Three years after the adoption of the EU Regulation establishing a framework for screening of foreign direct investments (FDI) in the EU, the Belgian Cooperation Agreement aiming at implementing a screening mechanism for FDI (the Cooperation Agreement) enters into force tomorrow. This Cooperation Agreement was agreed upon and assented to by the federal government, the three Regions and the three Communities.
As from 1 July 2023, non-EU investors will have to notify an Interfederal Screening Committee (the ISC) of their contemplated investment if it fulfils certain key conditions  . The ISC will be composed of a representative of the federal public service for finance, of the federal public service for internal affairs and of the federal public service for foreign affairs, three representatives of the regions and three representatives of the communities.
In this context, a foreign investor is either a (i) natural person with its main residence outside of the EU, (ii) an undertaking established outside of the EU or (iii) any undertaking of which the ultimate beneficial owner  has its residence outside of the EU.
1 Scope of the regime
The screening specifically targets foreign investments in fields that may impact national security, public order and the strategic interests of the country as well as its federated entities. The Cooperation Agreement defines a foreign investment as any type of investment by a non-EU investor that aims at establishing or maintaining lasting direct relations, including, but not limited to effective participation in the management or control of the target company.
A transaction may therefore fall within the reach of the screening mechanism, if it consists of one of the two following options:
- The transaction constitutes a direct or indirect acquisition of 25% or more of the voting rights of a Belgian entity with activities relating to:
- critical infrastructure;
- technologies and raw materials essential for safety, defence and public security, military equipment, dual-use goods and technologies of strategic importance;
- supply for critical inputs, such as energy or raw materials;
- access to sensitive information. private security;
- freedom and pluralism of the media;
- technologies of strategic interest in the biotech sector if the turnover of the Belgian target exceeds 25 million euros;
- The transaction constitutes a direct or indirect acquisition of 10% or more of the voting rights of a Belgian entity with a turnover that exceeded 100 million euros of which activities relate to:
- cyber security;
- electronic communications;
- digital infrastructure;
2 Entry into force
As of its entry into force, the regime will apply to all transactions that fall within the material scope of the FDI which have not been signed by 1 July 2023. It will add an additional layer of checks for M&A activity as it is to be combined with merger control requirements as well as the framework on foreign subsidies entering into force on 12 July 2023.
The ISC can also decide to launch a screening procedure up to two years (five years in case of bad faith) after the implementation of the investment. These ex officio investigative powers may cover transactions closed up to two years prior to the entry into force of the regime (five years in case of bad faith). It may be triggered if one of the members of the ISC deems it necessary in light of the protection of public order, national safety or Belgian strategic interests.
3 A few practical takeaways for m&a
3.1 Draft Guidelines of the Ministry of Economy
On 31 May 2023, the Ministry of Economy published its Draft Guidelines aimed at clarifying certain aspects of the scope of application of the screening mechanism as well as its procedure. These Guidelines are meant as a dynamic material that may be amended in the future based on the ISC’s experience, the potential amendments to the text of the Cooperation Agreement or potential requests from enterprises. This material is mainly intended for enterprises and their representatives in order to facilitate their dealings with this new framework.
3.2 Specifications as to the scope of the mechanism
As confirmed by the Draft Guidelines published by the Ministry of Economy, the regime does not provide an exemption for intra-group restructurings. It will therefore cover all sorts of internal reorganisations where the materiality thresholds are met. A transaction with no change of control could thus trigger a filing.
Furthermore, the regime not only applies to new acquisitions of stakes but also to acquisitions of incremental stakes. Therefore, when a foreign investor already holds a certain stake in a Belgian entity active in the sectors covered by the regime, the acquisition by the same investor of a stake which will add up to reach the materiality threshold, will have to be notified to the ISC.
Finally, it is to be noted that Greenfield investments are excluded from the scope of the regime.
3.3 Impact on deal timeline
It is clear from the ISC procedure that investors will have to compute new terms in their anticipated deal timelines. Transactions falling within the scope of the regime will have to be notified and approved prior to closing as the ISC procedure is suspensory. The duration of such procedure is therefore to be taken into account in deal planning.
