On 30 June 2021, a bill introducing the act on the (security) screening of investments, mergers and acquisitions (Wet veiligheidstoets investeringen, fusies en overnames) (Vifo Act) was submitted to the Lower House. The Vifo Act provides for the review of investments and certain types of acquisition activities that could pose a risk to national security. The Vifo Act is based on Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments (FDI) into the Union.
The Vifo Act amends in a number of respects the draft Economic and National Security Screening Bill (the bill), for which a consultation was organised in the fall of 2020. This blog post sets out the types of transactions and activities to which the Vifo Act will apply and discusses three key amendments to the bill introduced by the Vifo Act.
Scope of application
The Vifo Act, in particular its review mechanism, will apply to investments and other types of acquisition activities in two types of companies: (i) critical providers and (ii) companies that possess sensitive technology (the 'target companies'). Critical providers are those that provide services and/or products so important to Dutch society that the failure or interruption of their activities could lead to major social disruption. One example is the Rotterdam Port Authority. The second category refers to companies in possession of knowledge or information about strategic technology that could affect national security, for example the production of weapons or dual-use products, i.e. those with both civilian and military applications.
Target companies and potential investors must report transactions involving significant influence or a change of control to the Ministry for Economic Affairs and Climate. The Ministry will assess whether the transaction poses a risk to national security. Based on this assessment, the parties concerned will receive a notification, stating that no screening decision is required or that the parties must apply for a screening decision. The transaction may not take place until the Ministry has taken a decision, a so-called standstill obligation.
Three amendments to the bill introduced by the Vifo Act
Designation of critical providers
The bill provided that the Minister could designate by way of a governmental decree (AMvB) processes that are considered critical to the Netherlands and therefore which companies qualify as critical providers. In addition to this possibility, the Vifo Act expressly states that certain undertakings will be considered critical providers. These include (air)ports and airports, heating grids and banks.
Thresholds for significant influence
In addition to the acquisition of control or joint control, the acquisition of 'significant influence' in companies in possession of sensitive technology must be notified under the Vifo Act. The Vifo Act defines significant influence with reference to a system of threshold values. The thresholds are 10%, 20% and 25% of the number of votes that may be cast at the Target Company's general meeting. If a potential acquirer wishes to make an investment that would result in it obtaining 10%, 20% or 25% of the votes, it must report the proposed investment to the Ministry for Economic Affairs and Climate.
New reference date
A final important change relates to the retroactive effect of the Vifo Act. The obligations under the Vifo Act, including the obligation to notify investments to the Ministry for Economic Affairs and Climate, will apply before the Act enters into force. In other words, investments made prior to the introduction of the Vifo Act but after the reference date of 8 September 2020 may be subject to the Act.
In the event of an investment or takeover in the period between the reference date and the entry into force of the Vifo Act, the Minister may order the undertakings concerned to report the transaction, but only if there are 'reasonable grounds' to believe that the transaction could pose a risk to national security. The Minister may exercise this option up to eight months after the Vifo Act enters into force.
As indicated above, the Vifo Act has been submitted to the Lower House. It is expected to enter into force in early 2023. If you have any questions or would you like more information about the consequences of the Vifo Act or other FDI legislation, please do not hesitate to contact us.