Foreign investment control: Acquisition of Alpi Aviation (completed back in 2018) is now on the Government’s radar

Alpi Aviation is an Italian drones manufacturer, with contractual relationships with the Italian Minister of Defense.

According to Italian Police (“Guardia di Finanza”) (reviewing the deal since August 2021) three years ago the company’s indirect control passed into the hands of two Chinese state-owned companies through an offshore entity.

The deal is under scrutiny since, according to Guardia di Finanza, it allegedly was closed in breach of rules on weapons’ exports as well as foreign investment control.

As to foreign investment control, the Guardia di Finanza claims that the take-over has been structured to hide the ultimate post-closing beneficial owners of Alpi Aviation have been hidden.  This, hence, would be an infringement of the duty to notify the transaction to the Italian Government under foreign investment control regulations.

According to latest press news (November 27, 2021), the Italian Government has started a formal investigation procedure and has acquired documents and information relating to the transaction and assigned a term to the parties involved to file memoranda.

Should the Government find that notification was required, there may be severe consequences: suspension of voting rights, undoing of the transaction and severe fines.

In previous articles we have highlighted the ever-expanding scope of foreign investment control rules in the last couple of years.  This latest case is very significant since it signals, besides the expansion of notifiable transactions, the increased intensity of the Government and other Italian authorities’ scrutiny of foreign investments (especially when Chinese entities are involved as purchasers).

Indeed, this is the first time that the Government has looked into a transaction that closed for such a long time.

In conclusion, three years ago in cases of uncertain interpretation of whether a notification was necessary one could have legitimately concluded that risk was very low or non-existent. The same analysis today would lead to a very increased risk level. Therefore, ideally lawyers and parties should today reconsider whether corrective actions should be taken with respect to past acquisitions.  This is true, in particular, when Chinese entities are involved as (also indirect) purchasers.

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