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Czech Republic: Bill to protect key companies from foreign direct investment
27.04.2020
In April, the Czech Government approved the Bill on Screening of Foreign Direct Investments based on Regulation (EU) 2019/452 with the aim to prevent strategic Czech companies from being taken over by foreign investors. The purpose of the bill is to establish a framework for screening foreign direct investments to protect the security of the Czech Republic and its public order. As opposed to many other European countries (e.g. Germany, Denmark, Spain, Italy, France), the Czech Republic does not yet have a mechanism for screening foreign direct investments. As early as in September 2018, a working group was set up at the Ministry of Industry and Trade and tasked with evaluating the Czech Republic's options for its future approach to foreign direct investment. While the new bill is a result of the work of this group and is not directly related to any government measures to counteract the spread of the novel coronavirus, the timing of its passing is certainly not a mere coincidence, as it follows a trend of increasing protectionism in the current global situation.
The bill only applies to individuals and legal entities from third countries (non-EU Member States) that intend to make investments in strategic Czech companies which are likely to affect the security or public order of the Czech Republic and by which the investors acquire at least 10% of the voting rights or a possibility of exercising their influence in such companies.
The bill distinguishes between two groups of investments, each with its own screening mechanisms.
The first (strict) regime applies to the most vital and strategic Czech businesses (such as the arms, media and energy industries). Foreign investors intending to invest in them will need prior state permission. Under the second (less strict) regime, investments in other industry sectors that ensure the security of the Czech Republic will not require prior permission. However, within the first five years of such investments, the state will be entitled to review these transactions. In order to obtain legal certainty (and to avoid the threat of the cancellation of the investment), foreign investors are therefore likely to voluntarily request so-called certificate of non-objection, i.e. confirmation from the state that it has no objection to their investments ("consultation proposal"). The consultation proposal will only be obligatory for foreign investments in entities licensed for nationwide radio or television broadcasting and those publishing the most important periodicals.
The Ministry of Industry and Trade has a 90 day period to issue its permission and a 40 day period to issue the certificate of non-objection. If the Ministry intends to make the foreign investment conditional or to reject it, the Ministry shall refer the matter to the Government as the last instance to decide.
The bill must now be passed by the Czech Parliament. However, since the bill implements an EU regulation, it is expected to be adopted without material amendments.
The bill only applies to individuals and legal entities from third countries (non-EU Member States) that intend to make investments in strategic Czech companies which are likely to affect the security or public order of the Czech Republic and by which the investors acquire at least 10% of the voting rights or a possibility of exercising their influence in such companies.
The bill distinguishes between two groups of investments, each with its own screening mechanisms.
The first (strict) regime applies to the most vital and strategic Czech businesses (such as the arms, media and energy industries). Foreign investors intending to invest in them will need prior state permission. Under the second (less strict) regime, investments in other industry sectors that ensure the security of the Czech Republic will not require prior permission. However, within the first five years of such investments, the state will be entitled to review these transactions. In order to obtain legal certainty (and to avoid the threat of the cancellation of the investment), foreign investors are therefore likely to voluntarily request so-called certificate of non-objection, i.e. confirmation from the state that it has no objection to their investments ("consultation proposal"). The consultation proposal will only be obligatory for foreign investments in entities licensed for nationwide radio or television broadcasting and those publishing the most important periodicals.
The Ministry of Industry and Trade has a 90 day period to issue its permission and a 40 day period to issue the certificate of non-objection. If the Ministry intends to make the foreign investment conditional or to reject it, the Ministry shall refer the matter to the Government as the last instance to decide.
The bill must now be passed by the Czech Parliament. However, since the bill implements an EU regulation, it is expected to be adopted without material amendments.
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