German foreign investment control has become an increasingly relevant transaction issue in recent years. The German Federal Ministry for Economic Affairs and Energy (BMWi) is in the process of tightening the applicable regulatory framework for the second time in the last year and a half. Also, the German government recently intervened in two Chinese investments, which it had never done before.
Since 2009, the BMWi has reviewed acquisitions of or participations in German companies by foreign, non-European investors, irrespective of the industry of both the target and the investor. The BMWi and the federal government may prohibit or restrict such transactions only if they are a risk to public policy or security. Since 2004, the BMWi has been entitled to review acquisitions of or participations in entities in certain fields of military and encryption technology by any foreign, non-German investor. Both forms of review are governed by the German Foreign Trade Act (AWG) and Regulation (AWV). The relevant provisions are Section 4(1) No. 4 and Section 5(2) of the AWG and Sections 55 to 62 of the AWV. The BMWi also provides some regulatory guidance.2
Initial concerns that the German mergers and acquisitions market would be significantly impeded or delayed by the review of foreign investments have largely proven unfounded. Foreign investment continues in various sectors and has been at a consistently high level during the past decade. Chinese investment into Germany has recently reached an all-time high. In total, Chinese investors spent around US$14 billion on German companies in 2017 and more than US$12 billion in 2016, which was substantially more than the previous record of US$2.6 billion in 2014.3 Recent examples include, inter alia, (1) the acquisition of BCP Meerwind Luxembourg Sàrl by the China Three Gorges Corporation, the largest Chinese clean energy group, in 2016,4 (2) the sale of LEDVANCE GmbH, a lighting products and networked light applications company, to the Chinese investor Harmony Mingxin (Yiwu) by OSRAM Licht AG in 2016–2017,5 and (3) the acquisition of Cotesa GmbH, a supplier of lightweight carbon fibre components for military and civil aerospace projects, by the Chinese fund Changzhou QFAT Composite Material in 2017–2018.6
Despite the continuing and vigorous activities of foreign investors in the German market, recent developments in foreign investment control in Germany and the European Union (EU) have contributed to a growing uncertainty. In 2016, the acquisition of KUKA AG, a company engaged in the manufacture of industrial robots, by MECCA International (BVI) Ltd, a British Virgin Islands' subsidiary of the Chinese appliance manufacturer Midea Group Co Ltd,7 has been subject to public debate.8 Also in 2016, the envisaged acquisition of the German technology company AIXTRON SE by Chinese Fujian Grand Chip Investment Fund was called off, after the clearance certificate initially issued by the BMWi was repealed9 and the President of the United States blocked the takeover of the company's US subsidiary.10
The most recent amendment to the AWV, of 2017,11 has widely been conceived as a reaction to these and other, in particular Chinese, acquisitions. The amended AWV generally shows a more restrictive approach to foreign investment review in Germany. The changes include the introduction of a notification requirement for further non-defence-related sectors, an indication of potential security concerns related to critical infrastructure, telecommunications surveillance, cloud computing, telematics infrastructure and certain sector-specific software, as well as longer review periods.12
The 2017 amendment to the AWV has resulted in a stricter and more comprehensive foreign investment control by the BMWi. An example of this is the abandoned acquisition of Leifeld Metal Spinning AG (Leifeld), a German manufacturer of metal forming technology, by the Chinese investor Yantai Taihai Group (Yantai), a company active in the nuclear sector. On 1 August 2018, Yantai withdrew from the acquisition of Leifeld after the German government had stated that it would prohibit the acquisition.
The recent developments in Germany are flanked by discussions at EU level regarding a European investment control framework. On 13 September 2017, following a joint initiative by Germany, France and Italy,13 the European Commission announced a proposal for a regulation establishing a framework for screening foreign direct investments in the European Union.14 The proposal is generally regarded as a strong indicator of stricter and more comprehensive scrutiny of potentially security-sensitive EU inbound investments, in particular those by state-owned or state-funded investors from China and other protectionist states.15 The proposal is currently being discussed in trilogues between representatives of the European Parliament, Council and Commission and expected to come into force no earlier than 2019.16
Foreign investment review has become an increasingly important issue in international transactions that may require a legal and risk assessment at an early stage of the transaction process, adequate protection in the acquisition agreement and consideration for the transaction timeline. In particular in light of the 2017 amendment to the AWV and the recent failure of the Leifeld transaction, foreign investors should pay particular attention to German foreign investment control issues, particularly in relation to the newly emphasised business areas of potential concern.
Despite increasing state control and intervention in recent times, it can be assumed that prohibitions of foreign investments will remain the exception. As in the past decade, the German government will most likely continue welcoming the majority of foreign investments as a source of economic growth.
II FOREIGN INVESTMENT REGIME
Foreign investment may be subject to review by the BMWi if a non-European person or entity acquires a German company or a direct or indirect shareholding in the company and, after the acquisition, holds at least 25 per cent of the voting rights in the target, irrespective of the target's or investor's industry, the target's size and economic importance, or the transaction value17 (cross-sectoral review, Section 55 of the AWV). As of 2017, a notification to the BMWi is required for certain foreign investments in German companies that are deemed to be particularly relevant to the maintenance of German public policy and security. This concerns in particular the operation of critical infrastructure (e.g., energy, transport or healthcare facilities services, if the facilities concerned are vital to the functioning of the community),18 certain software products for the operation of critical infrastructure, the entrustment with or operation of telecommunications surveillance measures and certain cloud computing services, and telematics infrastructure components and services.
Further, there is a sector-specific review framework, applicable especially to German target companies involved in the development or manufacture of certain military weapons or goods or products with certain IT security functions (sector-specific review, Section 60 of the AWV).19 The sector-specific review is beyond the scope of this chapter.
i Foreign investor under review
The cross-sectoral investment regime focuses on non-European investors only (i.e., those incorporated in, or managed from, outside the EU and the European Free Trade Association (EFTA), irrespective of whether they have branches and operation sites in the EU or the EFTA).20 The regime applies to all types of investors, whether state-owned or private. Investments by EU or EFTA-incorporated investors are generally not reviewable.21 EU-incorporated investors benefit from the free movement of capital within the EU Member States under Article 63 of the Treaty on the Functioning of the European Union (TFEU) and the freedom of establishment under Article 49 of the TFEU.
The BMWi considers investors incorporated in the Channel Islands as non-European investors in this sense. Although the Channel Islands are part of the customs territory of the EU,22 they are outside the geographical application of the TFEU.23 The free movement of capital does not apply.24 Against this background, investors from the Channel Islands are treated like other non-European investors, in particular as local company law and anti-money laundering legislation do not provide for the same standards as in the EU.
In exceptional cases, acquisitions by EU or EFTA-incorporated investors may also be subject to review if the BMWi has reason to believe that the structure has been chosen to circumvent the control regime, that is if the acquiring European vehicle has no substantial business on its own or no permanent presence in the form of offices, personnel or equipment in the EU or EFTA.25
ii Foreign investment under review
Only acquisitions of an existing business in Germany are reviewable. Generally, all types of share deals may be subject to review if they lead to an acquisition of 25 per cent or more of the voting rights, including any acquisition of shares, capital increases and debt-equity swaps. In contrast, acquisitions of non-voting shares, put or call rights, or pre-emptive rights are, as such, not subject to review.26 Acquisitions may take place in special situations, including the target's financial distress or insolvency. These circumstances do not trigger or modify the review process.
