Draft bill for new Danish Investment Screening act sent in consultation
The consultation process for the forthcoming Danish Investment Screening Act has begun. The draft bill provides for a mandatory approval regime for foreign investments where the foreign investor acquires control of more than 10 % of a Danish company operating in certain sensitive sectors, combined with a voluntary filing regime across all sectors if a foreign investor acquires control of more than 25 % of a Danish company. The bill also grants the Danish Business Authority the authority to screen non-reported investments falling within the scope of the Act for up to five years after their completion.
Draft bill for the screening of certain foreign investments etc. in Denmark (the Investment Screening Act)
The Danish Business Authority has sent a draft bill for the new Investment Screening Act in consultation, which is expected to be presented to Parliament in February 2021. The purpose of the Act is to ensure that foreign investments in Denmark do not constitute a threat to national security and the public order, and it has been underway since the former Government set up a cross-ministerial working group with participants from six ministries in April 2018.
During the working group's work on recommendations and different models, the working group received written contributions from The Association of Danish Law Firms, the Confederation of Danish Industry, Danish Shipping, Danish Maritime, and Kromann Reumert. The proposed model for screening of foreign investments includes two separate regimes:
- A sector-specific regime, where mandatory approval is required for investments in particularly sensitive sectors
- A cross-sectorial scheme, where voluntary filing can be made.
The companies and investors covered by the draft bill
All foreign direct investments in any commercial company based in Denmark fall within the scope of the bill, regardless of how the Danish company is organized.
All investments from companies not based in Denmark are within the scope of the bill. If the investment is made by a Danish-based company which is a subsidiary or branch office of a company based outside of Denmark, the investment is within the scope of the bill. This is also the case for investments by companies based in Denmark if the company is in fact controlled by a foreign company or citizen.
If a proposed investment is within the scope of the Act, it must then be assessed whether the investment is covered by the mandatory approval regime or the voluntary filing regime, or if the investment can go forward without further ado.
The mandatory approval regime
The mandatory approval regime requires prior approval if a foreign investor, directly or indirectly, acquires at least 10 % of the shares or voting rights in a Danish company within "particularly sensitive sectors". Prior approval is also required if the shareholding is subsequently increased to 20 %, 1/3, 50 %, 2/3 or 100 %.
It is not only the mere possession of or control over shares or voting rights that triggers the mandatory approval regime. If similar control over a company active in a sensitive sector is acquired by other means, then that also triggers an approval requirement. Control obtained by such "special economic agreements" can be obtained e.g. through long-term loans, joint-venture agreements, supplier or service agreements, purchase of assets, or R&D cooperation. Control by other means can also be gained through physical or electronical access to the Danish company, which in turn leads to the foreign company being able to disrupt the operations of the Danish company and thereby de facto acquire control. Control may also be gained where a Danish company becomes dependent upon the delivery of supplies from a foreign supplier whose supplies cannot be substituted. In each case, an individual assessment needs to be made as to whether control equal to at least 10 % of the shares or voting rights has been achieved. The bill acknowledges that this assessment can be "quite difficult".
The particularly sensitive sectors are the following types of companies:
- Companies within the defence sector
- Companies within IT security functions or who process classified information
- Companies producing dual-use products
- Companies within other forms of critical technology
- Companies within critical infrastructure
The sectors are intended to be more precisely defined in an executive order.
The Government's draft bill prescribes for the mandatory approval regime to also apply to the formation of new companies (Greenfield investments) within the particularly sensitive sectors.
The voluntary filing regime
The voluntary filing regime grants investors outside EU/EFTA the option to report an investment if acquiring possession or control of at least 25 % of a Danish company not operating within one of the particularly sensitive sectors. Contrary to the mandatory approval regime, investors from the EU not controlled by persons outside of the EU are not covered by the voluntary filing regime.
Investors from outside the EU are not obliged to report investments if they are not covered by the mandatory approval regime. They do, however, risk that the Danish Business Authority may, for up to five years after completion of the investment, conduct an investigation to see if the investment is in conflict with national security or public order and thus should be prohibited and rolled back. If an investigation leads to a prohibition and roll back order, the foreign investor will be entitled to full compensation, provided such order constitutes expropriation under Danish law.
The voluntary reporting regime is intended to be used only in cases where there is an actual possibility that an investment could pose a threat to national security or public order. The investor will be able to engage in consultation with the Danish Business Authority on whether the investment is in fact subject to such concern. The Danish Business Authority will, however, only be able to confirm that the investment falls outside of scope if this is clearly the case. In addition, the Ministry of Industry, Business and Financial Affairs will in cooperation with other ministries prepare guidelines on the areas where, in addition to the particularly sensitive sectors subject to the mandatory approval regime, it would be relevant to consider a voluntary filing.
Enforcement and administration of the Act
The Danish Business Authority will be in charge of the administration and enforcement of the new rules. A foreign investor will be able, after negotiation with the Danish Business Authority, to offer remedies to mitigate any concerns the investment may cause in order for an approval to be granted.
If the Danish Business Authority finds that an investment may be in conflict with national security or public order and such concerns cannot be mitigated by remedies, then the Danish Business Authority will present the case to the Danish Ministry of Industry, Business and Financial Affairs, who will then make a decision on the matter after negotiating with the Ministry of Finance, the Ministry of Foreign Affairs, the Ministry of Justice, the Ministry of Defence and any other relevant ministry.
The decisions by the Danish Business Authority or the Danish Ministry of Industry, Business and Financial Affairs, as the case may be, can be brought before the Danish courts. To ensure that sensitive information regarding national security is not shared with the investor, selected attorneys will be appointed to represent the investor without being able to share such sensitive information with the investor.
Furthermore, the bill grants the Danish Business Authority the authority to conduct spot checks and dawn raids without a court order. It is also decided that cases under the Investment Screening Act will not be subject to the Danish Access to Public Administration Files Act. Violation of the Investment Screening Act is punishable by fine.
The Danish Act on War Material is currently the only legislative act that regulates foreign acquisitions and investments on the basis of national security interests in Denmark. Pursuant to the draft bill, this sector-specific regulation is to be upheld. Thus, investments that are regulated by the Danish Act on War Material will not be subject to the Investment Screening Act.
Kromann Reumert's remarks
According to the draft bill, the Investment Screening Act will enter into force on 1 July 2021.
Despite the draft bill prescribing for significant changes to the regulation of foreign direct investment, the consultation deadline expires already on 6 January 2021. Kromann Reumert intends to submit our views on the draft bill. If you have any comments or input to the draft bill, you are very welcome to contact us for a discussion and for our consideration when preparing our submission.
As also pointed out in the draft bill, the assessment of whether "special economic agreements" constitute control equal to at least 10 % of the shares or voting rights will be a difficult one to make. We also see a need for a definition of which companies are to be considered part of the particularly sensitive sectors under the mandatory approval regime. The bill does, however, suggest that e.g. "critical infrastructure" should be more precisely defined in an executive order.
From a due process perspective, it is a cause for concern that the Danish Business Authority will be granted the authority to conduct dawn raids without a court order. On the other hand, it is positive that the bill allows for remedies as part of the approval process and that this can happen after negotiation with the investor. This is in contrast to e.g. the UK draft bill, where the relevant authority determines unilaterally the terms on which an investment can be completed.
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Read the draft bill (only available in Danish)
Read the Danish Business Authority consultation letter (only available in Danish)
Read the cross-ministerial working group's full report (only available in Danish)
Read the summary of the cross-ministerial working group's report (only available in Danish)