FDI Screening Mechanism Now Active in Belgium

clearygottlieb.com

This memorandum was prepared as a service to clients and other friends of Cleary Gottlieb to report on recent developments that may be of interest to them. The information in it is therefore

general, and should not be considered or relied on as legal advice. Throughout this memorandum, “Cleary Gottlieb” and the “firm” refer to Cleary Gottlieb Steen & Hamilton LLP and its

affiliated entities in certain jurisdictions, and the term “offices” includes offices of those affiliated entities.

ALERT MEMORANDUM

FDI Screening Mechanism Now Active

in Belgium

July 13, 2023

1. Introduction

Transactions signed on or after July 1, 2023, involving

Belgian entities active in sensitive sectors may now

trigger notification under Belgium’s comprehensive

Foreign Direct Investment (“FDI”) screening mechanism.

Belgium’s recently implemented FDI rules include a

mandatory and suspensory screening regime that aims to

safeguard public order and national security in Belgium as

well as the strategic interests of Belgium’s federated

entities. The regime applies to investments by non-EU

investors in entities active in specific sectors in Belgium.

It may well capture an unexpectedly large number of

deals due to various ambiguities in the legal texts, in part

resulting from Belgium’s constitutional complexities.

If you have any questions concerning

this memorandum, please reach out to

your regular firm contact or the

following authors

BRUS SE LS

Isabel Rooms

+32 2 287 2336

[email protected]

Jan-Frederik Keustermans

+32 2 287 2187

[email protected]

Julie De Vrieze

+32 2 287 2044

[email protected]

Margo De Bondt

+32 2 287 2176

[email protected]

Tom Vanderhaegen

+32 2 287 2215

[email protected]

ALERT MEMORA ND UM

Key Takeaways

— The Belgian FDI regime is mandatory and suspensory. Parties may not close a deal pending FDI

screening. A foreign investor that fails to comply with the FDI regime may be fined an amount equal

to up to 10% or, in certain circumstances, 30% of the value of the relevant investment.

— Only deals signed on or after July 1, 2023, are subject to a potential mandatory FDI notification

obligation, but the authorities also have broad ex officio powers to review older deals and to impose

remedies up to two years after a deal has closed (five years in case of indications of bad faith). In

addition, under the Belgian FDI regime non-EU investors may face remedial actions as a condition to

have a transaction cleared, ranging from requiring a code of conduct to far-reaching structural remedies

such as limiting the scope of the proposed investment. They may also see their investments blocked or

the divestment of a previously closed investment ordered.

— The scope of the Belgian FDI regime is broad. While the regime focuses on acquisitions of voting

rights of at least 25% (lowered to 10% for the most sensitive sectors) in Belgian targets by non-EU

investors in an exhaustive list of sectors, the legal texts are broadly drafted and remain unclear on a

number of aspects.

— Belgian FDI screenings may be lengthy and unpredictable. In theory, unproblematic deals could be

cleared within 30 calendar days, but there are multiple possibilities to suspend or extend the procedure,

so in practice we expect that it will take considerably longer.

— FDI screening is an inherently political process. While communications and decisions are coordinated

through an inter-federal screening commission (“ISC”), the actual decisions on transactions will be

taken independently by the various competent authorities at federal, regional and/or community levels.

In addition, the Coordinating Committee on Intelligence and Security (“CCIS”) will be involved in

every filing. Each of these government entities will have different priorities and concerns when it

comes to FDI screening. Proactive stakeholder management will therefore be key to a timely and

successful outcome.

— All of the above will need to be taken into account early on in the transaction process and be reflected

in the transaction agreement. We expect parties to negotiate fiercely over timing, risk allocation, the

need for conditionality and the appropriate termination rights as well as control over the FDI process

(including remedy negotiations).

— We still expect that the vast majority of notified transactions will be approved.

ALERT MEMORA ND UM

2. Scope: Covered Investments

The Belgian FDI screening mechanism is governed by

a Cooperation Agreement of November 30, 2022

(“Cooperation Agreement”)

and applies to direct and

indirect investments by foreign (non-EU) investors

seeking to “establish or maintain lasting and direct

links” in an undertaking or entity established in

Belgium (irrespective of whether the Belgian legal

entity is the parent company or only a subsidiary of the

group in which the investment is made)

whose

activities relate to certain sectors exhaustively listed in

the Cooperation Agreement.

Foreign investors (including non-EU UBOs). Only

investments by a “foreign investor” must be notified.

This is broadly defined as (i) any natural person

having their principal residence outside of the EU

(irrespective of nationality), (ii) any undertaking

incorporated or organized under the laws of a non-EU

jurisdiction whereby the undertaking’s statutory seat or

its principal activity is located outside of the EU (so

including companies incorporated in the UK) or (iii)

any undertaking of which one of the ultimate

beneficial owners (“UBOs”)

has its principal

residence outside of the EU.

