The Ministry of Economy (the “Ministry”) has submitted a draft Bill on the Act on Screening of Foreign Investment (the “Bill”).
The Bill creates a framework for the:
- mandatory and voluntary screening of direct and indirect investment to the Slovak Republic regardless of its form (share, asset or business deal, merger, joint venture, incorporation of Slovak seated vehicle, providing financing) and governing law;
- screening of foreign investment, cooperation between Slovak authorities and EU member states in the process of foreign investment screening;
- decision making on the screened foreign investment;
- revision of a conditioned approval;
- judicial review of certain delivered decisions; and
- inspection, administrative offences, fines and penalties.
The Bill would cover foreign investment form third (non-EU) countries, and EU-seated vehicles operating under foreign control or with foreign funds. Foreign investments to non-profit organizations, foundations, universities, or sports clubs are not out of scope and can also be subject to screening.
The objective of screening is to assess whether a foreign investment has material adverse effect on the security or public order of the Slovak Republic or the European Union. In case that material adverse effect is established the Ministry can prohibit or conditionally approve the investment.
Any foreign investment to critical infrastructure will be subject to screening, including:
- energy, security and critical infrastructure;
- military equipment manufacturers;
- undertakings operating in the biotechnology sector;
- telecommunication operators and media; and
- other undertakings listed in the Decree of the Slovak Government.
The Bill prohibits commencement of foreign investment into critical infrastructure prior to the screening and its approval. Violation of such prohibition could lead to a fine from the Ministry of Economy of up to the value of the entire investment.
The fines imposed by the Ministry go towards the State budget, however, the Bill does not address what happens to the consideration paid for a target to the seller (in case this had already been settled). Failure to get approval would not automatically mean that the investment would be cancelled. In some situations only a fine would be imposed.
The Ministry can also stop the proceeding of the foreign investment and order the investor to adopt certain measures regarding the investment, including aspects of the investment commenced prior to receiving approval, such as a forced sale of shares or assets if they were acquired before getting approval.
The Ministry has to deliver a decision on any investment within 130 days after starting the screening procedure. If no decision is delivered within this period, it will be presumed that the investment does not have a material adverse effect on the security or public order of the Slovak Republic or the European Union and it can go ahead.
The Bill provides third parties, non-related to a foreign investor or target entity or to state authorities, the opportunity to file a qualified complaint describing the material adverse effect of the foreign investment or point to specific information related to foreign investment or target company. On the basis of a qualified complaint, the Ministry can commence a screening, inspection or revision of conditioned approval of the foreign investment.
Particularly, the possibility of filing qualified complaints can potentially cause hurdles in the process of making a foreign investment and can be (mis)used by competitors. The Bill does not provide a possibility to claim any cost incurred due to the initiation of a screening from either the Ministry or the complainant.
The Bill on the Act on Screening of Foreign Investment is now in a process of informal interdepartmental comments enabling the general public and authorities to provide comments on the Bill before it will be discussed in parliament.
If you would like more information on this or have any questions regarding Slovak law please contact your regular CMS advisor or local CMS experts.