Screen time

The Screening of Third Country Transactions Act 2023 is a significant piece of legislation designed to regulate foreign direct investment in Ireland. Marco Hickey is ready for his close up

The Screening of Third Country Transactions Act came into force on 6 January 2025, implementing into Irish law EU Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the union (FDI Regulation).

The Screening Act requires notification of a proposed transaction to (and clearance by) the Minister for Enterprise, Tourism and Employment involving third-country businesses, defined as any country that is not a member of the EU, EEA, or Switzerland – so it would include the UK and the US.

A notification must be made where each of the following four conditions is met.

1. Third-country undertaking acquiring control

A third-country undertaking, or a person connected with such an undertaking, as a result of the transaction must:

• Change/acquire the percentage of shares or voting rights it holds in an undertaking in the State either (i) from 25% or less to more than 25%, or (ii) from 50% or less to more than 50%, or
• Acquire control of an asset or undertaking in the State.

A third-country undertaking means an undertaking that is:

a) Constituted or otherwise governed by the laws of a third country, or 
b) Controlled by at least one director, partner, member or other person that is  either a person in (a) above or is a third country national, or
c) A third country national.

A third-country national is defined as a natural person who is ordinarily resident in a third country or an unincorporated group or partnership of natural persons, at least one of whom is ordinarily resident in a third country.

A person is connected with a third-country undertaking if the person is: 

a) A spouse, civil partner, parent, sibling, or child of a relevant person 
(where the third-country undertaking is an individual, the individual, 
and where the third-country undertaking is not an individual, a third country national who exercises control over the undertaking), 
b) Acting in the capacity as the trustee of any trust, the principal beneficiaries of which are a relevant person, a person referred to in paragraph (a), or an undertaking controlled by a relevant person, or 
c) In partnership with a relevant person.

A person shall be regarded as exercising control of:

• An asset, where that person has ownership of, or the right to use, all or part of the asset, and
• An undertaking, where that person can exercise ‘decisive influence’ over the activities of the undertaking by any means, including as a consequence of either the existence of rights or contracts conferring decisive influence on the composition, voting, or other commercial decisions of the under- taking or ownership of, or the right to use, all or part of the assets of the undertaking.

Control of an asset or of an undertaking is regarded as being acquired by a person who gains an ability to exercise control of the asset or of the undertaking for the first time or to a greater extent. 

The circumstances in which an asset shall be regarded as being in the State include where it is physically located within the territory of the State and, in the case of an intangible asset, where it is owned, controlled, or otherwise in the possession of an undertaking in the State.

An undertaking shall be regarded as being in the State where it is constituted or otherwise governed by the laws of the State or has its principal place of business in the State.

As one can see, it is important to review and understand the relevant definitions whose application to a particular transaction necessitates examining in detail the structure behind the parties, including their controllers and related persons.

The Department of Enterprise Tourism and Employment has issued Inward Investment Screening Guidance for Stakeholders and Investors, which provide helpful guidance on both jurisdictional and substantive questions arising under the Screening Act. 

Some of the expressions used in the Screening Act are not defined, such as ‘decisive influence’ as used in the control test. This is a fundamental concept relevant for establishing jurisdiction under the act.

The term ‘decisive influence’ is also used in the Irish Competition Act 2002 (as amended), which in turn was taken from the EU Merger Regulation.

Neither the Screening Act, Competition Act, nor regulation define the expression ‘decisive influence’.

However, the EU Commission has provided guidance on the meaning of the term (Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings) and a significant body of case law has been established interpreting the concept for EU merger-control purposes.

The department’s Screening Guidelines highlight that the department’s understanding of ‘decisive influence’ reflects the concept of control used in both EU and Irish merger control.

Therefore, practice and experience in EU and Irish merger control is helpful in advising on the concept of decisive influence for the purposes of the Screening Act.

In short, decisive influence arises once the proposed transaction gives rise to sole or joint control.

2. Value of transaction threshold

The cumulative value of the transaction, and each transaction between the parties to the transaction, or persons connected with third-country undertakings that are parties to the transaction, in the period of 12 months before the date of the transaction, must be equal to or greater than €2,000,000 or such other amount prescribed by the minister (to date, the minister has not prescribed any other amount).

3. Intra-group transactions excluded

The same undertaking must not, directly or indirectly, control all the parties to the transaction. In other words, intra-group transfers are generally excluded (this is similar to the approach taken to mergers under the Merger Regulation and the 2002 act).

4. Relevant sectors caught

The transaction must relate to, or impact upon, one or more of the matters referred to in points (a) to (e) of article 4(1) of the EU FDI Regulation:

a) Critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure, or
b) Critical technologies and dual-use items as defined in point 1 of article 2 of Council Regulation (EC) No 428/2009, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies, or
c) Supply of critical inputs, including energy or raw materials, as well as food security, or
d) Access to sensitive information, including personal data or the ability to control such information, or
e) Freedom and pluralism of the media. 