In addition to private

institutions and undertakings, this covers foreign

“Samenwerkingsakkoord van 30 november 2022 tot het

invoeren van een mechanisme voor de screening van

buitenlandse directe investeringen tussen de Federale Staat,

het Vlaamse Gewest, het Waals Gewest, het Brussels

Hoofdstedelijk Gewest, de Vlaamse Gemeenschap, de

Franse Gemeenschap, de Duitstalige Gemeenschap, de

Franse Gemeenschapscommissie en de Gemeenschappelijke

Gemeenschapscommissie / Accord de coopération du 30

novembre 2022 visant à instaurer un mécanisme de filtrage

des investissements directs étrangers entre l'État fédéral, la

Région flamande, la Région wallonne, la Région de

Bruxelles-Capitale, la Communauté flamande, la

Communauté française, la Communauté germanophone, la

Commission communautaire française et la Commission

communautaire commune”, Belgian Official Gazette, June

7, 2023 (the “Cooperation Agreement”).

Article 5, §1 Cooperation Agreement.

Article 2, 3° Cooperation Agreement, which was aligned

with the definition of “foreign direct investment” under

Article 2, (1) of Regulation (EU) 2019/452 establishing a

framework for the screening of foreign direct investments

into the Union (the “FDI Screening Framework

governments, public institutions and government-

owned companies. There is no exception for UK or

EFTA investors, meaning, for example, that UBOs

who are Belgian nationals, but have their principal

residence in Switzerland or the UK, would be captured

as foreign investors.

Sectors covered. The Cooperation Agreement sets

forth an exhaustive list of the sectors in which

investments are subject to a notification obligation if

25% of voting rights is acquired (or, for some more

sensitive sectors, if 10% of voting rights is acquired).

In addition, if control (see below) is acquired over a

target whose activities relate to these sectors, a

separate notification will also be required.

For

investments involving a Belgian entity that is part of a

broader group, only the activities of the group’s

Belgian legal entity will be relevant to determine

whether the investment relates to one of these sectors.

However, to assess whether the €25 or €100 million

turnover threshold is met (as applicable), the global

turnover of this Belgian entity should be taken into

account, including turnover generated outside Belgium

for activities not related to the relevant sectors.

1. The first threshold (the “25% list”):

Notification

is triggered in case of acquisitions of 25% or more of a

Regulation”; see the separate Alert Memorandum on the

framework regulation, available on our website.; see also

Article 4, §1 Cooperation Agreement; A “foreign direct

investment” for these purposes includes investments which

enable effective participation in the management or control

of the target undertaking.

Within the meaning of Article 1:33-1:36 of the Belgian

Code of Companies and Associations and the Belgian anti-

money laundering law of September 18, 2017 (the “AML

Law”).

Article 2, 4° Cooperation Agreement.

Response to Question 2 of the draft guidelines issued by

the ISC Secretariat on June 30, 2023, available in French

and Dutch on the website of the ISC Secretariat (the “Draft

Guidelines”); Iceland, Norway, Liechtenstein and

Switzerland are members of EFTA.

Response to Question 1 Draft Guidelines.

Article 5, §1 Cooperation Agreement.

Response to Questions 9 and 27 Draft Guidelines.

Response to Questions 10 and 11 Draft Guidelines.

Article 4, §2, 2° Cooperation Agreement.

ALERT MEMORA ND UM

Belgian undertaking and entity whose activities relate

to critical infrastructure, critical technologies, critical

inputs, access to sensitive information, private

security, freedom of media or biotech. There is no size

or turnover threshold applicable for these sectors

(except for the biotech sector, which does require that

the Belgian company’s turnover exceed a certain

threshold). This list is inspired by Article 4 of the FDI

Screening Framework Regulation with a number of

additions specific to Belgium (e.g., the private security

sector or raw materials essential to (health) security)

and covers the following sectors:

— Critical infrastructures, whether physical or

virtual, including energy, transport, water, health,

electronic communications and digital

infrastructures, media, data processing or storage,

aerospace and defence, electoral or financial

infrastructure, and sensitive facilities, whether or

not part of an existing business, as well as land and

real estate crucial for the use of such

infrastructure;

— technologies and raw materials that are essential

to:

• security (including health security);

• national defence or the maintenance of public

order, the disruption, failure, loss or

destruction of which would have a significant

impact on Belgium, an EU Member State or

the EU;

• military equipment subject to the Common

Military List and national control;

• dual-use goods, which includes software and

technology which can be used for both civil

and military purposes;

• technologies of strategic importance (and

related intellectual property), including

Article 4, §2, 1° Cooperation Agreement.

