On 2nd August 2022, the Irish Government published The Screening of Third Country Transactions Bill 2022 (the ‘Bill’).
This Bill introduces Ireland’s first investment screening regime designed to implement the EU Screening Regulation (Regulation (EU) 2019/452). The Bill proposes to grant the Minister for Enterprise, Trade and Employment (the ‘Minister’) the power to review transactions that could pose a risk to public order or security in Ireland.
What is considered to be a threat to public order and security has been set out in an exhaustive list under the Bill and includes “whether or not there is a serious risk of a party to the transaction engaging in illegal or criminal activities” and “whether or not the transaction would result in persons acquiring access to information, data, systems, technologies or assets that are of general importance to the security or public order of the State”.
New Mandatory Notification Requirement
Under the Bill, a new mandatory notification and “screening procedure” will be required for transactions which meet certain criteria, including the following:
- If a party to a transaction is a “third country undertaking or connected person” (i.e., it will not apply to purely domestic transactions);
- The value of the transaction is at least €2 million;
- The transaction directly or indirectly relates to one of the following:
- Critical infrastructure – whether physical or virtual (including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure and sensitive facilities as well as land and real estate crucial for the use of such infrastructure),
- Critical technologies and dual use items (including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies),
- Supply of critical inputs (including energy or raw materials, as well as food security),
- Access to sensitive information (including personal data, or the ability to control such information), or
- The freedom and pluralism of the media,
- The transaction relates to an asset or undertaking in the State. A “transaction” includes
any transaction or proposed transaction where a change of control of an asset or the acquisition of all or part of an undertaking in the State is affected; and
- Transactions for the acquisitions of shares or voting rights will only require notification if the above criteria are met and where the percentage of shares or voting rights held changes: (i) from 25% or less to more than 25%, or (ii) from 50% or less to more than 50%.
What is the effect for transactions and who notifies?
Like the current Irish and EU merger control rules, the Bill prescribes a standstill period/suspensory obligation until clearance for a transaction is received from the Minister.
A transaction must be notified to the Minister not less than 10 days before the completion date of the transaction. The notification must be accompanied with details of the transaction, such as the identities of the parties, the ownership structure of the parties, the value and source of funding of the transaction and information about the parties’ businesses. The Minister may require that further information be provided.
The obligation to notify will rest on all parties to a transaction; the Bill provides that only one party will need to make the notification (and it is anticipated that in practical terms, it will likely be purchasers who may lead on notifications to the Minister).
Consequences of failing to notify
Under the Bill, a person guilty of an offence (such as a failure to notify the Minister if required to do so) will be liable:
- on summary conviction to a fine not exceeding €2,500 and/or to a term of imprisonment of up to six months; or
- on conviction on indictment, to a fine up to €4 million and/or to a term of imprisonment up to five years.
Minister’s Review and Retrospective Powers
The Minister’s assessment of a transaction for any potential risk to public order and security in the State will take into consideration several factors including:
- whether or not a party to the transaction is controlled by a government of a third country and, where relevant, the extent to which such control is inconsistent with the policies and objectives of the State;
- whether or not there is a serious risk of a party to the transaction engaging in illegal or criminal activities; and
- whether or not the transaction presents, or is likely to present, a person with an opportunity to undertake actions that are disruptive or destructive to persons in the State, or to enhance the impact of any such action, improve the person’s access to sensitive undertakings, assets, people or data in the State, or undertake espionage affecting or relevant to the interests of the State.
The Minister has 90 days (which can be extended to 135 days) from when the parties are notified of the screening to conclude the review. The Minister is to make a screening decision providing reasons why a transaction may be considered to affect or not affect public order or security in the State. The Minister may decline to give reasons where public order or security is affected.
If the Minister concludes that public order or security may be affected by a transaction, they can direct that the transaction is not to be completed or that certain other steps be undertaken by the parties.
The Minister’s decision can also be appealed by the parties to an independent adjudicator. A decision of an independent adjudicator can also be appealed to the High Court on a point of law.
The Bill allows the Minister a broad discretion to ‘call in’ transactions for review, regardless of whether they are notifiable or non-notifiable if the Minister has reasonable grounds for believing that they would affect, or would be likely to affect, the security or public order of the State. The Minister can review/ ‘call in’ a non-notifiable transaction for a period of 15 months after the transaction has completed.
The Bill is one of the most important developments in M&A/transactional law in Ireland in recent years and gives the Minister extensive powers to review transactions. Although signing the Bill into law is expected to take another few months, investors (and their legal advisors) should start assessing whether their planned transactions could fall within the screening process.
If you have any queries regarding the information in this note, please contact your usual Crowley Millar contact or any member of our Corporate Department.
Author: David Bridgeman, Trainee Solicitor, Crowley Millar Solicitors LLP
Dated: 8 September 2022
Crowley Millar Solicitors LLP Disclaimer: This is a general information note and is intended for information only. It does not constitute legal advice and should not be regarded as a substitute for legal or other professional advices. Such advice should always be taken before acting on any of the matters referenced in this information note.