Executive Summary/Highlights:

• An amendment to the Austrian Foreign Trade Act (FTA), in force since 8 December 2011 subjects the acquisition of certain interests in enterprises in specific industries (including telecoms and energy) by non-EU, non-EEA and non-Swiss persons, to review and approval by the Austrian Ministry of Economic Affairs
• Approval must be sought before entering into binding acquisition agreement or before announcing the launch of public offer
• Phase 1 approval procedure is up to 1 month, phase 2 procedure up to additional 2 months
• The FTA also provides for ex officio investigation procedure in case of suspicion of circumvention of approval requirements

MAIN ARTICLE 

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 listed under sec 25a FTA by a foreign investor who is either a non-EU or non-EEA or non-Swiss citizen or has its seat in a third country, if such country is not a member of the EEA or Switzerland (the “Foreign Investor”), fall under the scope of the ex-ante approval requirements.

Which industry sectors qualify as “Protected Sectors”?

The FTA defines and lists the following industry sectors as Protected Sectors:

(a) The sectors relating to the internal and external security of Austria, in particular of the defense equipment industry and security services.(b) The sectors relating to public order and safety and to procurement and crisis services. These sectors include (i) hospitals, ambulance and emergency physician services, (ii) fire fighters and civil protection service, (iii) energy and gas supply, (iv) water supply, (v) telecoms, (vi) railway, water and road traffic, and (vii) universities, schools of various types and pre-schooling institutions.

Who qualifies as Foreign Investor?

Third country investors subject to the approval regime are non-EU, non-EEA (EU plus Norway, Iceland and Liechtenstein) and non-Swiss. Clearly, all overseas investors, including from the US, Australia, Asia, Central Europe (if not EU) and CIS and Middle Eastern countries need to review whether a particular intended investment into a specific Austrian target requires advance approval by the Austrian Minister of Economic Affairs.

Compliant avoidance of Approval Requirement?

Pursuant to the legislative materials, 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, Austrian Ministry practice could still – initially – establish and apply a substantive review in application procedures, resulting in a beneficial ownership test. Moreover, any structure could be tested under the ex-officio review procedure as to – illegal – circumvention of the approval requirement. Given ambiguities as to the scope of application and possible exemptions under the FTA, the new approval requirement will likely caution Foreign Investors to invest at or above 25% without approval by the Austrian Minister of Economic Affairs.

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

The FTA provides for (i) the ex ante approval procedure, and (ii) the ex officio review procedure. The ex ante approval procedure is 1 month (phase I) and, in case of in depth review, additional 2 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, (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 1 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 is up to 2 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.

Under 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.

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 1 year imprisonment of the managers of the acquirer; intentional violation is subject to up to 3 years imprisonment.