Article 5, §1 Cooperation Agreement.

Article 2, 1° Cooperation Agreement, which refers back

to EC Consolidated Jurisdictional Notice under Council

Regulation (EC) 139/2004 on the control of concentrations

artificial intelligence (AI), robotics,

semiconductors, cybersecurity, aerospace,

defence, energy storage, quantum and nuclear

technologies, as well as nanotechnologies;

— supply of critical inputs, including energy or raw

materials, as well as food security;

— access to sensitive information, as well as personal

data, or the ability to control such information;

— the private security sector;

— the freedom and pluralism of the media; and

— technologies of strategic importance in the

biotechnology sector where the Belgian

company’s turnover exceeds €25 million in the

financial year preceding the investment.

2. The second threshold (the “10% list”) for the most

sensitive sectors: Notification is also required for

acquisitions of 10% or more of a Belgian undertaking

or entity whose activities relate to certain strategic

sectors of defence (including dual-use goods), energy,

cybersecurity, electronic communications or digital

infrastructures in Belgium provided it realized a

turnover exceeding €100 million in the financial year

preceding the investment.

3. Acquisitions of control. In addition to the 10% and

25% voting rights thresholds, acquisitions of “control”

over a target whose activities relate to the sectors

covered by the 25% or 10% list also require

notification.

Control for these purposes is defined as

the possibility of exercising, directly or indirectly, in

fact or in law, decisive influence over an undertaking

within the meaning of EU (and Belgian) merger

control.

This is, therefore, significantly broader than

what would commonly be understood as “control”

under Belgian company law and is consistent with how

the term is interpreted and applied under FDI regimes

in other countries, including, for example, the

Committee on Foreign Investment in the United States

between undertakings (“EUMR”); Article 3(2) of the EU

Merger Regulation defines “control” as the possibility to

exercise “decisive influence” over one or more other

undertakings.

ALERT MEMORA ND UM

(“CFIUS”). For example, certain customary minority

shareholder protection rights may already cause an

investment to cross the threshold of “control” and,

therefore, trigger a notification obligation even if the

25% (or 10%) threshold is not met. Moreover, in that

case, the turnover thresholds mentioned above do not

appear to apply.

Points of Attention – Broad Application of the Belgian FDI regime

Broad interpretation of sectors covered. Since it is only required that the activities of the Belgian

undertaking “touch upon” or “relate to” (“raken aan/sont liées aux”) the sectors covered by the Belgian

FDI regime, investments in undertakings that are not directly active in these sectors but are—for

example—key suppliers of other undertakings active in these sectors also may be caught.

Share thresholds are applied cumulatively meaning share step-ups are also covered. Notification under

the Belgian FDI rules is required for any investor that acquires additional voting shares after July 1, 2023,

thereby (cumulatively) exceeding any of the 10%, 25% or control thresholds. So, a non-EU investor that

holds 30% of shares prior to July 1 and acquires additional voting rights as of July 1 will, in principle, be

required to notify if the target is active in any of the covered sectors. Similarly, a non-EU investor that

holds 20% of shares and acquires an additional 5% of shares as of July 1 will be required to make a

notification.

“Passive” acquisitions also are in scope. Crossing the relevant voting rights thresholds does not require an

“active” acquisition or investment on the part of the foreign investor. Even “passive” acquisitions are

caught.

This could occur, for example, if the target implements a share buy-back program, introduces

securities with multiple or double (“loyalty”) voting rights or because the investor enters into an agreement

with other shareholders of the target that gives rise to a concerted action or control over the target without

any additional investment or acquisition.

Intra-group restructurings are in principle not excluded. Based on draft guidelines published on June 30,

2023

, internal group restructurings may still require notification even if there is no change in the ultimate

parent company or UBO of a group of companies. It remains to be seen, however, how this will be applied

in practice.

Greenfield investments are explicitly excluded.

In line with the approach taken by most other EU

Member States, the Belgian FDI regime excludes greenfield investments from notification and review.

However, there is pressure to reconsider this point and we could expect Belgium to update its regime to

Responses to Questions 14, 16 and 17 Draft Guidelines.

Article 5, §1 Cooperation Agreement.

Response to Question 23 Draft Guidelines.

Article 4, §4 Cooperation Agreement; Response to

Question 4 Draft Guidelines; According to the explanatory

memorandum, such investments cannot pose an immediate

threat to national security, public order or strategic interests.

Note however that the OECD recognized that greenfield

investment may result in the exposure of security or public

order in similar ways as acquisitions of existing companies

(OECD, Framework for Screening Foreign Direct

Investment into the EU, November 2022, p. 56). Belgian

administrations are also continuing to monitor how

neighbouring countries and the EU are evolving in this

regard.