The review is triggered by a purchaser holding at least 25 per cent of the voting rights after the transaction (Section 56(1) of the AWV). If an investor acquires a shareholding of less than 25 per cent, but reaches 25 per cent of the voting rights through a further acquisition, this further acquisition triggers the investment review.27
In contrast, it is controversially debatable whether a further acquisition may be (repeatedly) reviewed if an investor already holds 25 per cent or more of the voting rights as a result of a previous acquisition and increases its participation (e.g., from 30 per cent to 45 per cent). From the wording of the relevant provision (both the previous and the new version), it is not entirely clear whether the review applies only to those acquisitions that cause the threshold of 25 per cent to be passed or also to further acquisitions above that threshold. Some authors argue that an acquisition may only be reviewed if it triggers passing the 25 per cent threshold.28 They refer in particular to the materials of the draft bill,29 according to which the review mainly aims at prevention of potential blocking minorities, and that, once the 25 per cent threshold has been passed, any further transaction does not trigger a potential blocking minority.30 Others hold that further acquisitions are reviewable, arguing that the law does not require such causation and that the further acquisition of a higher percentage or majority of voting rights justifies a further review because the investor may have gained a different or increased level of influence.31 In light of the lack of an established administrative practice of the BMWi and the legal controversy, depending on the circumstances of the transaction, the parties may consider filing for a clearance certificate in order to obtain deal certainty.
Voting rights held by a third party in the German target are attributed to the investor if the investor holds at least 25 per cent of the voting rights in the third party, or if the third party and the investor have entered into an agreement on the joint exercising of voting rights in the German target (acting in concert) (Section 56(2) of the AWV).
The acquisition of an indirect shareholding becomes subject to review if the purchaser (indirect shareholder) acquires 25 per cent of the voting rights in the target, and further, if the purchaser holds 25 per cent of the voting rights in the direct shareholder and the direct shareholder in turn holds 25 per cent of the voting rights in the target. Before the 2013 amendment to the AWV, it was unclear under which conditions indirect acquisitions of German targets were subject to review by the BMWi.32 Since 2013, the wording of Section 56(3) of the AWV has clearly suggested that, in cases of indirect shareholding, it is sufficient that the (indirect) purchaser holds 25 per cent of the voting rights in the relevant intermediate shareholder (e.g., acquisition vehicle), directly acquiring at least 25 per cent of the German target's shares.33 In cases of multiple intermediate shareholders, each needs to hold at least 25 per cent of the voting rights in the relevant subsidiary. One of the purposes of these broad attribution mechanisms is to make sure that the parties to the transaction may not circumvent foreign investment control by way of complex and multi-layered acquisition structures. The 25 per cent threshold is currently subject to debate at government level. The acting Federal Minister for Economic Affairs and Energy has proposed lowering the threshold to a value of 15 per cent, at least with respect to foreign investments that relate to certain sensitive business areas. The proposal has been sent to several ministries for review. If it is ultimately approved, the new law could come into force later this year.
In addition, the acquisition of a company's business by way of an asset deal may be subject to review. While this matter was controversially debated under the previous AWV framework, which related to the acquisition of 25 per cent of the voting rights only,34 the 2013 amendments to the AWV35 and, most recently, the BMWi in its FAQ dated January 2018,36 have clarified that the acquisition of a company as such is also reviewable. This clarification confirms that asset deals are reviewable, provided that they relate to a company (i.e., a group of assets that form an undertaking and are jointly used for a commercial purpose) rather than to single assets.37 The review period starts from the signing of the agreement on the asset acquisition.38
On the other hand, the establishment of a new business and the creation of a joint venture in Germany are not restricted under the foreign investment control regime.39 They will, obviously, have to meet any other applicable regulatory requirements for such a business or operation under German law, such as incorporation or public law permits requirements.
iii Scope of investment review
The BMWi reviews whether an investment is a risk to public policy or security in Germany.40 The risk has to be actual and sufficiently important and affect fundamental public interests;41 general economic-political goals or merely protectionist considerations do not justify the restriction or prohibition of a transaction. The regulation does not provide for routine control of each and every foreign investment.42 The term 'public policy or security' refers to Articles 36, 52(1) and 65(1) of the TFEU and has to be understood in accordance with EU law.43 Under these provisions, grounds of public policy and security may justify restrictions of the free movement of goods, capital and payments, and of the freedom of establishment.
The European Court of Justice (ECJ) discusses these terms in the context of claims against EU Member State restrictions of the free movement of goods, capital and payments, and of the freedom of establishment, and takes a rather restrictive approach. The ECJ accepted – in decisions on 'golden shares' – restrictions of the free movement of capital only to guarantee the general public's minimum supply of petrochemical products,44 electricity and telecommunications services, or other public services of strategic interest.45 In the ECJ's opinion, other industries, such as corporate banks and the manufacture of tobacco, did not qualify as providing public services of strategic interest.46 Abstract concerns about certain investments in undertakings in strategic sectors (e.g., by sovereign wealth funds) do not constitute a valid justification based on public security.47 The acquisition of a 10 per cent share of a public service company of strategic interest cannot, as a general rule, be regarded as a real and serious threat that warrants restrictions of the four freedoms.48 The ECJ also found that an authorisation scheme for the acquisition of voting rights representing 20 per cent or more of the share capital in certain 'strategic public limited companies' is in breach of the freedom of establishment if the authorisation is of a discretionary nature.49
The proposal for an EU investment control regime, as is currently being discussed by the European Parliament, Council and Commission,50 goes beyond the traditional understanding of public policy and security established in ECJ case law. According to the proposal, in screening a foreign investment on the grounds of public policy and security, Member States and the Commission shall also consider the potential effects on, inter alia, communications, data storage, artificial intelligence, robotics or semiconductors. The proposal thus takes a less restrictive approach, which might, if implemented, be challenged by the ECJ.
While the investment review is clearly not limited per se to any particular sectors or industries, some industries appear to be more crucial or sensitive. Based on the most recent amendment to the AWV, of 2017, acquisitions deemed to be of particular relevance to the maintenance of public policy and security are, inter alia, those in the fields of critical infrastructure (e.g., energy, transport or healthcare facilities services, if the facilities concerned are vital to the functioning of the community),51 certain software products for the operation of critical infrastructure, companies entrusted with the operation of telecommunications surveillance measures and certain cloud computing services, and telematics infrastructure components and services (Section 55(1) of the AWV).52
Owing to the broad scope of the terms 'public policy' and 'security', the BMWi has considerable discretion in its review. Between 2008 and December 2017, the BMWi issued 407 clearance certificates, of which 359 concerned the cross-sectoral review.53 In an unprecedented decision, the BMWi repealed a clearance certificate for the envisaged acquisition of the German technology company AIXTRON SE by China's Fujian Grand Chip Investment Fund and initiated formal investigation proceedings in 2016 (without ultimately making a decision).54 Further, in several more recent transactions, the BMWi (as the case may be, with other federal ministries or the full federal government) has negotiated with the investors security agreements containing certain security-related conditions or commitments related to the transaction. In 2016 and 2017, the German government concluded security agreements with purchasers in seven cases.55 On 1 August 2018, the government passed a resolution to prohibit the acquisition of Leifeld Metal Spinning AG envisaged by the Chinese investor Yantai Taihai Group. Yantai ultimately cancelled its application for clearance and withdrew from the acquisition. In this way, it prevented the government from issuing a prohibition order. While the Leifeld case can thus be regarded as the first de facto prohibition of a transaction under German foreign investment control, the government has still not issued any prohibitive order and, hence, not yet formally prohibited any foreign investment.
