Friday, June 21, 2024

Infrastructure Insights — June 2024

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Proposed Revisions to EU FDI Screening Regulation — Implications for Investors and Transactions

Based on a recent evaluation of the existing EU Foreign Direct Investment (FDI) Screening Regulation, the European Commission (EC) has proposed amendments which, if adopted, would raise the regulatory hurdles for a number of transactions. The key proposals of the revised Regulation include:

  • Requiring all Member States to establish a screening mechanism — adoption of the FDI screening mechanisms, which was optional under current regulation, would now be a requirement.
  • Extended scope — regulation would now apply to investments from EU entities whose ultimate owners are non-EU investors.
  • Increased harmonisation of national screening mechanisms — all Member States would have to introduce mandatory and suspensory filing requirements for investments in domestic target companies that participate/are active in relation to certain programs of EU interests or have activities related to certain listed technologies.
  • Addressing transactions involving multiple jurisdictions — parties in multi-country transactions would be required to submit their filings in all Member States on the same day. The revised Regulation also sets out deadlines for initiating key steps in the review process.
  • Own initial procedure — Member States and the EC would be able to open their “own initiative” procedure and review transactions which have not been notified to the Cooperation Mechanism.

For a detailed breakdown of the proposed revisions, read our Client Alert. The proposal still needs to progress through the European Parliament and the Council of the EU. Given the upcoming elections for the EU Parliament, this process will likely be delayed until the second half of 2024. We are continuing to monitor these developments to keep you updated on the final approved legislation text.

EU and Euratom to Withdraw From the Energy Charter Treaty: Impact on Investors

The European Council has adopted four decisions, confirming that the EU and Euratom will leave the Energy Charter Treaty (ECT), while permitting any EU Member States still remaining as Contracting Parties to vote in favour of modernisation at the next Energy Charter Conference. While this development is by no means a surprise, it may have significant implications for investors depending on the time and place at which an investment was made.

The decisions to withdraw entered into force on 30 May 2024 and withdrawal will take effect one year after the receipt of the notification. For EU investors with existing investments, their ECT protections will continue to benefit from ECT protection for 20 years from 30 May 2024, while those with new energy investments made after 30 May 2025 will no longer benefit from ECT protections.

For more on these developments, see our Client Alert. Latham’s International Arbitration team will continue to monitor these developments.

Pouring Oil on Troubled Waters? New UK Special Insolvency Regime Is Now on Tap

The UK water industry is rarely out of the headlines, whether for operational performance issues or reports of perpetual financial distress. It may therefore be more than a coincidence that the UK government has chosen now to introduce new rules for the special administration regime (SAR) that applies to water companies.

The main new objective is to prioritise the rescue of the company (as opposed to the business) as a going concern. A special administrator can now restructure a water company’s financial liabilities “in situ” (by using a compromise tool such as a Part 26A restructuring plan, Part 26 scheme of arrangement, or company voluntary arrangement) or “hive down” key assets to a subsidiary to facilitate the sale of the subsidiary company to a third party (potentially in a more tax-efficient transaction structure).

The SAR applies only to a water company either holding an appointment as a water or sewerage undertaker, or which is a qualifying licensed water supplier, water supply licensee, or a sewerage licensee. The SAR does not extend to other finance-raising vehicles within a water company’s wider group. The financing structures of these groups are typically complex, multi-layered, and in some cases contain a securitised ringfenced sub-group.

For a further breakdown of updates to the SAR regime, read our blog post.


Paving the Way for German Carbon Capture and Storage

The German government has adopted key principles for a Carbon Management Strategy and a draft bill to revise the Carbon Storage Act (Kohlendioxid-Speicherungsgesetz) which is set to enable carbon capture and storage (CCS) and facilitate carbon capture and utilisation (CCU). The draft revisions would make the permanent storage of CO2 on an industrial scale permissible for the first time in Germany, but the industrial use will be limited to offshore sites (unless individual federal states make use of an opt-in approach for onshore storage). The strategy sets clear policy principles for handling CCS and CCU, while the draft law aims to establish clear rules for CO2 pipeline infrastructure and permit offshore CO2 storage. The strategy includes plans for developing CO2 transport infrastructure, such as pipelines, and ensuring connection to European storage projects. The draft bill has to pass through the legislative process for which a timeframe has not yet been determined. We are continuing to monitor these developments to keep you updated on the final approved legislation text.


Corporates and Dealmakers Must Prepare for Increased UK Class Action Claims

Class actions, which are well established in the US, are increasingly common in the UK, driven by market volatility, availability of litigation funding, legal reforms, regulatory settlements, and growing scrutiny of companies by consumers, investors, and activists. One of the key trends we expect is for class actions to come to the forefront in areas including ESG or competition law (for example, claiming a company has mislead the market around ESG compliance or claiming that ESG non-compliant behaviour arose from an abuse of dominant position). Whatever the grounds for a claim, class actions can be very costly. Corporates and M&A deal teams therefore need to engage meaningfully and early by leveraging expert outside legal counsel.

Read this article for our insights from such cases.


First UK Bribery Conviction of Foreign Public Official Offers Key Learning Points

On 10 May 2024, a former Chief of Staff to the President of Madagascar was sentenced to 3.5 years’ imprisonment for soliciting bribes from a UK-headquartered company contrary to the Bribery Act 2010. The company in question made a report to the UK’s National Crime Agency, which used covert tactics to gather evidence for its ultimately successful prosecution.

This case provides important takeaways for companies — including factors to consider when deciding whether and how to report a suspected bribery/corruption issue and the need to review internal policies, procedures, and training. For further details, see this Latham blog post.

Should you have any questions or would like further information on any of these topics, please do not hesitate to reach out to our European Energy & Infrastructure team.

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