On 1 May 2021 the 17^th Amendment [17. Änderungsverordnung] to the German Foreign Trade and Payments Ordinance [Außenwirtschaftsverordnung – AWV] entered into force, which in particular broadens the scope of application of transactions subject to a mandatory filing to include further sectors, notably high-tech. The Amendment will apply to all contracts signed after its entry into force.

Additional matters subject to reporting

German investment control mechanisms have already been tightened several times over the past years. The catalogue of sensitive activities which trigger filing obligation to the German Federal Ministry for Economic Affairs and Energy (BMWi) ) and for which the transaction has to be cleared has now once again been expanded significantly in the area of cross-sectoral screening with the 17^th Amendment (Federal Gazette OS 30 April 2021 V1) by 16 new case groups (to currently 27). The focus of the new case groups is on future and key technologies. German target companies operating in the following sectors may now also be covered: artificial intelligence (AI), autonomous driving/flying, robotics, certain IT security products, aviation and aerospace, quantum and nuclear technologies, optoelectronics, network technology, additive manufacturing, smart meter gateways, critical information and communication technology services for the Federal Republic of Germany, critical raw materials, secret patents and utility models as well as agriculture and food.

At the same time, the minimum threshold for triggering the filing obligation was defined for these cases at 20% of voting rights being acquired (here, the Ministerial Draft had still provided for a threshold of 10%). The increase from 10% to 20%, which was also extended to the healthcare sector, is especially welcome, even if a threshold of 25% would have been more obvious. However, the existing threshold of 10% is maintained for critical infrastructures and the media sector. At the same time the expansion of the case groups further implements the EU Screening Regulation 2019/452, with the German legislator also specifying the relevant sectors with much greater legal clarity compared with the EU Screening Regulation. A guide is also provided by Circular 2/2021 of the BMWi (Federal Gazette OS 30 April 2021 B2), which includes detailed reasons relating to the specific catalogue cases.

Sector-specific reviews

Moreover, the sector-specific review in the defence sector was extended in particular to all acquisitions of companies which develop, manufacture, modify or possess military within the meaning of Part I A of the German Export List. Previously, only a few individual items of the Export List were covered. Vital and defence-relevant institutions are also covered by the scope of application.

For both the reportable catalogue cases and sector-specific reviews, acquisitions in such target entities take effect only after being cleared by the BMWi and until then are subject to a prohibition on closing covered by penalty provisions.

Atypical acquisition of control

A novelty is that atypical acquisitions of control are now also covered. This means that the formal criterion for reviewing investments in this regard is not the acquisition of voting rights, but that acquiring a portion of voting rights below the applicable threshold also suffices if the acquisition is associated with the promise of additional seats or majorities in supervisory or management bodies, the grant of rights of veto for strategic business or personnel decisions, or the grant of company-related information rights with relevance for security matters. Although the Amendment does not provide for a reporting obligation for such atypical acquisitions of control, the BMWi does have a right of review. Given the review option of the BMWi, a provisional notification to the BMWi will prove expedient in many such cases, which in turn will affect the timetable of transactions.

Incremental acquisitions

The Amendment furthermore includes two clarifications: firstly, that the additional purchase of further shares may fall under the scope of application of investment control, and secondly, that it is possible to switch from the cross-sector to the sector-specific review (and vice versa). This is consistent with the existing review practice of the BMWi for which, however, a clear legal basis had been absent in the past. That means that an increase in the shareholding in each case to above the relevant thresholds 10%, 20% or 25% may be covered by the scope of investment control. This applies even in cases where the BMWi has granted the acquirer an approval or clearance certificate for the preceding share acquisition. However, this is subject to certain investment thresholds for the further share acquisition being reached (20%, 25%, 40%, 50% or 75%, depending on the specific situation).

Conclusion and outlook

The most recent amendments will have a significant impact on transaction practice. This is clear not least from the fact that the BMWi itself expects a significant increase in the number of cases to be reviewed in future. Just as in the area of merger control, almost every acquisition in future will come under the scrutiny of German investment control legislation at an early stage and be subject to the requirement to assess the impact of the transaction both on the acquirer and the seller side.

The next amendment is already within sight, although it is likely to result in relief measures in specific areas. There are proposals to relax restrictions on closure and to facilitate the execution of stock exchange transactions in certain cases. Stock exchange transactions may then be exempted from the restriction of closure (suspended validity). Moreover, an exception is to be provided in favour of the acquisition in the case of public takeover offers whereby the review period would commence already before the contract is entered into, i.e. before acceptance of the offer.

Further regular amendments to the provisions of investment control in Germany can also be expected in future, not least because in the German Foreign Trade and Payments Act and the German Foreign Trade and Payments Ordinance themselves an evaluation of the most recent amendments is prescribed by law.

Marian Niestedt, M.E.S., Lawyer, Hamburg