III TYPICAL TRANSACTIONAL STRUCTURES
Generally, the transactional structures applied to a foreign acquisition of a German company depend on various considerations, but in any event on whether the target is a private or public company. Public companies are those whose shares are traded publicly, in particular if they are listed on an organised market, whereas shares of private companies are not traded publicly. There is no residency requirement for a foreign purchaser, but it should be noted that the acquisition of business assets located in Germany generally results in the factual establishment of a branch, which must be registered with the commercial register.
As in most jurisdictions, the acquisition of a German private company is generally effected in one of two ways: as an asset deal (i.e., the purchase of the assets and the assumption of the liabilities of the business run by the company) or as a share deal (i.e., the purchase of either the shares of the corporation or the interests in the partnership running the business). Transactions may also take the form of a mixed asset and share deal.
The asset deal structure allows the purchaser to choose certain assets or liabilities, or, conversely, to exclude certain assets or liabilities from the transaction. However, under German civil law, the acquisition of assets and liabilities in an asset deal requires in general a precise definition and determination of the assets and liabilities to be acquired or excluded. This may cause problems in the context of acquiring a complex business. Contrary thereto, a share deal generally involves the acquisition of the entire business. Legally, no determination of the assets and liabilities pertaining to the business is required. It suffices to determine the specific shares (or partnership interests) that form part of the transaction. With the sale of the shares (or interests), the corporation or partnership is transferred, as well as the entire business. Even in a share deal, however, certain assets or liabilities, or both, can be left behind by way of a carveout implemented prior to or in close connection with the transaction.
The purchaser of a business in an asset deal should be aware that, as well as the assets, it may acquire certain liabilities by virtue of statutory law. This applies in particular to employment relationships related to the business or a business unit forming part of the transaction. However, this may also apply to certain tax and other liabilities, depending on the specific circumstances.
There are also differences in tax treatment between asset and share deals. While the purchase of assets may generally lead to tax benefits from depreciating the assets over their lifetime, this is generally not possible for the purchase of shares. On the other hand, a seller of shares may benefit from preferential tax treatment under capital gains rules. Companies that have considerable tax loss carry-forwards may look attractive to potential purchasers, but it should be noted that the use of such tax loss carry-forwards is considerably restricted under statutory law. In particular, in the case of an acquisition of a majority of shares, the loss carry-forwards generally fall away.
Depending on the circumstances, the sale of private companies is very frequently organised as an auction. In general, these auction processes do not differ greatly from those in many other jurisdictions and internationally as regards the various process steps, the parties involved and the relevant documents.
The acquisition of assets and liabilities by way of an asset deal from a public company does not differ, in general, from an asset deal transaction with a private company. However, under the Stock Corporation Act, the executive board of the selling stock corporation may need not only the approval of the supervisory board, but under certain (limited) circumstances also of the shareholders' meeting. This applies under statutory law if the stock corporation sells essentially all its assets or if, by selling the assets, the stock corporation essentially loses the ability to run a business as defined to be the purpose of the stock corporation in its articles of association. In addition, the management board may voluntarily seek the approval through a shareholders' meeting.
Contrary to a transaction related to a private company, where a sale and purchase agreement may be negotiated and entered into with one or a limited number of sellers, the acquisition of a public company requires necessarily the approach of numerous potential sellers. For shares listed on an organised market, specific rules on mandatory and public tender offers are set forth in the Securities Acquisition and Takeover Act (WpÜG) and connected regulations.
If there is one seller or a limited number of sellers holding jointly a major stake in the public company (block trade), the foreign purchaser should be aware that if the acquisition of shares in a public company that is listed on an organised market reaches or exceeds 30 per cent of the voting stock of the company (including shares acquired by certain related parties), the WpÜG provides for a mandatory tender offer, meaning that the purchaser has to launch a public offer for the acquisition of all (remaining) shares in the target company at a statutory minimum price.
The minimum price for a mandatory tender offer is generally derived from the weighted average of the stock prices of the shares in a target company during the three months prior to the announcement that the purchaser has acquired 30 per cent or more of the voting rights in the target company, but must not fall short of the purchase price that the offeror or related parties have paid for shares in the target company during the six months prior to the announcement.
If a purchaser intends to avoid a mandatory tender offer, it can limit the acquisition to less than 30 per cent of the voting rights in the target company. This can be done in the form of a block trade, a public tender offer to all shareholders, or a combination of both. If the purchaser aims to acquire less than 30 per cent of the voting rights, the public tender offer must necessarily be limited to the number of shares that, with shares that the offeror may already hold or acquire in parallel, add up to less than 30 per cent of the voting rights.
If, on the other hand, a purchaser intends to acquire a high number of voting rights in the target company (in particular a majority of the voting rights or even a qualified majority of the voting rights), it must launch a public tender offer for all the outstanding shares in the target company. The purchaser is not allowed to limit the offer to any number of voting shares equal to or in excess of 30 per cent. If the target company has different classes of shares (e.g., non-voting preference shares as well as voting ordinary shares), the purchaser has to extend the offer to all (classes of) shares. Only under certain limited circumstances may the offeror, with the consent of the German Federal Financial Supervisory Authority (BaFin), exclude from the offer shares held by shareholders resident or domiciled in other jurisdictions. The voluntary public tender offer dispenses the offeror, following the acquisition of 30 per cent or more of the voting rights, from a subsequent mandatory tender offer, if the voluntary tender offer is made at a price at least equal to the minimum price for the mandatory tender offer.
A public tender offer has to be made in cash (euro) or liquid shares that are listed on an organised market. The offer has to be made in cash if the offeror itself (or jointly with certain related parties) has acquired at least 5 per cent of the shares or voting rights in the target company for cash in six months preceding the announcement of its intention to launch the public tender offer or up to the expiry of the offer period. In addition, if the offeror itself (or jointly with certain related parties) acquires shares in the target company in parallel with the offer at a price that is higher than what is offered to other shareholders in the offer, the offer price is increased by virtue of law to the benefit of all shareholders. The same generally applies to any acquisition of shares in the target company within one year of expiry of the offer, except for purchases on the stock exchange.
A public tender offer must not be made dependent on conditions that are solely controlled by the offeror or certain related parties. In addition, the offer must not be made subject to withdrawal or rescission rights. In practice, it is customary that a public tender offer is conditional upon a minimum acceptance level, so as to allow the offeror to exercise control over the target company upon closing of the offer. The offer may also be made conditional upon merger control or other regulatory approvals. Other typical conditions require that certain relevant assets or contractual relationships are not 'lost' by the target company because of the offer or its consummation (change of control), or that no major adverse changes occur with regard to the target company or its business (MAC clause). As to the latter, in particular, it must not be used as a disguised rescission right. Therefore, it is acceptable only if the events that result in the offer falling apart are precisely defined.
