information which the parties have 30 days to comply with. Parties should note that the Notification will restart 10 days after the Minister receives the requested information.
3. Screening Decision: The Minister will decide to allow, prohibit, or allow the transaction to proceed with certain conditions (such as the request to divest certain assets). The decision will be issued by the Minister within 90 days of the Screening Notice, this may be extended to 135 days from the date of the Screening Notice. This decision can be later appealed by the parties to the transaction before an adjudicator.

Where a notification is made in relation to a transaction that is not deemed to fall within the scope of the Act a letter will be issued from the Department, confirming that mandatory notification does not apply. However, it is not yet clear whether this letter will be received prior to the 10-day period lapsing.

The Minister is empowered by the legislation to review transactions which should have been notified for up to 5 years after the completion of the transaction and within 6 months of the Minister becoming aware of the transaction.

Where there are deliberate attempts by any party to circumnavigate the Act, the Minister can intervene, once there are reasonable grounds to believe the transaction affects or will likely affect the security or public order of the State. The Minister would also have to be certain that the transaction would result in a Third Country undertaking or connected person changing the extent to which it controls an asset or undertaking in the State.

The Act allows the Minister to review transactions retrospectively, regardless of whether a transaction is notifiable, where it is completed 15 months prior to the Act coming into force. There will be no requirement to complete a notification for transactions completed prior to the commencement of the legislation. An exception to this is transactions which complete within 10 days of the commencement of the Act. In those scenarios, notifications for those transactions are required.

Notification Form

The Department has published the notification form, which must be completed by the notifying party with regards to the transaction. This form requires the notifying party to include (among other things) the following information:

1. basic contact information, to communicate updates regarding the FDI screening;
2. information regarding the transaction, including the approximate value of the investment, the planned date of completion and a description of the investment;
3. target undertaking information including name of the company, registered office of the company, the date of incorporation, and the number of employees; and
4. whether the target company has any legal entities situated elsewhere in the EU.

The notification form also enables parties to include information relating to greenfield investments, mergers, and where the investment is also subject to another screening mechanism in another Member State.

Penalties

Non-compliance of the mandatory notification requirements is a criminal offence under the Act and the following penalties may be imposed;

1. €5,000 fine on summary conviction or a term of imprisonment not exceeding 6 months.
2. On conviction on indictment, a fine not exceeding €4 million or a term not exceeding 5 years imprisonment or both.
3. Failure to comply with instructions issued by the adjudicator:

• on summary conviction a fine of €2,500 or a term not exceeding 6 months imprisonment or both;

• or on indictment, a fine not exceeding €250,000 or a term not exceeding 5 years imprisonment or both.

Conclusion

The Act commenced the screening mechanism for FDI by Third Countries on 6 January 2025 and it is an effort by Ireland to adhere to the EU effort in preventing unchecked Third Country investments into Member States across Europe. The Department has published detailed and useful guidance on the screening process, and it would be advisable for parties to a transaction involving any Third Country actors to familiarise themselves with the current criteria for mandatory screening. While the new screening mechanism will impose additional oversight to transactions and add complexity to cross-border transaction, the impact of the screening mechanism is still unclear. However, it is envisaged that the increased compliance requirements are expected to delay transaction timelines and lead to the inclusion of specific provisions in deal documentation.