In a newly adopted act, the Danish Parliament adopts new restrictions on foreign direct investments in Denmark. The purpose of the act is to protect Denmark against foreign direct investments which may pose a threat to national security or public order by introducing a mandatory and a voluntary screening process for certain direct investments in Denmark. The act enters into force on 1 July 2021, but investments and agreements completed before 1 September 2021 are excluded, and thus, the act is relevant for transactions expected to close on or after 1 September 2021.
Mandatory screening process for sector specific investments
The mandatory screening process applies to foreign direct investments that directly or indirectly gives the investor at least 10 pct. of the shares, voting rights or equivalent control in a Danish company deemed to be sensitive in relation to national security or public order. Companies involved in 1) the defence sector, 2) IT security functions or treatment of classified information, 3) producing dual use products, 4) critical technology, or 5) critical infrastructure are covered by the definition of national security and public order, but national security and public order covers any matter which may affect the territorial integrity of Denmark or survival of its population (national security) and the ability to maintain an independent, democratic and safe society (public order).
In addition to investments, the mandatory screening process also applies to special financial agreements between foreign investors (investors not located in EU or EFTA) and companies located in Denmark operating within the above-mentioned sensitive sectors. Financial agreements cover joint ventures, operational, supplier or service agreements.
For foreign direct investments covered by the mandatory screening process a permission must be granted by the Danish Business Authority in advance before the transaction can be concluded. Application for such permission is – as a general rule – to be submitted by the foreign investor.
The Danish target company is thus not required to ensure compliance with the act or to submit an application to the Danish Business Authority. Danish companies contemplating an investment covered by the act will have to submit an application in advance to the Danish Business Authority if they are either (i) a subsidiary or a branch of a company domiciled outside of Denmark, or (ii) controlled or significantly influenced by a foreign national or a foreign company, which is not domiciled in Denmark.
Within 60 business days from the submission of the application the Danish Business Authority has to inform the foreign investor of whether a permission is granted or not.
Voluntary screening process across all sectors if threat to national security or public order
In addition to the mandatory screening process, the act introduces a voluntary screening process on investments from outside the EU and EFTA which may pose a threat to national security or public order. The voluntary screening process implies that a foreign investor, disregarding the targeted sector of the investment, can submit an application to the Danish Business Authority if the investor fears that an investment might pose a risk to the national security or public order and the foreign investor acquires possession, directly or indirectly, of 25 pct. or more of the shares of or voting rights in a Danish company.
The process is voluntary, but an investment that has not been notified to the Danish Business Authority beforehand and which may be considered a threat to national security or public order may be examined for up to 5 years after the investment has been effected. If the authorities in such subsequent examination finds that the investment is a threat to national security or public order, the authorities may order the investment to be rolled back, possibly against full compensation if the decision is considered to be expropriation.
The voluntary screening process does not cover investors from EU or EFTA member states, and the voluntary screening process will also apply if the investor is domiciled in an EU or EFTA member state or in Denmark, but a foreign natural or legal person who is not from an EU or EFTA member state or Denmark, controls or has substantial influence on the investor.
The new act is dependent on a number of executive orders to be issued by the Danish Business Authority, which will provide details and guidance on certain central requirements and concepts of the act.
A link to the act can be found here. The act is unfortunately only available in Danish.
Bird & Bird will continue to monitor the development and the announcement of the executive orders. Furthermore, we note that the above is only a short overview of the act and encourage anyone with question to the above to contact Head of Corporate / M&A, partner Morten Rosenmejer.