The offer period is between four and 10 weeks at the discretion of the offeror. It is extended by virtue of law if the offeror waives conditions or increases the consideration within the final two weeks of the offer period, if a shareholders' meeting is convened at the target company or if a competing bid is launched prior to expiry of the offer period, in which case the offer period runs in parallel with the offer period of the competing bid. If a public tender offer is successful, the shareholders who have not yet traded in their shares are allowed to do so within a further two weeks.
Any public tender offer, whether voluntary or mandatory, has to be accompanied by an offer document, the contents of which are determined by law, approved by the BaFin in a specific procedure and applying certain restricted time lines. No offer may be launched without the financing thereof being guaranteed. In the case of an exchange offer, this requires at least the approval of the capital increase, if applicable, by the relevant bodies of the offeror (e.g., the shareholders' meeting).
Following publication of the offer document, both the executive board and the supervisory board of the target company are obliged to publish a document in which they appraise the offer. The boards are allowed, but not obliged, to make recommendations to the shareholders. As a general rule, the executive board of the target company is not allowed to take any measures that could potentially jeopardise the success of the offer. This does not apply, in particular, to any such measures that an orderly and diligent director would have taken despite the offer.
In addition to the typical transactional structures described above, German corporate and transformation law includes a variety of other means to transfer assets or businesses from one legal entity to another, or from one legal entity to the shareholders, such as mergers and spin-offs. However, they are rarely used in cross-border transactions because of the complexity of interlinking the legal rules of two jurisdictions. If used at all, these specific transactional structures may be used within the EU.
In addition, there is a variety of other investment scenarios, including in particular joint ventures and limited investments in private companies. They generally follow shareholders' agreements, which define in particular corporate governance issues (voting restrictions or rules, call and put rights, exit scenarios). Structural details very much depend on the case at hand. In any event, there are no rules in general that prohibit a foreign investor from entering into any such structures.
IV REVIEW PROCEDURE
Since the 2017 amendment to the AWV, under the cross-sectoral investment regime, a notification requirement applies with regard to certain foreign investments in German companies deemed particularly relevant to public policy and security.56 Acquisitions falling within the scope of the notification requirement have to be notified to the BMWi in writing (Section 55(4) of the AWV). Based on the wording of the applicable regulations, it is unclear who is obliged to notify the acquisition. The BMWi has clarified in its FAQ of January 2018 that the notification can be submitted by either the purchaser or the target company.57 Beyond the fact that the review period may not start running,58 there are no sanctions if an acquisition is not notified. In particular, the notification obligation does not qualify as a statutory closing condition. Further, there are no specific requirements as to the content and scope of the written notification.
Foreign investments are reviewable by the BMWi within certain time frames, and the BMWi may prohibit an acquisition or impose certain restrictions, subject to the federal government's consent, to maintain public policy or security. Under the cross-sectoral investment regime, an approval of acquisitions by the BMWi is not required. However, the validity of an agreement on the acquisition of a German company or a shareholding in the company is subject to the condition subsequent that the BMWi prohibits the transaction within those time frames (Section 15(2) of the AWG). In the case of such a prohibition, the agreement becomes invalid. Possible restrictions that the BMWi might impose on the purchaser include restrictions on an increase of the participation, obligations to acquire a lower participation or to restrict the acquisition to certain parts of the target business only, or to otherwise limit the investor's influence on the target company, or minimum holding periods.
The BMWi may review foreign investments upon application by the purchaser or ex officio (i.e., on the BMWi's own initiative). The ex officio cross-sectoral review has been of little relevance so far: as of December 2017, only two ex officio reviews have been conducted.59 This is in line with the federal government's estimation that the BMWi would review only a small number of investments on its own initiative.60 The large majority of cross-sectoral reviews have until now been conducted upon voluntary application for clearance. As of December 2017, there has been only mandatory notification under the new cross-sectoral regime.61
i Review upon application
Investors may apply for a clearance certificate (in German legal terms, a 'certificate of non-objection') to further accelerate the review procedure. A clearance certificate is a formal confirmation from the BMWi to the purchaser that the acquisition does not raise any concerns with respect to public policy or security. Generally, it provides legal certainty to the purchaser, the seller and the target that the acquisition can be closed. Only in exceptional cases, and in compliance with general administrative laws,62 may the BMWi repeal a clearance certificate retrospectively (e.g., if a clearance certificate has been granted on the basis of inaccurate or incomplete application documents).63
Generally, the application is fairly straightforward. It must contain a description of the envisaged acquisition, the purchaser and the target, and the business activities of the purchaser and the target. The law provides no particular timing constraints or deadline for the application. The application can be submitted soon after or even before the signing of an acquisition agreement, or at any other time. Based on general principles of German administrative laws, the application documents must be submitted in German.64
The BMWi may open an in-depth review, and notify the purchaser thereof, within two months65 of receipt of the application.66 Unless the BMWi prohibits the transaction, imposes any restrictions or notifies the purchaser of an in-depth review, the transaction is deemed cleared upon expiry of the two-month period. The BMWi may also explicitly clear the transaction in advance and grant a clearance certificate. In our experience, if there are no obvious concerns about public policy or security (e.g., because the target business is not sensitive from the perspective of public policy or security), the BMWi explicitly clears transactions shortly after receipt of the application rather than letting the two-month period expire. In cases in which a potential risk to public policy or security requires a more thorough analysis, the investor may submit a more comprehensive and substantial application to reduce or mitigate any potential concerns the BMWi may have. In cases where the BMWi has to be notified of an acquisition, the notification does not automatically qualify as an application for a clearance certificate. To benefit from the two-month review period applying in cases of review upon application, the purchaser should submit an application for a clearance certificate in conjunction with or in addition to the notification. Conversely, however, the BMWi has clarified in its FAQ of January 2018 that an application for a clearance certificate would automatically include a notification to the BMWi.67
ii Review ex officio
The BMWi may formally review a transaction only if it notifies the purchaser within three months of obtaining knowledge of the signing of the acquisition agreement.68 In any case, a review may not be conducted if more than five years have passed since the signing of the relevant acquisition agreement.
The BMWi may be informed of transactions by the German Federal Intelligence Agency, the Federal Cartel Office (which may deal with merger control issues) or the BaFin, if the transaction involves a public offer. The most recent ex officio investigation in 2017 was initiated on the basis of information provided to the BMWi by the Member State in which the target company has its headquarters, and by German competitors of the target company that were concerned about potential negative implications of the transaction for the German market.69 The BMWi may also gather information about transactions from newspapers and other publicly available sources. If the transaction involves a public offer under the WpÜG, the three-month period starts with the BMWi's knowledge of the publication of the bidder's decision to make an offer or of the bidder's acquisition of control.
Once the three-month period (beginning with knowledge of the ministry) or, in the absence of such knowledge, the five-year period, has expired without the BMWi having notified the purchaser, the transaction is deemed cleared, and the BMWi is precluded from reviewing or prohibiting the transaction.
iii In-depth review and suspension of negotiations
If the BMWi opens a formal review procedure within two months of receipt of the clearance application or, in the absence of an application, within three months of obtaining knowledge of the transaction, the purchaser must submit to the BMWi documents relating to the acquisition, including detailed information about the purchaser, the target, its businesses and operations, shareholdings, customers, contracts with public bodies and market shares.70
The BMWi has a further four months from receipt of the complete documents to conduct its in-depth review. Since the 2017 amendment to the AWV, the BMWi may request relevant information from all parties to the transaction to obtain complete documents.71 Unless the BMWi prohibits the transaction or imposes any restrictions, the transaction is deemed cleared upon expiry of the four-month period. The BMWi may also explicitly clear the transaction in advance. The 2017 amendment to the AWV has clarified that the expiry of the four-month period is suspended while the BMWi negotiates contractual clauses to ensure the maintenance of public policy and security with the parties to the relevant transaction (Section 59(2) of the AWV).