- Pre-notification phase: the Secretariat of the ISC is to analyse filings for notification in order to determine whether they are complete. This preliminary phase is bound by no statutory period.
Practical note: filing is in principle done with signed transaction documents. Parties can nevertheless file draft documents in support of their notification if they explicitly declare their intention to agree upon all materials points in a final way that will not substantially divert from the notified drafts.
- Assessment phase: the competent members of the ISC (based on the location and sector of the target’s activities) are to review the investment within 30 calendar days which may be paused in case of a request for additional information. However, the decision to approve of an investment or to open an in-depth review must be taken within 40 calendar days of receipt by the ISC secretariat of a complete filing. If no decision is taken by that time, investors may proceed with their transaction.
- Screening phase: the competent members of the ISC are to exercise a more in-depth risk assessment of the transaction within a maximum of 28 calendar days. However, the principle remains that such timeline may be paused by requests for additional information or remedy negotiations. If no decision is taken within the legal time constraint, the transaction may proceed.
Due diligence will need to include a thorough FDI analysis, resulting in a decision whether or not the transaction falls within the scope of the FDI regime and will therefore have to be notified and approved prior to closing.
Furthermore, a foreign investor, having to go through this procedure will certainly be at a disadvantage when taking part in an auction process as a potential purchaser, where deal certainty and speedy execution are of the essence.
Finally, where the transaction falls within the scope of the FDI regime and since the ISC procedure is suspensory, transaction documents will have to provide for a condition precedent in this respect (i.e. a split signing and closing). Also, the ISC procedure will require transaction documents to contain a number of provisions allowing the parties to deal with such procedure from a practical perspective (e.g. timelines, information sharing, cooperation, etc.).
3.4 Assessment criteria
The ISC will examine transactions against the criteria of public order, national security or strategic interests. Where notions of public order and national security seem quite straightforward, it is the concept of strategic interests that widens the scope of the ISC’s powers to intervene in a transaction as it is very much open to broad interpretation.
Beyond its standard procedure, the ISC’s powers have a retroactive span of up to two years before its entry into force (five years in case of bad faith) for agreements concluded before the entry into force of the regime. These powers can be used when one of the members of the ISC deems it necessary in light of the protection of public order, national safety or Belgian strategic interests. Due to the uncertainty such retroactivity carries and the fact that there is historically no similar framework that has been put into place, it remains to be seen how that aspect will transpire in practice. It can be assumed – at least hoped – that this retroactive review will only be used in exceptional circumstances. In that respect, it is anticipated that the Ministry of Economy will issue further guidance on the interpretation of the Cooperation Agreement – probably by amending its Draft Guidelines as mentioned above.
There is also an inherent political component due to the different levels of government represented in the ISC. This may turn into a challenge when combined with the powers of each federal or federated entity to block a transaction. In the bigger picture, the uncertainty caused by the presence of different political interests may lead to a reluctancy of investors to deal with it and a decrease in attractiveness of Belgium as a hub for foreign investment.
The ISC also holds ex officio investigation powers. It can thereby examine any investment falling under the scope of the mechanism if it deems it necessary in light of concerns as to public order, national security or strategic interests of the country. Such an investigation can happen without notifying the involved companies, although the ISC can suggest a notification of the investment.
3.6 Publicity of the ISC’s decisions
The ISC’s decisions will be made available for consultation at its Secretariat for the foreign investor as well as the Belgian undertakings concerned by the investment. Besides that, a report will also be drafted containing only non-confidential information in view of including it in the annual report of the ISC.
Failure to comply with the notification obligation by a foreign investor will result in fines between 10% and 30% of the investment. The provision of incorrect or misleading information will entail similar penalties. The degree of the penalty will depend on the gravity of the non-compliance.
Additionally, the ISC will have the possibility to still conduct an assessment and screening, following which structural modifications and corrective measures may be imposed up until two years after the acquisition of the voting rights with a possible extension of three extra years in case of indications of bad faith.