The start of the summer holidays heralds a new notification regime. Like many other EU Member States, Belgium is introducing a screening mechanism to check foreign direct investments (“FDI”) in Belgian entities. By this means, Belgium wants to safeguard essential interests and prevent certain (geo)politically inspired transactions from threatening national security, public order, or strategic interests of the Communities and the Regions.
Given Belgium’s complex institutional structure, a cooperation agreement between the federal government and eight federated entities was concluded on 30 November 2022, setting up a single inter-federal screening mechanism. In reality, however, the competent governments will be running their distinct investigations in parallel. The Interfederal Screening Commission (“ISC”) – composed of representatives of the federal state, the Flemish Region the Walloon Region, the Brussels Capital Region and the Communities – and in particular its secretariat, will provide coordination and serve as a sort of spokesperson.
Foreign investors – i.e. natural or legal persons established in third (non-EU) countries, or European companies with third-country UBOs – will have to notify investments in Belgian entities active in certain (broadly formulated) sensitive sectors such as energy, defence, vital infrastructures, technologies, as well as inputs and raw materials or sectors with access to sensitive information (please refer to the * at the bottom of this page with a more extensive list of sectors and notification thresholds). The FDI screening mechanism is a further element of “red tape” that investors have to consider, in addition to classic merger control at national and European level and, soon, European monitoring of foreign subsidies in transactions.
As is the case with merger control, a lot of information will have to be submitted to the ISC; the transaction cannot be implemented until approval is granted (“standstill obligation”); and the transaction could be prohibited or authorised – if necessary, in a modified form by implementing so-called “remedies”.
Certain information regarding the transaction and the parties will have to be shared with the ISC, including the identity and ownership structure of the foreign investor and the target company; the value of the investment (including valuation and financing); and information relating to the products, services and business activities of the foreign investor and the target company.
Once the ISC considers the notification complete, a procedure consisting of two formal stages kicks off. In the review procedure it is assessed whether the investment could potentially impact public order, national security or strategic interests of the Communities and Regions. If there are no such indications, the procedure stops there. In principle, the review procedure lasts 30 days, although the period can be extended.
If any such indications are found, a second phase, the screening procedure, may be initiated after the review procedure has ended. Within an additional period of 28 days (also extendable), the competent members of the ISC will conduct further investigations; the parties can respond to a draft opinion, possibly also during a hearing; and, finally, the competent governments will decide whether or not the investment can go ahead (as planned). During the screening process, parties can propose remedies that address the concerns identified in relation to the transaction. These remedies can be “soft”, such as protocols for handling sensitive information or the appointment of a compliance officer, but they can also be structurally far-reaching – requiring, for example, the divestment of a business unit or a reduction in the number of voting rights.
It is expected that the new regime will prove challenging – both for the ISC and for the parties concerned. In EU Member States where such regimes have been in place for some time, legal uncertainty is a common criticism. Uncertainty about the meaning and scope of important concepts and a “black box” experience during the procedure are major sore points. The ISC is already pressing ahead: it took a first step towards clarity and transparency on 31 May 2023 with the publication of a first set of (draft) guidelines. We expect, very soon, a new set of guidelines as well as publication of the notification form.
Agreements entered into on or after 1 July 2023 will be notifiable if the criteria are met. However, the ISC may also initiate an ex officio review of agreements entered into before 1 July 2023 at the request of any one member of the ISC and may go two to five years back in time.
For transactions, we recommend identifying any notification requirement at an early stage. After all, the procedure risks being burdensome, potentially involving several competent governments which are each able to investigate and set policy priorities and objectives. Also, deadlines during the formal procedure could often be suspended and/or extended for significant periods of time. With respect to the substantive assessment and possible defences, major challenges can also be expected. Finally, parties would do well to incorporate appropriate clauses in their agreements inter alia in connection with “split closing” and the duty to cooperate.
Our team is ready to assist you.
*Sectors and notification thresholds
The notification thresholds relate, on the one hand, to the acquisition of control or a percentage of voting rights. On the other hand, a turnover threshold for the target company is also added in certain cases. The criteria are not identical for all sectors.
Acquisition of 10% of voting rights:
→ defence, energy, cybersecurity, electronic communications and digital infrastructure
(10% of voting rights and a turnover threshold of EUR 100 million)
Acquisition of 25% of voting rights:
→ infrastructures vital for energy, transport, water, health, electronic communications and digital infrastructure, media, data processing or storage, aviation, electoral or financial infrastructure, satellite navigation systems;
→ technologies and raw materials essential for security (including health security), national defence or maintenance of public order, military equipment and dual-use products, technologies of strategic importance such as AI, robotics, semiconductors, cybersecurity, aerospace defence, energy storage, quantum and nuclear technologies and nanotechnologies;
→ the supply of critical inputs, including energy and food security;
→ access to sensitive information, including personal data, or the ability to control such information;
→ the private security sector;
→ media freedom and pluralism;
(25% of voting rights; no turnover threshold)
→ technologies of strategic importance in the biotechnology sector
(25% of voting rights and a turnover threshold of EUR 25 million)
