On 11 October 2021, the Ministry of Justice, together with the Ministry of Defense, published a consultation paper on changes to the Security Act. The proposed changes include an expansion of the filing obligation to new categories of targets, a lowering of the investment thresholds that trigger filing, and the introduction of a notification deadline and a stand-still obligation.
Unlike in many other jurisdictions, Norway’s investment review regime is not based on a list of critical infrastructures or technologies. The Security Act currently provides for a very limited mandatory filing regime, but the government has an additional, and essentially unlimited, power to block any non-notifiable transactions considered to give rise to national security concerns, irrespective of the industry or products involved.
As reported in this update, the Norwegian government made use of this power to block a transaction earlier this year.
The government’s power to block investments that fall outside of the scope of the mandatory filing regime remains unaffected by the proposed changes. Parties to all transactions that could conceivably be deemed to involve national security aspects thus have to consider the risk factors and whether to informally contact the authorities. As described below, the current lack of a formal system for voluntary filings is discussed in the consultation paper.
At the same time, the proposed changes will, if enacted, expand the filing obligation to cover more targets and transactions under the mandatory filing regime. Parties to such transactions should also take note of the proposed tightening of the procedural rules.
More transactions to trigger a mandatory filing
The following are some of the changes proposed by the ministries:
- Updated investment thresholds for the purposes of acquiring a qualified stake. Mirroring the thresholds in several other countries, the ministries are proposing a new definition of the term: the acquisition of, or ownership rights of, at least 10% of the share capital, assets or voting rights, with additional thresholds at one-third, 50%, two-thirds or 100%, or significant influence on the management of the undertaking in any other manner.
- The introduction of a mandatory filing obligation for the acquisition of a qualified stake in a company that has been granted security clearance under the rules for classified procurements.
- A new government power to bring companies that have applied for export control licenses within the scope of the mandatory filing rules. The proposed provision does not apply to businesses that manufacture products subject to export control rules, but which have not applied for an export control license. This may be the case if the manufacturer only sells the products to domestic customers.
- An expansion of the range of targets that can be brought within the scope of the law by ministerial decision. At present, only companies that are essential to national security interests can be brought within the scope of the law by an individual decision made by the relevant ministry. It is proposed to include a power to bring businesses that are significant to national security interests within the scope of the mandatory filing rules (without being made subject to the Security Act in its entirety). The stated purpose of the expansion is to give the authorities a better overview over relevant players through the creation of a list, estimated to contain about 250-300 significant businesses, that can be adapted to the constantly evolving threat landscape.
Changes to the procedural rules
Transactions that trigger a mandatory filing under the proposed rules will be subject to a more rigorous filing process, including:
- Pre-signing filing. The consultation paper suggests a filing deadline which would require a filing to be submitted even before an agreement is reached; more specifically, at the point in time when the parties agree to continue negotiations. This would be a highly unusual rule, and it seems likely that it could be dropped following the consultation.
- Stand-still obligation. From the moment of filing, the transaction is suspended until further notice from the authorities. During this time, the parties are prohibited from exchanging any information that is not publicly available.
- Penalties for non-compliance. Introduction of new penalties for non-compliance with the filing obligation in the form of a fine, imprisonment of up to 1 year, or both.
- Joint filing obligation. An expansion of the filing obligation to include the seller and the target company, as well as the target’s managing director. Part of the rationale is that the target company is likely to know whether it has been brought within the scope of the law.
Due to the government’s far-reaching power to block non-notifiable transactions, there is a significant need for formal rules on voluntary notifications. The consultation paper requests input on whether to introduce a voluntary filing regime, but also indicates that this regime should be subject to certain limitations in scope.
Any such limitations would take away the parties’ opportunity to obtain legal certainty in transactions not covered by the voluntary regime (but still falling within the government’s jurisdiction). It is difficult to understand the rationale and it remains to be seen whether the final text of the amendments will include any such limitations following the consultation process.
The deadline for responding to the consultation is 10 January 2022.