In total, the process of initial and in-depth review by the BMWi may take up to six months, plus any time needed by the parties to the transaction to collect and submit to the BMWi any requested information and documents, as well as any suspension period for negotiations with the federal government. In practice, the applicable deadlines may be delayed by way of repeated information requests to the parties to the transaction. During this period, there is no legal certainty for the purchaser, the seller or the target regarding the admissibility and validity of the transaction, and closing is considerably delayed. This potential for delay was a major concern and proved controversial during the legislative process.72 The federal government envisages accelerating the review process where possible.73
iv Legal protection
Information and documents relating to an acquisition provided by an investor often contain trade and business secrets. The BMWi has to keep these confidential and may not disclose them to any unauthorised third party.74 If the BMWi decides to review the acquisition, it has to consult the competent federal ministries.75 Further, if the BMWi intends to prohibit a transaction, or impose restrictions, it has to involve the federal government, and the BMWi may only prohibit the transaction or impose restrictions with the federal government's consent.
A review procedure is not public and does not comprise a public hearing or other form of public participation. Formal decisions about the clearance or the prohibition of an acquisition are generally not made public. Details about foreign investment control proceedings may, however, become public if and to the extent that they are disclosed by the parties to the transaction (e.g., as part of their deal announcement). Also, details are occasionally leaked in cases of particular public and political interest, such as the intended prohibition of the Leifeld acquisition, which had already been leaked to the German press about a week before the German government had made its final decision.
If the BMWi opens a review procedure, prohibits an acquisition or imposes restrictions, investors76 and sellers77 may challenge the decision in court.78 The target is not entitled to make a claim in court based on its own rights. A third party (e.g., a competing bidder) may generally not challenge a clearance or deemed clearance in court. The foreign investment regime shall protect public policy or security rather than the interests of third parties. There is no established case law on foreign investment review, mainly because the BMWi has so far not formally disallowed any transaction. Even in a prohibition case, there is reason to doubt whether a legal action against a prohibition order by the federal government brought by the seller or purchaser could save the contemplated transaction. The scope and duration of court proceedings are generally incompatible with the parties' need for certainty about the deal within a particular time frame.
V FOREIGN INVESTOR PROTECTION
Germany undertakes to protect foreign investments in various regional investment protection charters as well as bilateral investment treaties (BITs). A common feature of these charters and BITs is that Germany grants a level of investment protection to investors from the contracting countries that is no worse than the protection of German investors (principle of reciprocity). In particular, Germany undertakes to generally grant free movement of capital and goods as well as property rights.
Although foreign investors are not parties to the treaties that are entered into by Germany and other sovereign states or regional organisations, they are generally entitled to directly claim the rights under the treaties. Germany commonly agrees to be subject to arbitration proceedings for all disputes that may arise under a treaty. In particular, investors may effectively claim adequate compensation for damages incurred by, inter alia, expropriation.
Thus, Germany seeks to promote foreign investment by mitigating the risk for foreign investors associated with investment and trade. The BITs serve to provide investors with a high level of legal certainty and protection against discrimination and all forms of arbitrariness.
i Existing agreements
As at July 2018, Germany is party to more than 130 BITs (of differing strength) currently in force.79 As the first signatory of a BIT around 50 years ago with Pakistan, Germany is a pioneer in this respect, and is a signatory of probably the largest number of BITs worldwide. The more recent agreements, with Bahrain, Jordan, Libya, Oman, and Trinidad and Tobago, entered into force in 2010, and with Madagascar in 2015.
Germany is signatory to BITs with Iraq and Panama that have been signed but are not yet applicable. A BIT with Israel is preliminarily applicable, even though it is not effective in official terms. In addition, Germany is one of the 55 countries and international organisations to have ratified the Energy Charter Treaty providing for particular investment protection related to the energy sector.80
ii German and EU agreements concluded or being negotiated
The EU has entered into free trade agreements (FTAs) with Canada (the Comprehensive Economic and Trade Agreement (CETA)),81 Singapore82 and Vietnam;83 ratification is pending for these agreements. This process has given rise to a fierce debate between the EU and its Member States regarding competence for the various legal aspects covered by the agreements.84 In its opinion on the FTA between the EU and Singapore, the ECJ has ruled that, inter alia, the provisions on investor–state dispute resolution fall within the competence shared between the EU and its Member States,85 thus potentially requiring the consent of all national parliaments in the course of the ratification process. The European Commission is currently negotiating on investment, including investment protection, as part of the free trade and investment agreement talks with a number of jurisdictions,86 including the United States87 (the Transatlantic Trade and Investment Partnership (T-TIP)), China,88 Japan89 and India.90 Also, the Council adopted negotiating directives for a Deep and Comprehensive Free Trade Area with four EuroMed countries (Tunisia, Morocco, Jordan and Egypt) in 2011.91
iii Effectiveness and enforcement issues
Amendments to EU treaties by the Treaty of Lisbon of 200992 transferred competence for investment protection to the EU (Article 207(1) of the TFEU). The EU is now competent to a greater degree to negotiate and enter into investment protection agreements with other countries.93 According to the Grandfathering Regulation,94 the EU envisages replacing, step by step, the Member State BITs with EU agreements.
Existing BITs between the Member States and non-EU states remain effective.95 In the case of an established incompatibility with EU law, the Member State would generally have to enter into negotiations with the relevant contracting state and seek to agree on modifications for the future.96 If the EU reaches the same level of foreign investment protection by entering into BITs with third countries, Germany would presumably amend or terminate the relevant domestic BITs in accordance with the provisions of the relevant BIT.
It is controversial whether BITs between two Member States (intra-EU BITs) may be upheld. The European Commission initiated infringement proceedings against five Member States (Austria, the Netherlands, Romania, Slovakia and Sweden) in June 2015 after they refused to terminate their respective intra-EU BITS.97 According to the Commission, Ireland and Italy terminated all their intra-EU BITs in 2012 and 2013.98 A delegation from Austria, Finland, France, Germany and the Netherlands proposed a multilateral agreement among the Member States to replace existing intra-EU BITs, but also to ensure procedural protection for EU investors.99
The EU treaties and the Grandfathering Regulation do not specifically address the termination of intra-EU BITs. In response to a request for a preliminary ruling pursuant to Article 267 of the TFEU by the German Federal Court of Justice,100 the ECJ in a judgment of 6 March 2018 ruled that investor–state arbitration agreements under intra-EU BITs circumvent the judicial review of EU law by the competent EU and Member States courts and hence violate the autonomy of EU law. Such arbitration agreements shall thus be precluded by Articles 267 and 344 of the TFEU.101
VI OTHER STRATEGIC CONSIDERATIONS
The BMWi has rarely intervened in foreign investments under the AWG or AWV framework for cross-sectoral review. In the majority of cases, the foreign investment review is mainly an issue of diligent organisation and timing, which the parties should consider at legal due diligence stage and reflect in their acquisition agreements (e.g., closing conditions, cooperation provisions, deadlines and termination rights). In more critical cases, the parties should also provide for an adequate risk allocation. In particular, in light of the 2017 amendment to the AWV and recent practical developments, there is an increased awareness for German foreign investment control in global M&A markets. Investors should consider the potential implications of foreign investment control regulations for their envisaged acquisitions in Germany, such as delayed review proceedings and possible negotiations on security-related aspects with the federal government in sensitive areas of business. In addition, the parties will have to consider any other regulatory requirements – including notification and approval requirements – that may in the individual case apply to the transaction (e.g., resulting from sector-specific laws and regulations). The early involvement of regulatory advisers will generally ease the process in both respects.
