Germany’s Investment Control Response to Covid-19


As already reported, the German Federal Government is currently tightening investment control law by means of scheduled and unscheduled measures (see our news on 24 April 2020). The specific draft amendments that are a direct response to the Covid-19 pandemic are now available.

For this purpose, on 20 May 2020 the cabinet adopted the Fifteenth Regulation to Amend the German Foreign Trade and Payments Regulation - in German (“15th Amending Regulation”) based on the proposal by the Federal Ministry for Economic Affairs and Energy.

The regulatory core of this 15th Amending Regulation is the expansion of the specific case groups which are part of the critical infrastructure according to section 55(1) 2nd sentence German Foreign Trade and Payments Regulation. This entails a reporting requirement and a lowering of the relevant threshold from 25% to 10% for the acquisition of related companies by non-EU or non-EFTA investors. For investments in the companies concerned, the reporting requirement may have a significant impact on transaction security and timing in the future, as a punishable closing prohibition with regard to transactions subject to a reporting requirement is also in the legislator’s pipeline.

Which target companies in the healthcare sector would be particularly affected?

Specifically, the proposed amendment introduces case groups for the acquisition of such companies which:

  • develop or manufacture specific personal protective equipment,
  • develop, manufacture or place on the market essential medicines including their starting and active substances, or hold a corresponding licence under medicines law,
  • develop, manufacture or distribute certain medical devices for the diagnosis, prevention, monitoring, forecasting, prognosis, treatment or mitigation of life-threatening and highly contagious infectious diseases and
  • supply, develop, manufacture or distribute specific in vitro diagnostic devices related to life-threatening and highly contagious infectious diseases.

According to the justification of the 15th Amending, this measure ‘contributes to the long-term maintenance of a functioning health system, also in view of future comparable crisis situations’.

What else is the draft intended to change? 

In addition, the 15th Amending Regulation also contains measures that are not related to the Covid-19 pandemic. These include the addition of one further case group which would also entail a reporting obligation and a lowering of the threshold to 10% for companies providing certain services in the public communications infrastructure.

In addition, the 15th Amending Regulation emphasises that the acquisition of a definable part of the business or of all essential operating assets (known as an asset deal) is to be considered an ‘acquisition’ within the meaning of sections 55 et seq. German Foreign Trade and Payments Regulation. However, according to the largely prevailing legal interpretation of the current provisions, an asset deal has already been treated in the same way as an acquisition of shares (which is explicitly provided for by law) and thus been subject to investment control anyway. The same appears to apply to investor-specific criteria, which, though not explicitly mentioned in the German Foreign Trade and Payments Regulation, have been examined on a case-by-case basis by the Federal Ministry for Economic Affairs and Energy. These include control over the investor by a foreign state, past activities with adverse effects on public security and order in Germany or other EU Member States, and the existing risk that the investor was or is involved in certain criminal offences or administrative offences. The investor in such cases is not only the direct purchaser, which will often be an acquisition vehicle.

What are the differences between the ministerial draft of the 15th Amending Regulation and the version adopted by the cabinet?

The 15th Amending Regulation adopted by the cabinet contains three main changes compared to the ministerial draft.

Firstly, companies which supply components or manufacture precursors for certain types of personal protective equipment, certain medical devices and certain in-vitro diagnostics products are no longer covered as operators of sensitive infrastructure. Suppliers in the three case groups mentioned have thus been entirely removed from the scope of the 15th Amending Regulation.

Secondly, the newly introduced case groups no longer include manufacturers of manufacturing plants and technologies to manufacture the products mentioned.

Thirdly, the scope of application has been restricted by removing companies which extract or process certain raw materials or ores of those materials.

What are the main effects on M&A or private equity transactions in practice?

The introduction of further notification obligations reinforces what is already in place: it must be clarified early on whether a transaction is affected by the obligations. This applies in particular in light of the expected introduction of a closing prohibition punishable under criminal law before this summer. But also to date, the risks of intervention by the Federal Ministry for Economic Affairs and Energy in the form of the imposition of duties or, in a very rare, worst-case scenario, a reversal of the transaction, must be carefully assessed and taken into account. Currently, it is likely for target companies in the healthcare sector in particular that closer attention will be paid in audits, which may also have long-term effects on the duration of proceedings and should, for instance, be reflected contractually by agreeing on a long stop date. As in the past, in cases not subject to the notification requirement, companies can continue to apply to the Federal Ministry for Economic Affairs and Energy for a clearance certificate on a confidential basis prior to the acquisition.

What´s next?

The 15th Amending Regulation is only a first step, which is seen as particularly urgent in light of the current pandemic. After all, the planned amendment of the German Foreign Trade and Payments Act, which is the basis for the German Foreign Trade and Payments Regulation, is still pending (see our news on 31 January 2020 and our news on 24 April 2020); at present, the corresponding draft is in the parliamentary procedure. It appears that only the Sixteenth Regulation to Amend the German Foreign Trade and Payments Regulation (“16th Amending Regulation”) would finally fulfil the objectives pursued by the amendment to foreign trade law. 

The 16th Amending Regulation will trigger some controversy, since it will include the necessary transposition of the EU Screening Regulation (Regulation (EU) No 2019/452) and is therefore expected to change the duration of the proceedings again. On the other hand, it is likely to introduce further reporting requirements and lower thresholds, which, in our view, the EU Screening Regulation does not necessarily require. These planned measures are already a matter of controversy today.

In addition, the reform of the German Foreign Trade and Payments Act, going beyond the 15th Amending Regulation, gives even greater importance to the aforementioned expansion of the reporting requirement: firstly, if reporting requirements are imposed, closing actions will be provisionally invalid by way of civil law, and secondly, sanctions-based prohibitions are to be added to make investment control law effective.

We will keep you posted.