ALERT MEMORA ND UM

include greenfield investments if, consistent with the recently broadened jurisdiction by CFIUS over

greenfield investors, other Member States do the same.

Uncertainty around assets deals. Although some have questioned whether asset deals would be subject to

the FDI screening mechanism, the draft guidelines and notification form published by the ISC Secretariat

on June 30, 2023, suggest at least certain asset deals would be covered.

Without further specific guidance

from the ISC to the contrary, and considering the broad definition of “control”, structuring a transaction as

an asset deal may not avoid a Belgian FDI screening.

3. Application in Time & Ex Officio

Review

Only investments signed on or after July 1, 2023, are

subject to the mandatory notification obligation. The

timing of closing is irrelevant for the application (or

not) of the FDI screening mechanism.

Transactions signed before July 1, 2023 may still be

called in for ex officio review for up to two years after

the closing (up to five years in case of indications of

bad faith) if a competent ISC member considers it

necessary to safeguard public order, national security

or strategic interests.

This type of ex officio review

may also lead to the imposition of remedies for

transactions that have already closed.

Response to Question 6 Draft Guidelines dealing with the (asset) sale of a business division; Annex 14 of the notification

form seems to apply specifically to acquisitions of a line of business by way of an asset deal.

Article 5, §1 Cooperation Agreement; Response to Question 29 Draft Guidelines; Substantial amendments to transaction

agreements signed before July 1, 2023, may still require notification according to the response to Question 30 of the Draft

Guidelines.

Articles 24, 26 and 27 Cooperation Agreement; Note the seemingly arbitrary distinction between the time limits set in the

case of Article 24 ex officio review proceedings (where remedies must be imposed within two or five years after the closing)

and Article 27 ex officio review proceedings (where the review procedure must be initiated within two or five years after the

closing, but remedies can be imposed at the end of the procedure irrespective of how long after the closing the procedure is

completed).

Transactions which have already closed cannot be reversed, but structural remedies may include mandatory divestment.

The obligation to notify arises in principle as from the signing. However, specifics of the investment can influence the

exact timing of the obligation kick-in. For example, in instances where voting rights are obtained gradually, the obligation

arises only as from the certainty that the relevant thresholds will be exceeded. For acquisitions of voting rights subject to

certain condition(s), the obligation to notify only applies as soon as the relevant conditions are fulfilled (Response to

Questions 18-19, 28 Draft Guidelines).

Article 5, §2, first paragraph Cooperation Agreement.

Article 5, § 2, second paragraph Cooperation Agreement.

Article 5, §3 Cooperation Agreement.

4. Notification process

Timing of notification and standstill obligation.

The notification must, in principle, be made to the ISC

between signing and closing.

In line with Belgian

merger control, a notification can be made based on a

draft agreement provided all parties expressly declare

their intention to conclude an agreement that does not

materially differ on any relevant aspect from the

notified draft.

In the event of a takeover bid, parties

may notify an intention to bid that has been publicly

announced in accordance with applicable takeover

regulations.

Acquisitions of equity interests on the

stock market must be notified at the latest at the time

of the acquisition.

Transactions that require Belgian FDI review are

subject to a standstill obligation and cannot be closed

ALERT MEMORA ND UM

until FDI clearance has been obtained.

Failure to

comply with this standstill obligation may give rise to

an administrative fine of up to 30% of the value of the

investment.

Formalities and use of languages. Notifications can

be made through the ICS’s website, by letter or email

or (in person) on site by completing (i) the Belgian

notification form, (ii) the accompanying summary and

(iii) the EU Form.

Investors must provide

information on their ownership structure and economic

activities and describe the investment at issue (e.g., its

strategy, value, financing and date of intended

completion). The detail that must be provided on the

activities of the target is high (including turnover,

profit, market share data, information on IP, an

overview of access to (personal) and sensitive data,

information on workforce, customers and competitors,

etc.).

The forms will, therefore, introduce a

burdensome obligation on foreign investors to provide

detailed information (including on the target

company).

Failure to (timely) notify can give rise to

administrative fines of up to 30% of the value of the

Article 5, §1 and 12, §1 Cooperation Agreement; For

acquisitions of equity interests on the stock exchange, all

rights associated to the acquisition, except financial rights

are suspended following a notification (Article 5, §3

Cooperation Agreement).

Article 28, §2, 3° Cooperation Agreement.

Articles 5, §1 and 6, §2 Cooperation Agreement; The

notification forms are available in French and Dutch on the

website of the ISC Secretariat. Currently, a notification can

be made without the payment of a filing fee.