i Identification of notification requirements and reviewable transactions
As regards merger control requirements, the parties to the transaction must seek to gain a clear understanding of the notification requirements and potential review by authorities at an early stage of the transaction process. Since the 2017 amendment to the AWV, German foreign investment law requires notification to the BMWi of those transactions deemed particularly sensitive (and distinct from the sector-specific review). The parties to a non-European investment in a German company should seek to identify whether the investment is reviewable (in particular because of the 25 per cent threshold and further criteria set out in Section IV).
In light of the clearance practice of the BMWi, reviewability, in most cases, has a greater effect on the timing and organisation of the transaction than its structure. In most cases, an application for a clearance certificate will provide a higher degree of legal certainty (as is also the case if the parties are relatively certain that the transaction will not constitute a risk to public policy or security). Apart from particularly critical cases, the clearance process will generally not delay the transaction – in particular, if the transaction is also subject to merger control or if the parties have to work on other time-consuming matters between signing and closing of the transaction (such as negotiations of transitional service agreements for a certain period post-closing). Foreign investment review and merger control review are independent from each other; however, the majority of transaction-related information is required for both proceedings. Investors may thus achieve synergy effects when preparing both proceedings in parallel.
ii Transaction terms and timing
It has become general practice in transactions with non-European investors to provide for a closing condition on foreign investment review (condition precedent), in addition to closing conditions on other (regulatory) matters, to ensure deal certainty and in particular avoid the potential unwinding of an acquisition in the event of the transaction being disallowed or restricted after closing.102 Such a closing condition may distinguish various scenarios; for example, in the case of an application for a clearance certificate, the closing condition may be deemed to be met if the BMWi (1) clears the transaction by granting a clearance certificate, (2) has not initiated a review procedure within two months of receipt of an application for a clearance certificate, or (3) has, in the event of an in-depth review, within four months of receipt of the complete documentation of the transaction – plus any additional suspension period for negotiation of public policy or security clauses – neither prohibited the transaction nor imposed any restrictive orders (unless with the purchaser's acceptance of these conditions). Unlike with statutory closing conditions, the parties may modify or waive a contractual closing condition at any time by mutual consent.
The parties' responsibilities in the foreign investment review should be clearly allocated. Generally, the purchaser undertakes to prepare the clearance application in close cooperation with the seller. Only the purchaser, however, is authorised to submit the application (Section 58(1) of the AWV).
The clearance application must contain information about the envisaged transaction, the purchaser and the target, as well as the business activities of the purchaser and the target. Before the closing of the transaction, however, the purchaser does not have full access to target-related information. Therefore, in order to submit a complete clearance application, the purchaser is dependent on support and feedback by the sell side. Generally, the parties will therefore agree on best efforts and cooperation in preparing the application. In many cases, the parties can refer to general due diligence obligations or specific cooperation provisions in their acquisition agreement, such as in the context of any merger control filings. In more critical or sensitive cases, in particular, the parties may more specifically address whether, to what extent and under which conditions the purchaser, for example, has to accept or requires the seller's consent for potential conditions to a clearance.
The parties may prepare and submit the filing prior to signing the transaction agreement. In the majority of cases – in particular if merger control or further closing conditions, or both, have to be met – a filing shortly after the signing will be sufficient and is not likely to delay the transaction. Collection of information and possibly preparation of the filing prior to the signing may generally accelerate the review and clearance process by the BMWi. In security-sensitive transactions, the parties to the transaction should take into account a potential delay in investigation and clearance proceedings for their anticipated transaction and, in particular, the financing schedule.103
The BMWi does not charge any fees or expenses for foreign investment control proceedings, neither for the initiation of proceedings (application-based or ex officio) nor for formal investigation proceedings or subsequent negotiations of security arrangements. The parties to the transaction only bear their own costs.104 These costs may be allocated in the acquisition agreement.
Particularly in more critical or sensitive cases, the parties may more specifically allocate the risks potentially resulting from a state intervention under German foreign investment control in the acquisition agreement (e.g., provide for purchase price and other adjustments, cancellation rights, break fees and further liabilities).
VII CURRENT DEVELOPMENTS
According to the federal government, the BMWi carried out 39 foreign investment control proceedings in 2016 (including 16 Chinese investments) and 58 proceedings in 2017 (including 29 Chinese investments). During this period, the federal government imposed terms and conditions in four cases (although these terms and conditions, according to the government, did not restrict the acquisition 'as such' (i.e., the intended acquisition of the shares or assets of the target)) and in seven cases concluded security agreements with the purchasers.105
The 2017 amendment to the AWV has introduced several changes, generally making the control regime more restrictive.106 This shift has been widely linked to a number of high-profile investments in German companies.107 The effects of the changes on future transactions will, to a large extent, depend on their interpretation and application by the BMWi and the German federal government, which, based on the 2017 amendment to the AWV, have now been equipped with more extensive review and intervention rights.
Meanwhile, applications for a clearance certificate for foreign investments are common and, in most cases, advisable. While the BMWi has cleared a large number of non-European investments in German companies since 2009, the practice of the BMWi and the federal government has recently been to investigate foreign investments more thoroughly and to consider intervention in sensitive investments.
For the first time in the history of German foreign investment control, the federal government recently passed a resolution to prohibit a foreign investment, namely the acquisition of Leifeld Metal Spinning AG by the Chinese investor Yantai Taihai Group. Yantai ultimately withdrew from the acquisition and thus prevented the government from issuing a prohibition order.
At about the same time, an envisaged investment by the State Grid Corporation of China in the German network operator 50Hertz has failed following an intervention by the federal government 'for security policy reasons and for the protection of critical infrastructures in the energy sector'. This intervention was not effected by means of a prohibition under the foreign investment control regime; however, it underlines the increased awareness of the German government for potentially sensitive inbound investments, in particular by state-owned investors.
The circumstances of the Leifeld and 50Hertz cases were exceptional. Regardless of these developments, the BMWi can be expected to continue clearing the vast majority of transactions. However, the BMWi will also continue carrying out critical and time-consuming reviews of sensitive foreign investments. The parties to a transaction should therefore consider the potential consequences of foreign investment control at an early stage in the process. This includes, particularly in more public-order and security-sensitive transactions, consideration of the information to be provided to the BMWi and the estimated duration of foreign investment control proceedings. Careful planning and organisation of filings, in close contact with the BMWi, will ease the foreign investment process and improve the prospects of the contemplated transaction being completed on schedule.
