On 1 February 2021, the Slovak Ministry of Economy submitted an investment screening proposal to the government. This proposal was approved by the National Council (with amendments) on 5 February 2021 and is scheduled to enter in force on 1 March 2021.
Screening mechanism and transactions subject to consent
Under this new regime, the acquisition of a shareholding in certain designated entities (share deal), or of the acquisition of the business of these entities (asset deal) will need to be reported to the Slovak government. This obligation will apply notwithstanding whether the acquirer is a Slovak or foreign entity.
With respect to share deals, the new law will capture investments exceeding 10 % (voting rights / equity) and investments that allow for the exercise of an influence over the management of an operator which is comparable to a 10 % share. Moreover, the law will apply to indirect acquisitions. This means that, for instance, the change in persons who have a direct or indirect participation in the operator of a critical infrastructure exceeding a 10 % shareholding or voting rights is eligible to be screened. Thus, an acquisition taking place anywhere in the global corporate structure of a group having a shareholding in a specific Slovak company can also trigger the requirement to obtain a consent from the Slovak government.
Industries subject to the new regulation
The new regulation will only apply to businesses designated as part of the critical infrastructure in the following industries:
electric power engineering;
petroleum and petroleum products;
To this end, the secondary law names such specific companies. Currently there are around twenty entities falling under this regime, while these companies are among companies with the highest revenues and a substantial number of employees. The majority are already owned by foreign investors.
The notification of a transaction subject to this new regime must first be reported to the Ministry of Economy which can (but may choose not to) review it in light of public policy and the national security of Slovakia, the EU or another Member State of the EU.
In certain cases (e.g. sale of business in the context of insolvency proceedings), the ministry will mandatorily review the transaction based on the application.
If the ministry will review the transaction, it will prepare a motion to the Slovak Government either to grant consent, to grant consent subject to conditions (similarly as in the case of competition law proceedings related to merger control) or to prohibit the investment, if the transaction poses a risk to public order or national security.
A decision of the Slovak Government to not grant a prior consent or to cancel a consent can be appealed to the Supreme Court within 30 days from its adoption.
Under the new law, a standstill obligation will apply until the ministry and the government review the transaction. Therefore until the review process is finalised, an exercise of rights and obligations under this transaction related to Slovak critical infrastructure is prohibited.
The grounds based on which the authorities can oppose a transaction are quite general and thus they allow for wide discretion. It is to be seen how this tool will be used in practice.
Moreover, the government is also planning to adopt a secondary regime for FDI screening which would apply not only to selected industries but in general to foreign investments. This second regime should be introduced into the legislative process during spring 2021.
By Michal Lucivjansky, Counsel, Schoenherr