The foreign investor will have to provide supporting

documents for almost all information provided in the

notification form, including a mandate of representation,

organigrams setting out the chain of control of both the

investor and target, list of clients and economic activities,

lists of competitors, etc.

Similar to merger notifications under competition law, the

transaction agreement would typically require parties to

cooperate in relation to the notification obligation. In a

hostile transaction, where the target refuses to directly

cooperate with the investor, the ISC Secretariat could, in

consultation with the competent ISC members, request the

target to provide additional information pursuant to Article

16 Cooperation Agreement.

relevant investment. Similar fines apply for gun-

jumping and the provision of incorrect, distorted or

misleading information in the notification or in

response to a request for information. The provision

of incomplete information as part of the notification, in

turn, can give rise to fines of up to 10% of the value of

the relevant investment.

Notifications will have to be made in Dutch or French,

depending on the location of the seat or establishment

of the Belgian target.

A notification made in the

wrong language will be null and void.

Annexes to

the notification can, in principle, be submitted in other

languages.

Role and composition of the ISC. The ISC will be

composed of maximum 12 members: maximum three

representatives of the federal government,

representatives of the three Regions (the Flemish

Region, the Walloon Region and the Brussels-Capital

Region), representatives of the three Communities (the

Flemish Community, the French-speaking Community

and the German-speaking Community), and the French

and Common Community Commissions in Brussels.

Article 28, §1 and 2 Cooperation Agreement. The “value

of the relevant investment” in case of multi-jurisdictional

transactions is the part of the investment relating to the

undertaking or entity based in Belgium (Response to

Question 48 Draft Guidelines).

It remains to be clarified whether an investment in an

undertaking located in the German-speaking linguistic area

of the Walloon Region could be notified in German.

Article 3, §1 and 2 upcoming law regulating the use of

language regarding the FDI screening mechanism

established by the Cooperation Agreement (Adopted text

Chamber 55-3397/007) (“upcoming Law on Use of

Language”).

Articles 3, §2 upcoming Law on Use of Language. In

practice and depending on which ISC members are expected

to be competent to review the notified investment, a

translation in English, Dutch or French may be

recommended to speed up the review process.

The Governments will determine which ministers (and

college members) are authorized to make decisions in the

screening procedure (Article 10, § 3 Cooperation

Agreement). At federal level, the ministers responsible for

home affairs, foreign affairs and finance have been

appointed to take such decisions (Article 3 of the Royal

ALERT MEMORA ND UM

The ISC is chaired by a representative of the Federal

Public Service of Economy without voting rights.

The secretariat of the ISC (within the Federal Public

Service of Economy) will process the initial

notification and take on a mostly coordinating role.

In principle, only competent members of the ISC (i.e.,

where there is a territorial link and possible impact on

its material competencies) will be informed and

involved in the review of any given transaction.

These competent ISC members (to be determined on a

case-by-case basis) will conduct an initial review on

behalf of the federal or federated entity they represent

and will play a largely advisory role.

In practice, a

single investment will therefore likely trigger various

separate parallel review procedures by multiple ISC

members, with each member bound by its respective

territorial and material competences and reviews being

coordinated by the ISC Secretariat.

Decisions will be made separately by the various

competent authorities at federal, regional or

community level.

It remains to be seen how these

parallel procedures will be coordinated in practice, but

there is a clear risk that different levels of government

may diverge significantly which may lead to additional

delays and complexities. Such a decision-making

Decree of June 15, 2023). The federated entities each can

appoint a single representative (with the exception of the

Flemish Community, which can appoint an additional

representative in files that concern a competence of the

Flemish Community Commission in Brussels).

Article 3, §2 Cooperation Agreement.

See, for example, explanatory memorandum and Article 9

Cooperation Agreement.

The Cooperation Agreement sets out that the place of the

companies registered office, its economic activities and the

existence of certain infrastructure can all, among other

things, point towards the existence of a territorial link

(Article 7, §1 Cooperation Agreement). An ISC member

that considers to be competent can request the ISC

Secretariat to receive the complete file in order to be

involved in the review process (Article 7, §3 Cooperation

Agreement).

Article 10, §2 Cooperation Agreement.

Articles 8 and 9 Cooperation Agreement.

Articles 10 and 23, §1 Cooperation Agreement.

process could make it difficult to render reliable deal

feasibility predictions.

Review process. The Belgian FDI review process

consist of two phases: (i) an initial assessment phase

(“toetsingsprocedure/procédure de verification”) and

(ii) a more detailed screening phase

(“screeningsprocedure/procédure de filtrage”). The

European Commission and other EU Member States

will only be informed of transactions that are subject

to the more detailed screening.

The Coordinating

Committee on Intelligence and Security (“CCIS”) is

involved as of the initial assessment stage and has an

advisory role.

