France strengthens its FDI screening mechanism with "PACTE Act"

24 May 2019

On 24 May 2019, the Law on Growth and Business Transformation, also known as the "PACTE Act", entered into force. It provides a comprehensive reform of the legal environment for business in France and is considered to be a flagship project of President Macron's economic policy. It extensively amends the commercial code, tax code, labour code, financial code, social security code, IP law, insolvency law and many other sectoral legislation.

Additionally, the PACTE Act aims at strengthening the sanction regime relating to foreign investment screening by providing the French Minister of Economy with a wider scope of sanctions and enforcement powers. Once a foreign investor fails to file for and obtain a required prior authorization, in addition to civil sanctions of nullity, the Minister may - under the new rules - issue an injunction requiring the investor to either: a) file the application for the investment authorization, or b) abandon the transaction and restore the previous situation at his own expenses, or c) modify the transaction.

Furthermore, new powers are vested with the Minister of Economy in case that conditions linked to a foreign investment authorization are not fulfilled or breached by an investor. Remedial measures may include the revocation of an initial authorization, the imposition of new conditions to be complied with within a specified time frame or the obligation to meet initial conditions.

In case that national interests are likely to be jeopardized, the Minister has the right to take provisional, conservatory measures in order to protect the national interests. These may include: a) a suspension of voting rights; b) a prohibition or limitation of the distribution of dividends or other remuneration attached to shares; c) a restriction on the free disposal of all or certain assets, or d) the appointment of a representative authorized to veto any decision of a corporate body, whose expenses are covered by a company concerned.

Before instituting any of the above-mentioned measures, an investor is given 15 days to comment, except in cases of urgency, exceptional or imminent breach of the public order, public safety or national defense.

The PACTE Act provides also for monetary sanctions. They may be imposed, if: a) an investment is carried out without a prior authorization, or b) it is obtained fraudulently, or c) an investor does not fulfill conditions spelled out in an authorization, or d) an investor does not execute an injunction, a remedial measure or a provisional, conservatory measure imposed by a Minister.