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Freshfields Transactions

| 4 minutes read

PACTE law: the latest step in the strengthening of the French State’s control over foreign investment in strategic sectors

Published on 23 May 2019, the so-called “Pacte Law” (Loi portant Plan d’Action pour la Croissance et la Transformation des Entreprises) aims to “remove obstacles to the growth of [French] companies at all stages of their development, from their creation to their transfer, including their financing” and to “put companies back at the centre of [French] society”. While France solidified its position as a thriving country for foreign investments in 2018, this law aims at further reinforcing its attractiveness to foreign investors by promoting « liberated, better funded, more innovative and fairer [French] companies”.  

In the meantime, in the wake of international protectionism, including at EU level with the publication of the regulation on establishing a framework for the screening of foreign direct investments, the Pacte Law also intends to “modernize” French control over foreign investment by strengthening the sanctions mechanism in case of infringement by investors of the French foreign investment regulation (the core and scope of the French foreign investment regulation remaining unchanged and providing that foreign investors planning to acquire a French company involved in a strategic sector shall require a prior authorisation from the French Minister for the Economy).

This new regime of sanctions comes after an extension of the foreign investment regulation’s scope to the “sectors of the future” by Decree No. 2018-1057 dated 29 November 2018 on foreign investments subject to prior approval from the French Minister for the Economy (see our previous post here).

The previous regime already imposed a wide range of sanctions for investors who either (i) completed a transaction without the prior approval from the Minister or (ii) did not comply with the commitments they have made for the granting of this approval.  Such regime was however not considered flexible enough and, as such, inefficient.

The Pacte Law aims to give the French Minister for the Economy a larger panel of possible sanctions and reinforced enforcement powers.

Remedial powers of the Minister for the Economy in case the investment is carried out without an authorisation

The Minister for the Economy may impose the infringing investor (as the case may be, with daily penalties):

  • to file an authorization request;
  • to unwind the transaction at its own expense;
  • to modify the scope of its investment.

This adds up to the existing civil sanction of nullity of an unauthorized transaction.

Remedial powers of the Minister for the Economy in case of breach of the commitments made by the investor

The Minister for the Economy may impose the infringing investor (as the case may be, with daily penalties):

  • to comply with the commitments within a specified time frame
  • to comply with new conditions (including unwinding the investment or selling the sensitive activity) within a specified time frame.

It may also retrieve the previously granted approval.  The investor must then file a new approval request, unless it decides to unwind its investment.

Precautionary measures in case of urgency

In addition, the Minister for Economy may now act quickly in case the foreign investment regulation has been breached and the French national interests are or are likely to be jeopardized.  It may take precautionary measures such as suspending the voting rights of the infringing investor or the payment of its dividends or preventing the infringing investor to dispose of the assets.

It can also appoint a representative within the company whose mission is to ensure that the national interests are preserved. Such representative may oppose any decision of the corporate bodies which would likely jeopardize the national interests.

Previous notice of contemplated measure to the investor

In case the Minister for the Economy contemplates to take any of the measures mentioned above, the investor must be given a formal notice and a 15-day delay to present its arguments, except in case of an emergency, exceptional circumstances or imminent breach of public order, public security or national defense.

Monetary sanctions

The Minister for the Economy also has the power to impose monetary sanctions in case of any infringement of foreign investment control obligations (including carrying the investment without an authorization, obtaining the authorization fraudulently, breach of the remedial actions imposed by the Minister for the Economy, breach of the obligations provided in the commitment letter, etc.). The infringing investor may be imposed a fine up to the highest of the following amounts:

  • twice the value of the investment at stake;
  • 10% of the annual turnover achieved by the target company;
  • €1 million for individuals or €5 million for legal entities.

The extended powers of the Minister for the Economy will apply to any future breach of the French investment regulation, i.e. the above mentioned sanctions will be applicable to acquisitions carried out in the past years and for which the investor is still bound by commitments he has made vis-à-vis the French State.

Effective implementation of the Minister’s extended powers will be outlined in decrees to be released later this year by the French government.

The criminal sanctions which existed in the previous regime remain unchanged. The infringing investor may be sentenced to 5-years imprisonment. The target of the investment may be seized and a fine up to twice the amount which is the subject matter of the investment may be imposed.

Obligation to communicate requested information to the French Minister

The new regime also permits the Minister to turn directly to the target for information, although it only had, in theory, investigation powers vis-à-vis the investor: it is now provided that the investor or the target must transfer to the Minister for the Economy, at its request, any documents or information which are deemed necessary to fulfill its mission, without the legally protected secrets being an obstacle to this communication. The scope of these requests for information has thus been extended, since it now includes any relevant information.

Transparency measure

Finally, it should also be noted that the Pacte Law increases the transparency of the acquisitions made by foreign investors in France. The French Minister for the Economy shall now disclose to the French Parliament statistical no-names data regarding the screening of foreign investments in France on an annual basis, and shall also provide to certain members of the Parliament a report containing qualitative and statistical information on measures taken to protect and promote national interests and strategic business sectors.

With its new modernized arsenal vis-à-vis those who do not comply with French rules on foreign direct investments and the entry into force of the EU regulation, France looks for a balance between attractiveness and control.


europe, foreign investment