During the initial assessment phase (Phase I), each

competent ISC member and the CCIS will conduct its

own separate verification to decide whether the

investment can be cleared without a detailed risk

assessment or whether further review is merited. The

decision on the initial risk assessment must be notified

to the notifying party/ies within 30 calendar days

following the ISC’s receipt of the complete file.

Absent notification of a decision within this

timeframe, the investment is deemed to be approved

unconditionally.

However, the 30-day time period is

subject to “stop-the-clocks” and is – for example –

Article 18, §1 Cooperation Agreement.

The ISC Secretariat shall seek the opinion of the CCIS on

each notified investment (Article 13, §1 Cooperation

Agreement).

This timeframe is extended until the next working day if

its final day is a Saturday, Sunday, legal holiday or closing

day of the ISC Secretariat (Article 32 Cooperation

Agreement). On the same day the ISC’s decision is notified

to the parties, it is notified to the European Commission and

other Member States under the EU foreign investment

cooperation mechanism (Article 18, §1 Cooperation

Agreement). The EU Regulation requires Member States to

give “due consideration” to the comments of other Member

States and to the opinion of the European Commission

(Article 6(9) Regulation (EU) 2019/452). In case the

foreign direct investment is likely to affect projects or

programmes of Union interest, Member States shall take

“utmost account” of the Commission’s opinion (Article 8(2)

Regulation (EU) 2019/452).

Article 18, §2 Cooperation Agreement.

ALERT MEMORA ND UM

suspended when an ISC member requests additional

information.

If a subsequent screening phase (Phase II) is opened, a

detailed risk assessment of the investment will be

carried out. While Phase II is formally slated to last

only 28 calendar days, in practice, the statutory

deadlines in the screening phase can be suspended by

various “stop-the-clocks” and there are various other

mechanisms to extend the review including—for

example—the involvement of the European

Commission or other EU Member States, negotiations

on remedies or an extension request by the CCIS.

This could extend the Phase II review by several

months.

In addition, the actual review process will only

formally commence—and the clock on the statutory

deadlines will start to run—when the notification filed

is deemed “complete” by the ISC Secretariat. In that

regard, and contrary to what is common in merger

control proceedings, the ISC Secretariat will not

engage in any informal pre-notification discussions nor

review informal briefing papers. In case of doubt,

parties should submit a precautionary filing.

It will

remain to be seen what the ISC’s practice will be in

declaring notifications complete and, accordingly,

whether the Phase I and Phase II statutory review

Article 16, §1 Cooperation Agreement.

See, for example, Articles 18, §1, 20,§5, 22, §3 and 23, §2

Cooperation Agreement.

Response to Question 21 Draft Guidelines.

Article 6, §3 Cooperation Agreement.

timelines will start shortly after filing or whether a

period will lapse during which parties must work on

completing the notification form based on feedback

from the ISC.

Requests for information (“RFIs”). Following a

(complete) notification, the competent ISC members

may request through the ISC Secretariat any

information necessary to complete the file, which must

be provided without delay.

Failure to do so can give

rise to fines of up to 10% of the value of the relevant

investment.

As illustrated by the simplified timeline for a private

M&A transaction below, we expect the actual review

timelines to extend beyond the initial statutory 30 and

subsequent screening 28 calendar days, respectively.

The current political intention of the ISC is to

complete procedures within two to three months at

most.

It remains to be seen whether the ISC will be

able to live up to this intention. This will in all

likelihood depend on the number of notifications the

ISC receives, the resources allocated to the ISC (and

the various levels of government performing the actual

review), as well as the number of actors involved in a

specific review.

Article 28, §1, 2° Cooperation Agreement. The fine can

be imposed both on the foreign investor as well as the target

(Article 16, §1 Cooperation Agreement).

Website FPS Economy, Inter-federal screening

commission, available in French and Dutch.

ALERT MEMORA ND UM

Standard of review. During the assessment phase,

each competent ISC member verifies whether the

investment could impact (i) federal public order, (ii)

federal national security,

or (iii) the strategic interests

of any of the federated entities.

In addition to the

competent ISC members’ assessment, the ISC

Secretariat will also obtain the opinion of the CCIS,

which is shared with all competent ISC members and,

if relevant, will also coordinate any requests from

individual members for advice from other competent

governmental bodies (e.g., sector regulators).

During the Phase I initial assessment stage, the

competent ISC members and the CCIS will examine

whether there are any concrete indications of a

(possible) risk to public order, national security or

strategic interests based on, inter alia, the following

considerations: (i) whether the foreign investor is

directly or indirectly controlled by a third country

government; (ii) whether the foreign investor has

previously been involved in activities that could affect

national security or public order; or (iii) whether there

is a serious risk that the foreign investor is involved in

illegal or criminal activity. As soon as one competent

member identifies such indications, a screening phase

will be opened.