The sectors as described in the FDI Regulation are couched in very wide language and would appear on their face to potentially capture many transactions. The department, through the Screening Guidelines, has sought to put parameters and context to the scope of the relevant sectors

Substantive test

The substantive test to be applied by the minister as part of the screening review is whether the transaction will affect the security or public order of the State. The minister is obliged to have regard to the following factors in making the substantive assessment:

• Whether or not a party to the transaction is controlled (whether through ownership structures or by other funding) by a government (this includes state bodies or armed forces of the third country concerned) of a third country and, where relevant, the extent to which such control is inconsistent with the policies and objectives of the State,
• The extent to which a party to the transaction is, at the time the transaction is being reviewed, already involved in activities relevant to the security or public order of the State,
• Whether or not a party to the transaction has previously taken actions affecting the security or public order of the State,
• Whether or not there is a serious risk of a party to the transaction engaging in illegal or criminal activities,
• Whether or not the transaction presents, or is likely to present, a person with an opportunity to (a) undertake actions that are disruptive or destructive to persons in the State, or to enhance the impact of any such action; (b) improve the person’s access to sensitive undertakings, assets, people, or data in the State; or c) undertake espionage affecting or relevant to the interests of the State,
• Whether or not the transaction is likely to have a negative impact in the State on the stability, reliability, continuity, or safety of one or more of the matters referred to in points (a) to (e) of article 4(1) of the FDI Regulation,
• Whether or not the transaction would result in persons acquiring access to information, data, systems, technologies, or assets that are of general importance to the security or public order of the state
• Where applicable, comments of member states and the opinion of the European Commission referred to in article 6(9) of the FDI Regulation,
• The extent to which the transaction affects, or would be likely to affect, the security or public order of a member state other than the State or of the EU, and
• The extent to which the transaction affects, or would be likely to affect, projects or programmes of union interest within the meaning of article 8 of the FDI Regulation.

Timing of notification

The parties to a notifiable transaction must notify the minister of the transaction at least ten days before it is due to be completed. The Screening Act does not impose any other conditions on when a notification must be submitted.

Notification can be made on the basis of a ‘good faith intention’ to complete a deal, so a transaction can be notified on the basis of a preliminary non-binding document such as heads of terms or offer letter.

The Screening Guidelines clarify that the parties may decide to submit a notification at whatever time is most convenient to them. 

Timing of completion

A notifiable transaction cannot be completed until the required screening process is complete, either by confirmation that the Screening Act does not apply or approval by the minister.

In many cases, the parties do not wish to notify a transaction until the terms of the acquisition agreement are negotiated and agreed, which necessitates a split signing and completion.

This will require a condition precedent in the relevant acquisition document, such as the share purchase agreement or business purchase agreement, which the parties will need to negotiate and agree.

Screening process

The minister is obliged, as soon as practicable after commencing a review of a transaction under the Screening Act, to provide all parties to the transaction (and any other person the minister considers appropriate) with a screening notice that (a) summarises the reasons for which the transaction is being reviewed, (b) states that the person to whom it is addressed may make written submissions to the minister regarding the transaction, and (c) a statement regarding any other matter that the minister considers to be appropriate in the circumstances.

Where a screening notice has been issued, a party to the transaction may make written submissions to the minister regarding the transaction within the period specified in the notice, or such further period as the minister may specify by notice in writing issued to the party before the date specified in the screening notice.

The minister must plan as to whether or not the transaction affects, or would be likely to affect, the security or public order of the State (‘screening decision’).

The minister must issue the screening decision within 90 days from the date of the screening notice or 135 days from the screening notice if the minister specifies such a longer period in the notice.

These time limits are suspended if the minister makes a formal request for further information.

If the minister fails to make a screening decision within the above timeframe, the transaction is deemed, on and from the last day of that period, to be subject to a screening decision that it has not affected, or would not be likely to affect, the security or public order of the State.

The minister may grant conditional approval, including to require the parties, whether jointly or separately, to do or not to do one or more of the following: (a) not to complete the transaction, or such parts of the transaction as the minister may specify; (b) not to complete the transaction, or such parts of the transaction as the minister may specify, before or after such date or dates as the minister may specify; (c) to sell or divest itself of any matter, including business, assets (tangible or intangible), shares, real property, or to cease a specified conduct or practice; (d) to modify or constrain its conduct or practice in specified ways; (e) to cease a specified conduct or practice; (f) to prevent the flow of competitively sensitive information between undertakings or within divisions, units, departments, or other organisational units within an undertaking; (g) to report to the minister, on such terms as the minister may specify, on the parties’ compliance with conditions imposed; (h) to pay to the minister, or such other person as the minister may specify, such amounts as the minister may specify in order to meet the reasonable costs associated with monitoring compliance with conditions imposed by the minister. 

Where the minister prohibits a transaction, the parties must not complete the transaction or take any action for the purpose of completing or furthering the transaction.

Author’s experience

My experience of the department in dealing with the Screening Act has been very positive. Furthermore, the Screening Guidelines have been a valuable tool in interpreting and applying the act to proposed transactions.

One practical drawback of the system is that it is not possible to make a jurisdictional submission requesting the department’s view as to whether or not a proposed transaction meets the thresholds for mandatory notification where, for example, the parties are unsure as to whether a proposed transaction relates to, or impacts upon, one of the relevant sectors. 

The department will only accept a full notification. However, helpfully, if one notifies a transaction and the department feels that it is not caught by the Screening Act, the department will issue a letter confirming that the act does not apply to the notified transaction, that no screening notice will be issued, and specify that, on that basis, the parties are free to proceed to completion.

Other features 

The minister has a broad power to call in transactions for review, regardless of whether or not they are notifiable or notified, if the minister has reasonable grounds for believing that they would affect, or would be likely to affect, the security or public order of the State.

The minister has the power to review transactions that do not meet the thresholds, including those that have completed in certain circumstances.

The Screening Act contains a retrospective look-back provision by empowering the minister to review completed transactions up to 15 months prior to the coming into force of the Screening Act, regardless of whether they are notified or notifiable. 

Marco Hickey is head of Competition, Antitrust, and Foreign Investment Regulation at Byrne Wallace Shields.