The Danish Parliament passes Investment Screening Act

The proposal for a new Investment Screening Act has now been passed by Parliament. This news article provides a summary of the main provisions of the Act, its entry into force, and its application. Read also about our upcoming seminar on the new Act, which will be held together with the Confederation of Danish Industry and AmCham.

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The Investment Screening Act introduces two screening mechanisms:

A mandatory authorisation regime for investments in particularly sensitive sectors. It applies to all foreign investors who gain "direct or indirect possession or control of no less than 10% of the shares or voting rights or similar control by other means".
A voluntary cross-sectoral notification regime. This regime applies to non-EU/EEA investors who gain "possession or control of no less than 25% of the shares or voting rights or similar control by other means" in companies other than those operating in particularly sensitive sectors.

The Investment Screening Act enters into force on 1 July 2021, but will apply only to investments etc. implemented after 1 September 2021.

Proposed amendments

During the hearing of the Bill, nine amendments were proposed, all by the Minister for Industry, Business and Financial Affairs. While most of the amendments are of a technical nature, some are also substantive changes. As an example, the following is stated in the explanatory notes to amendments no. 3 and 4:

"It is proposed to stipulate that the right for the Danish Business Authority to lay down rules on calculation of shares or voting rights also extends to control by other means. That will address the concerns of trade organisations which have called for specific rules specifying when control by other means exists, including rules stating that acquisition of shares, voting rights or assets for debt enforcement or intercompany transfer purposes will, under certain conditions, not be deemed acquisition of control. Such transactions are exempt from the takeover bid requirement in section 46(2) of the Danish Capital Markets Act (see Consolidated Act no. 931 of 6 September 2019)."

Thus, the Minister indicates that internal restructurings within the group and temporary control for debt enforcement purposes will not (necessarily) fall within the Act or be subject to notification or authorisation. Before the proposed amendment, group restructurings would trigger a notification duty if they involved e.g. the transfer of ownership of a Danish subsidiary from one foreign company in a group to another foreign company in the same group.

While group restructurings and debt enforcement processes are still subject to the Investment Screening Act, the proposed amendment has made it possible for the Business Authority to exempt such transactions from the scope of the Act and lay down the criteria for exemption by issuing an executive order.

It would be most natural to exempt both types of transactions from the Investment Screening Act. In the case of group restructurings, it will be the same ultimate owner that has control, and in the case of debt enforcement proceedings, the control will be only temporary, aiming to protect the value of assets e.g. by taking possession of pledged shares. So there is no immediate need for screening because of threats to national security or public order.

Kromann Reumert has made an active effort to push for these changes, and we believe that the result will benefit both foreign investors and Danish businesses.

Continued work with executive orders

As described in our previous news article, the Business Authority will now have to issue a number of executive orders laying down the scope of the Act, notification procedures, fees, etc.

For this purpose, three main executive orders and one circular are expected:

The application order
The procedural order
The confidentiality order
The cooperation circular

The work with these executive orders etc. is still ongoing and will be highly important to the regulation of foreign investments in practice.

Sign up for our seminar on the Investment Screening Act

On Tuesday, 15 June 2021, Kromann Reumert will host a seminar on the new Act in cooperation with the Confederation of Danish Industry and AmCham. You are welcome to participate in-person or virtually. Please visit our website to sign up.

Read the Investment Screening Act as adopted after the Parliament’s third reading on 4 May.