In case the CCIS requests an

extension of the deadline for its opinion and this

request is granted by the competent ISC members, this

will also automatically start the screening phase.

During the Phase II screening stage, competent ISC

member(s) conduct a specific risk analysis of the

foreign investment so as to advise the competent

minister(s) to enable them to take a final decision on

the investment.

In principle, the competent ISC

member(s) must provide their final advice to the

competent minister(s) within 20 days following the

opening of the screening phase (extendable by one

month for complex files).

If a negative advice is

envisaged, a draft opinion must first be sent to the

notifying party/ies and the target to enable them to

review and comment on the advice.

The notions “public order” and “national security” are

based on Regulation (EU) 2019/452 and, even though they

leave a significant margin of discretion to the authorities, are

relatively well established concepts in the FDI space. While

the Regulation does not define these notions, more guidance

is provided by the European Commission (Question 13 in

the FAQ on the EU Framework for FDI Screening, available

in English on the EC website).

Article 17, §1 Cooperation Agreement; Contrary to

“public order and “national security,” the notion of

“strategic interests of the federated entities” is not based on

EU Regulation and the Cooperation Agreement only

provides a high-level definition referring to (i) ensuring the

continuity of vital processes; (ii) avoiding that certain

strategic or sensitive knowledge falls into foreign hands; and

(iii) ensuring strategic independence (Article 2, 6°

Cooperation Agreement). Further guidance on the specific

risks and interests ISC members can take into account is set

out in Article 11 Cooperation Agreement, which refers to:

(i) the impairment of the continuity of vital processes which,

in the event of failure or disturbance, will lead to serious

social disruption and threaten national security, strategic

interests and the quality of life of the Belgian population;

(ii) the impairment of the integrity or exclusivity of

knowledge and information linked to vital processes and the

high quality sensitive technology required for such purpose;

and (iii) the creation of strategic dependencies.

Articles 13 and 14 Cooperation Agreement; The requests

for advice are coordinated by the Secretariat of the ISC and

the advice obtained is shared will all competent ISC

members, not just the member who requested the advice. In

principle, a delay of maximum 25 days is given to the

governmental body whose advise is requested, but it

remains to be seen if this delay is respected in practice.

Article 17, §2, first paragraph Cooperation Agreement.

Article 17, §2, second paragraph Cooperation Agreement.

Article 19 Cooperation Agreement; Also in this phase,

ISC members may request advice from other competent

governmental bodies or appoint experts. The delay to

provide advice is shorter in the screening phase, with a

maximum of 15 days, when compared to the assessment

phase (25 days) (Articles 13 and 14 Cooperation

Agreement).

Articles 20, §5 and 22, §3 Cooperation Agreement.

ALERT MEMORA ND UM

Focus – Remedies

Once the draft opinion has been notified to the parties, the competent ISC member(s) can propose remedies

(“bijsturende maatregelen/mesures correctives”) to the parties to mitigate the impact of the investment on

public order, national security or strategic interests and therefore allow for approval of the investment. It

currently remains unclear which files are likely to qualify for a conditional clearance.

The Cooperation Agreement provides an indicative list of potential remedies, including, inter alia,

establishing a code of conduct on the provision or exchange of sensitive information, the appointment of a

compliance officer with security clearance, the obligation to deposit technology or knowhow with a third

party and limiting the size of the foreign investor’s investment.

Negotiations on remedies suspend the applicable time periods by one month (each time renewable by one

more month, following an agreement between the competent ISC member(s) and the parties).

The

Belgian regime currently does not provide for an opportunity to discuss or propose remedies during the

initial Phase I assessment stage.

Once the competent ISC members send their advice to

the relevant ministers, each competent minister takes a

preliminary decision on the admissibility of the

investment based on the received advice.

The

preliminary decision(s) by the minister(s) is/are to be

notified to the Secretary of the ISC within six days

following receipt of the advice. If several preliminary

decisions are received from different competent

ministers, the Secretariat consolidates these into a so-

called “combined decision” (“gecombineerde

beslissing/ décision combinée”).

The combined

decision is notified to the parties by the ISC Secretariat

within two days after having received the preliminary

decisions. Combined decisions can result in

unconditional clearance

, conditional clearance

or a

prohibition

Article 21, §4 Cooperation Agreement.

Article 21, §2 Cooperation Agreement.

Article 23, §1 Cooperation Agreement; At the Federal level, a negative advice decision can only be taken following

consultation in the Council of Ministers. Ministers must give due consideration to an opinion of the European Commission

or Member States’ comments received under the EU foreign investment cooperation mechanism.

