Austrian Update: New Foreign Investment Approval Requirement Regime as revised in 2013

Which transactions qualify for advance approval under the FTA?

Transactions resulting in the acquisition of an enterprise, of a participation of 25%, or of a (co-) controlling interest in an enterprise with seat in Austria, engaged in a protected sector as defined under sec 25a FTA (a “Protected Sector”) by a foreign investor who is a non-EU, non-EEA, or non-Swiss citizen or has its seat in a third country, if such country is not Switzerland nor a member of the EEA (the “Foreign Investor”), fall under the scope of the ex-ante approval requirements.
Protected Sectors include (i) the sectors relating to Austria’s internal and external security, in particular the defence equipment industry and security services, and (ii) the sectors relating to public order and safety and to procurement and crisis services, in particular energy and water supply, telecoms, traffic and infrastructure relating to universities, education, and health.

Who qualifies as a “Foreign Investor”?

No approval is required if the foreign investor is an EU, EEA, or Swiss citizen or has its seat (i) in the EU or the EEA, ie in the EU or Iceland, Liechtenstein and Norway, or (ii) in Switzerland. Thus, third country investors subject to the approval regime are non-EU, non-EEA, and non-Swiss.

Clearly, all overseas investors, including those from the US, Australia, Asia, Central Europe (if not EU), the CIS, and the Middle East need to review whether a particular intended investment into a specific Austrian target requires advance approval by Austria’s Minister of Economic Affairs.

Compliant avoidance of approval requirement?

Except under a broad abuse regime, indirect investments by Foreign Investors via EU or EEA acquisition vehicles are not captured by the approval regime, since EU law would not allow such investment restrictions. Accordingly, in case a Foreign Investor invested via an EU-domiciled acquisition vehicle, in particular with a multilayered ownership structure or under a technical non-control structure involving non-controlled private foundations, no approval requirement should apply.

However, investors must observe that (i) participations of parties acting in concert are to be added together, and (ii) approval is required prior to entering into a legally binding agreement and in case of a public offer prior to the announcement of such public offer, and (iii) sanctions in case of a violation of the approval requirement include invalidity of the acquisition agreement, monetary fines, and even the imprisonment of management, and (iv) the Minister for Economic Affairs also has ex post ex officio investigation rights without statutory time limit. Thus, foreign investors should seek a full legal analysis whether a certain intended transaction could require an approval under the FTA.

Which procedures apply, what are the timelines to obtain approval?

The FTA distinguishes between two types of procedures, (i) the ex ante approval procedure, and (ii) the ex officio review procedure. The ex ante approval procedure lasts at most one month (phase I) and, in case of in-depth review, an additional two months (phase II). The ex officio procedure has no trigger date within which such ex officio review must be initiated.

The application in the ex ante approval procedure must be submitted before (i) entering into a binding commitment to acquire the relevant interest in the target engaged in a Protected Sector, and (ii) announcing the launch of a public offer in such target. During phase I of the approval procedure, the Minister of Economic Affairs must either approve the acquisition within one month from the filing of the application or issue a decree initiating a phase II; if no decree is issued, the acquisition is deemed approved. The phase II procedure lasts up to two months. During phase II, the Minister may prohibit the acquisition. Alternatively, the Minister may issue an unconditional approval decree or approve the transaction subject to the fulfillment of certain conditions to mitigate the risks associated with the acquisition. If the Minister prohibits the transaction, the prohibition order can be appealed. To obtain legal certainty, the Foreign Investor needs to formally initiate the approval procedure lasting a minimum of 30 days.

From the statutory wording, the ex officio review is aimed at suspicious circumvention structures and requires a reasonable suspicion as to a reasonable threat to certain protected interests. Unfortunately, the FTA does not provide for a time limit within which the ex officio procedure must be initiated. An ex post prohibition order following from a late ex officio review may be practically impossible to implement.

What are the legal consequences and sanctions of a violation of the approval requirements?

The FTA requires the Foreign Investor to file for approval prior to entering into a legally binding agreement regarding such acquisition. Any acquisition entered into without required approval is invalid and, if implemented, can be unwound. Additionally, even negligent violations of the approval requirements are subject to fines amounting to up to 360 days income or up to one year imprisonment of the acquirer’s managers; intentional violation is subject to up to three years imprisonment.

Under Austria's Foreign Trade Act (FTA), acquisitions of 25% or of controlling interests in companies in specific industries by non-EEA and non-Swiss persons require approval by Austria’s Minister of Economic Affairs

author: Christian Herbst