Currently, the federal government and the BMWi are discussing further reforms of the existing foreign investment control regulations. The German federal council scrutinised the formal 25 per cent threshold and passed a resolution to this effect in March 2018, stating that 'even below the 25 per cent threshold the foreign purchaser generally has a significant influence'.108 The acting Federal Minister for Economic Affairs and Energy has recently proposed lowering the 25 per cent threshold to a value of 15 per cent, at least regarding certain sensitive business areas, such as the defence sector or critical infrastructures. If implemented, this reform would extend the scope of foreign investment control in the field of minority acquisitions.
1 Jan Bonhage and Vera Jungkind are partners at Hengeler Mueller Partnerschaft von Rechtsanwälten mbB.
2 BMWi, FAQ re investment control under foreign trade laws of 31 January 2018; BMWi, Circular Order 5/2017 of 14 July 2017, BAnz AT 17 July 2017 B1; Circular Order 1/2014 of 20 January 2014, BAnz AT 27 January 2014 B1; Circular Order 7/2013 of 20 December 2013, BAnz AT 20 December 2013 B2; Circular Order 5/2013 of 2 August 2013, BAnz AT 05 August 2013 B1, p. 1; General Ruling of 2 September 2013 re required documentation under Section 57 of the AWV, BAnz AT 6 September 2013 B1; General Ruling of 2 September 2013 re required documentation under Section 61 Sentence 3 of the AWV in conjunction with Section 57 of the AWV, BAnz AT 6 September 2013 B2.
3 These figures are based on a study by Ernst & Young on Chinese investments in Europe between 2006 and 2017, available at https://www.ey.com/Publication/vwLUAssets/EY-Analyse_Chinesische_Investoren_in_ Europa_2017/$FILE/EY-Analyse%20Chinesische%20Investoren%20in%20Europa%202017.pdf.
4 Thomson Reuters, 13 June 2016 (rank date).
5 Thomson Reuters, 26 July 2016 (rank date).
6 Thomson Reuters, 17 May 2018 (rank date).
7 Thomson Reuters, 20 July 2016 (rank date).
9 Cf. Flaßhoff/Glasmacher, NZG 2017, 489.
10 The Washington Post, 2 December 2016; cf. Seibt/Kuhlenkamp, ZIP 2017, pp. 1345, 1346 et seq.
11 BAnz AT 17 July 2017 V1.
12 These changes can be regarded as (largely) compatible with EU law, cf. Hindelang/Hagemeyer, EuZW 2017, 882.
13 BMWi, 12 July 2017,
14 https://eur-lex.europa.eu/resource.html?uri=cellar:cf655d2a-9858-11e7-b92d-01aa75ed71a1.0003.02/DOC_1&format=PDF; cf. Carnegie/Croley/Taubman/Dammann de Chapto, NZKart 2018, 296, 299.
15 See joint press release by Germany, France and Italy, 13 September 2017, available at
16 www.consilium.europa.eu/de/press/press-releases/2018/06/13/screening-of-investments-council-agrees- its-negotiating-stance/; for further details, see https://www.hengeler.com/fileadmin/news/Newsletter/Newsletter_2017-10_Investment.pdf.
17 See BMWi, FAQ re investment control under foreign trade laws of 31 January 2018, p. 2.
18 For the definition of the term 'critical infrastructure', Section 55(1) of the AWV makes reference to the Act on the Federal Office for Information Security. Critical infrastructure is defined in the Regulation on the Definition of Critical Infrastructure (BSI-KritisV).
19 Cf. BT-Drs. 15/2537, p. 7 et seq.; Hensel/Pohl, AG 2013, 849, 856.
20 Section 55(2) of the AWV; cf. also BT-Drs. 16/10730, p. 14.
21 In contrast, the sector-specific review of transactions in the field of military technology applies to any non-German investor.
22 Article 4(1) of the Union Customs Code.
23 Voland, GWR 2013, 264.
24 Protocol No. 3 of the Channel Islands and the Isle of Man.
25 Section 55(2) of the AWV; cf. BMWi, Circular Order 5/2017 of 14 July 2017, BAnz AT 17 July 2017 B1, Section B, Zu Nummer 1 Buchstabe b Doppelbuchstabe bb. with reference to the relevant European Court of Justice (ECJ) case law: Case C-196/04 (Cadbury Schweppes).
26 Cf. Besen/Slobodenjuk, BB 2012, 2390; Hensel/Pohl, AG 2013, 849, 854 et seq.; Seibt/Wollenschläger, ZIP 2009, 833, 837.
27 Marquard/Pluskat, DStR 2009, 1314, 1316.
28 Pottmeyer, in: Wolffgang/Simonsen/Rogmann, AWR-Kommentar, Sections 55 to 59 of the AWV, Paragraph 22; Hasselbrink, GmbHR 2010, 512, 515; Krause, BB 2009, 1082, 1083; Marquardt/Pluskat, DStR 2009, 1314, 1316; Seibt/Wollenschläger, ZIP 2009, 833, 834; Traugott/Strümpell, AG 2009, 186, 191.
29 BT-Drs. 16/10730, p. 13.
30 Krause, BB 2009, 1082, 1083; Traugott/Strümpell, AG 2009, 186, 191.
31 Besen/Slobodenjuk, BB 2012, 2390; Söhner, RIW 2011, 454, 459; Stork, EWS 2009, 454, 457.
32 Cf. Marquardt/Pluskat, DStR 2009, 1314, 1316.
33 Hensel/Pohl, AG 2013, 849, 853 et seq.
34 See Hasselbrink, GmbHR 2010, 512, 514; Marquardt/Pluskat, DStR 2009, 1314, 1316; Schalast, M&A Review 2009, 107, 112; Seibt/Wollenschläger, ZIP 2009, 833, 836; Söhner, RIW 2011, 454, 460; Stork, EWS 2009, 454, 456; Rosenberg/Hilf/Kleppe, DB 2009, 831, 833; Voland, EuZW 2009, 519, 521.
35 See Section 55(3) of the AWV.
36 BMWi, FAQ re investment control under foreign trade laws of 31 January 2018, p. 1.
37 Seibt/Wollenschläger, ZIP 2009, 833, 836; BMWi, FAQ re investment control under foreign trade laws of 31 January 2018, p. 1.
38 Section 55(3), of the AWV, Sentence 1.
39 The BMWi's Questions and Answers to the Foreign Investment Review, No. 16.
40 On the other hand, under the sector-specific investment regime, the BMWi reviews whether the acquisition endangers fundamental security interests of the Federal Republic of Germany.
41 Bast, in: Hocke/Friedrich, Außenwirtschaftsrecht, Section 7 AWG, Paragraph 10b; Lechler/Germelmann, Zugangsbeschränkungen für Investitionen, p. 34 et seq.
42 BT-Drs. 16/10730, p. 10.
44 ECJ, Case C-503/99 (Commission v. Belgium); Case C-463/00 (Commission v. France).
45 Case C-463/00 (Commission v. France).
47 Case C-212/09 (Commission v. Portugal), Paragraph 84 et seq.
48 ECJ, Case C-244/11 (Commission v. Greece), Paragraph 69 with further reference (for the energy sector).
49 Ibid., Paragraph 73 et seq.; previous case law of the ECJ raises the question whether lowering the 25 per cent threshold to a value of 15 per cent as proposed by the BMWi would be in compliance with EU law.