Article 23, §2 Cooperation Agreement.

Article 23, §3, 1°.

Article 23, §3, 2° Cooperation Agreement; Failure to implement remedies within the applicable time period can give rise to

an administrative fine of up to 30% of the value of the relevant investment (Article 28, §2, 4° Cooperation Agreement).

Article 23, §3, 3° Cooperation Agreement.

Article 23, §1 and §4 Cooperation Agreement.

Article 23, §7 Cooperation Agreement.

In principle, a negative decision of a single competent

minister can suffice for a prohibition decision to be

issued. However, if several federated entities are

competent in the same file, the investment can only be

vetoed by consensus of the relevant ministers. The

federal minister, if competent, always remains able to

block the transaction after consultation in the Council

of Ministers.

Failure to take a combined decision within the

prescribed deadline will result in tacit unconditional

approval.

It currently remains unclear whether the

(combined) decision, or related press release, will be

ALERT MEMORA ND UM

published.

This lack of transparency will also make

it more difficult to advice with a sufficient degree of

certainty on the approach the ISC would be expected

to take in any individual file, as there will be no “case

law” of precedents to rely on.

5. Judicial Review (Appeal to the

Markets Court)

Only a final decision allowing (unconditionally or

subject to remedies) or prohibiting a foreign direct

investment, or any decision to impose an

administrative fine, can be appealed by the foreign

investor or the target with the Markets Court

(“Marktenhof/Cour des marchés”).

The appeal must

be filed within 30 days following the notification of

the challenged decision and has – in principle – no

suspensory effect.

The Markets Courts has full

jurisdiction when it comes to fines

, however, on the

merits, the Markets Court only has the ability to

(partially or wholly) annul decisions. In case of

annulment, the file is sent back to the ISC where a new

screening phase will start.

This leaves significant

leeway for the members of the ISC to decide what

their “strategic interests” are and leaves questions as to

the effectiveness of judicial review on the merits of a

case.

6. Practical Takeaways for M&A

Transactions

— It is key to keep the FDI regime in mind early on

in the process, as it will impact planning and

timing as well as preliminary due diligence, not

just the negotiation of the deal documents and the

post-signing / pre-closing period. Preliminary

Still, at the end of the screening phase a report will be

drawn up setting out the non-confidential elements of the

file to be included in the annual report that each Member

State must submit to the European Commission pursuant to

Article 5 of Regulation (EU) 2019/452 (Article 20, §6

Cooperation Agreement).

Article 29, §§1, 2 and 4 Cooperation Agreement; The

Markets Court is a specialized chamber part of the Brussels

Court of Appeal which also rules on appeals against

decisions of certain other regulators such as the Belgian

Competition Authority, the Belgian Financial Services and

Markets Authority (FSMA), and the Belgian Data Protection

assessments of whether or not a transaction must

be notified will be difficult in light of the broad

definitions used and ambiguities that remain in

various areas pending further guidance from the

ISC. Deal dynamics may become particularly

complex when FDI filings must be made in

multiple jurisdictions or in combination with

merger control or foreign subsidies regulation

filings at various levels.

— When setting a “long stop date” in the transaction

agreement, parties should be aware of the many

possibilities to suspend the procedure, including

potential involvement of other EU Member States

and the European Commission in multi-

jurisdictional deals, which can significantly delay

the approval process.

— Bespoke “hell-or-high-water”, “best efforts to

close” or other contractual provisions with a

comparable purpose (and related cooperation and

consultation mechanisms as well as provisions that

require parties to exchange information) may be

required for FDI screening. Both the procedural

framework and the type of remedies expected to

be required by the FDI authority may vary

significantly from what one would expect in a

merger clearance process. Parties should consider

during the negotiation phase what types of

remedies may be acceptable and where the

threshold should be for the buyer or investor to

walk away from the deal.

— Finally, in a public M&A context, the FDI

screening mechanism may prove particularly

difficult to apply in practice. In the context of a

Authority. An (interim) decision to open the screening

phase cannot be appealed (Response to Question 50 Draft

Guidelines). Unlike in Belgian merger control, the

Cooperation Agreement does not provide a possibility for

interested third parties to appeal.

Article 29, §3 Cooperation Agreement; Unlike in Belgian

merger control proceedings (Article IV.79, § Belgian Code

of Economic Law), the Cooperation Agreement does not

provide for the possibility to request the suspension of the

execution of the decision.

Article 29, §2 Cooperation Agreement.

Article 29, §8 Cooperation Agreement.

ALERT MEMORA ND UM

hostile takeover bid, the complexities of the

procedure may even be instrumentalized by the

target to delay or stop in its tracks the attempted

takeover.

…

CLEARY GOTTLIEB