50 See Section I.
51 For the definition of the term 'critical infrastructure', Section 55(1) of the AWV makes reference to the Act on the Federal Office for Information Security, which contains an exhaustive list.
52 Cf. Hölscher, EWS 2017, 251, 252 et seq.; Walter, RIW 2017, 650, 651 et seq.
53 BT-Drs. 18/10443, p. 4; BT-Drs. 19/1103, p. 7.
54 Cf. Flaßhoff/Glasmacher, NZG 2017, 489.
55 BT-Drs. 19/1103, p. 8.
56 Cf. Section II; previously, a notification requirement existed only within the sector-specific review framework excluded from the scope of this chapter.
57 BMWi, FAQ re investment control under foreign trade laws of 31 January 2018, p. 4; see also Asbrand/Nehring-Köppl. IWRZ 2018, pp. 63, 65.
58 This would require that the BMWi does not obtain knowledge of the transaction in another way.
59 BT-Drs. 18/10443, p. 4; BT-Drs. 19/1103, p. 5.
60 BT-Drs. 16/10730, p. 11.
61 In this case, however, the BMWi finally came to the conclusion that the transaction was not subject to a notification obligation, cf. BT-Drs. 19/1103, p. 8.
62 In particular, Sections 48 and 49 of the German Federal Administrative Procedure Act (VwVfG).
63 Cf. BMWi, FAQ re investment control under foreign trade laws of 31 January 2018, p. 6; Flaßhoff/Glasmacher, NZG 2017, 489, 491.
64 Section 23 of the VwVfG; see also BMWi, FAQ re investment control under foreign trade laws of 31 January 2018, p. 5.
65 Until the 2017 amendment, the AWV provided for a one-month period.
66 An example of such an in-depth review was the review of the high-volume acquisition of RWE DEA AG by the LetterOne group, cf. BT-Drs. 18/3111, p. 3 et seq.
67 BMWi, FAQ re investment control under foreign trade laws of 31 January 2018, p. 7.
68 Before the 2017 amendment to the AWV, the three-month period started with the signing of the acquisition agreement, irrespective of any knowledge of the BMWi.
69 BT-Drs. 19/1103, p. 5.
70 BMWi, Circular Order 5/2009 of 21 April 2009, BAnz AT 24 April 2009, p. 1514; Circular Order 5/2013 of 2 August 2013, BAnz AT 5 August 2013 B1, p. 11; General Ruling of 2 September 2013 re required documentation under Section 57 of the AWV, BAnz AT 6 September 2013 B1.
71 Section 57 of the AWV; cf. BMWi, FAQ re investment control under foreign trade laws of 31 January 2018, p. 3. Before the 2017 amendment to the AWV, the BMWi was only entitled to request information from the purchaser (who then regularly had to request information relating to the target business from the sell side).
72 BT-Drs. 16/10730, p. 17.
73 Ibid., p. 18.
74 Cf. Sections 3 and 6 Federal Freedom of Information Act.
75 BT-Drs. 16/10730, p. 14.
76 The BMWi's Questions and Answers to the Foreign Investment Review, No. 11.
77 Krause, BB 2009, 1082, 1087; Müller/Hempel, NJW 2009, 1638, 1641; Seibt/Wollenschläger, ZIP 2009, 833, 844; Voland, EuZW 2010, 132, 135.
78 According to general principles of German administrative laws, the BMWi as higher federal authority would not carry out any previous opposition proceedings (Widerspruchsverfahren).
79 https://www.bmwi.de/SiteGlobals/BMWI/Forms/Listen/Investitionsschutzvertraege/Investitionsschutzvertraege_Formular.html?resourceId=290120&input_=290112&pageLocale=de&templateQueryString=&titlePrefix=Alle&cl2Categories_Status_sort=inkraftvertrag&cl2Categories_Status_sort.GROUP=1&selectSort=&selectSort.GROUP=1#form-290120. A list of BITs, including links to the full text of the BITs, is also available at http://investmentpolicyhub.unctad.org/IIA/CountryBits/78.
80 On 31 December 2014, Italy gave notice of its withdrawal from the Energy Charter Treaty. The withdrawal took effect on 1 January 2016.
81 http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154329.pdf; cf. Mayer/Ermes, ZRP 2014, 237; related to investor–state dispute settlement (ISDS), cf. Kerkemeyer, EuZW 2016, 10; Machning, DRiZ 2016, 326; Sandrock, RIW 2017, 245; Stöbener de Mora, EuZW 2016, 203.
82 http://trade.ec.europa.eu/doclib/press/index.cfm?id=961; cf. ECJ, Opinion 2/15 (Free Trade Agreement between the European Union and the Republic of Singapore).
84 E.g., the German Federal Constitutional Court (Case 2 BvR 1368/16, 2 BvE 3/16, 2 BvR 1823/16,
2 BvR 1482/16, 2 BvR 1444/16) dismissed applications for a preliminary order prohibiting the German government from agreeing to the Comprehensive Economic and Trade Agreement in the European Council but at the same time questioned the EU's exclusive competence for several aspects of the agreement.
85 ECJ, Opinion 2/15 (Free Trade Agreement between the European Union and the Republic of Singapore).
86 Cf. European Commission, Overview of FTA and Other Trade Negotiations, most recent update July 2018, available at http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf.
91 http://trade.ec.europa.eu/doclib/docs/2006/december/tradoc_118238.pdf, most recent update June 2016, p. 6 et seq.
92 Consolidated version, OJ 2012, C 326/01.
93 Cf. Lavranos, 'Transnational Dispute Management' Vol. 10, Issue 2, 1 ; Reinisch, ICSID Review 28(1), 179 ; however, competence for certain areas remains with the Member States (see Section V.ii).
94 Regulation (EU) No. 1219/2012 of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries.
95 Cf. Articles 2 and 3 Grandfathering Regulation.
96 Recital 11 and 12 Grandfathering Regulation; see also ECJ, Case C-205/06 (Commission v. Austria); Case C-249/06 (Commission v. Sweden); Case C-118/07 (Commission v. Finland).
97 Cf. Memo/15/5162 of 18 June 2015, available at http://europa.eu/rapid/press-release_MEMO-15-5162_en.htm, and the corresponding press release IP/15/5198 of 18 June 2015, available at http://europa.eu/rapid/press-release_IP-15-5198_en.htm.
98 Cf. press release IP/15/5198 of 18 June 2015, available at http://europa.eu/rapid/press-release_IP-15-5198_en.htm.
99 Intra-EU Investment Treaties – Non-paper from Austria, Finland, France, Germany and the Netherlands, of 7 April 2016, available at
100 The German Federal Court of Justice, BeckRS 2016, 08549.
101 ECJ, Case C-284/16, BeckRS 2018, 2315.
102 The German Federal Court of Justice, MDR 2013, 1362.
103 Cf. Becker/Sachs, NZG 2017, 1336, 1338.
104 Cf. BMWi, FAQ re investment control under foreign trade laws of 31 January 2018, p. 7.
105 BT-Drs. 19/1103, p. 8.
106 Cf. Haak/Thiemann, CB ۲۰۱۷, ۴۳۱; Slobodenjuk, BB ۲۰۱۷, ۲۳۰۶; Boewe/Johnen, NZG ۲۰۱۷, ۱۰۹۵.
107 See Section I.
108 BR-Drs. 78/18.