Foreign direct investment screening regimes are already in force in the Netherlands in specific sectors, such as the telecom, electricity and gas sector. However, there is currently no general foreign direct investment screening regime in the Netherlands. Recently a proposal for a more general investment screening regime was submitted to the Dutch Parliament for further steps in the legislation process to effectuate a more unified approach to investment screening.
With the new act, the government aims to introduce a security test for investments, mergers and acquisitions that may pose a risk to national security. This act will qualify as a screening mechanism under the FDI-regulation (Regulation (EU) 2019/452). The new act (in Dutch: Wet veiligheidstoets investeringen, fusies en overnames (Wet Vifo)) will equally apply to Dutch and non-Dutch investors and as such qualifies as a national security regime. This blog provides more information on the scope of the act and the notification requirements, assessment and decisions.
2. Scope of the act
The new act will cover vital providers (undertakings which execute vital processes) and undertakings active in the sensitive technology sector. What must be understood by those terms is defined in detail in the new act. Under the new general national security regime of the following sectors are considered vital: energy, banking, and certain activities at Amsterdam airport and the port of Rotterdam. An important preliminary note is that the act will not cover all vital processes in these sectors, but only those which, by result of their acquisition activity, can pose a threat to national security. Other categories can be designated by government decree at a later point in time.
Sensitive technology includes (i) military goods and (ii) dual-use items that are subject to an export license under Regulation (EC) No 428/2009. This Regulation is replaced by the new dual-use regulation 2021/821, entered into force on 9 September 2021. Additional categories of technologies can be defined as ‘sensitive technologies’ by means of a government decree.
The act will be applicable to certain acquisition activities. These activities can be divided into (i) general acquisition activities that apply to both vital providers and undertakings active in the field of sensitive technology and result in control and (ii) acquisition activities that result in the acquisition or increase of significant influence over certain categories of undertakings active in the field of sensitive technology in the Netherlands. “Control” means the ability to exercise decisive influence. A “significant influence” concerns the possibility to cast a certain percentage of votes in the categories of 10, 20 or 25 percent in the general meeting of shareholders. Assessment in each specific case will conclude which percentage of voting rights amounts to significant influence. In either case, the target undertaking is required to be established in the Netherlands. This requirement does not cover merely the place of incorporation, but concerns, primarily, the location of the activities and the management of the undertaking.
3. Notification requirement and assessment
The act introduces several requirements which must be fulfilled in order for the Minister to approve the acquisition activity. These steps include a notification requirement and an assessment. After the assessment a final decision will be made by the Minister, in which he will either approve or prohibit the acquisition activity.
3.1. Notification requirement and timing
Any intention to carry out an acquisition activity which falls in the scope of the act should be reported to the Minister of Economic Affairs and Climate Policy. Notifications are processed by the Investment Review Office (in Dutch: Bureau toetsingen investeringen). To this end, the act introduces a so-called standstill obligation: an acquisition activity may not take place before the Minister has notified that no assessment decision is required or if an assessment decision is issued by the Minister. This period can be split up into two phases. First of all, the Minister has to decide on the activity within eight weeks of notification. This period can be extended to six months in total under specific circumstances. If the Minister decides an in-depth review is necessary, phase two is introduced. The Minister will have another eight weeks, which can be extended to six months for this review. This period can be extended by an additional three months in case of an investment that falls under the EU FDI screening Regulation and where the investor is established outside the EU. For some sectors national security screening mechanisms are already in place, such as the telecom, gas and electricity sector. In that case no separate notification under the general national security regime has to be made.
If the obligation to notify is made in the context of a public bid for a listed target undertaking, the notification is made simultaneously with the announcement of the public bid. This arrangement corresponds to that in the investment screening regime for the telecoms sector. A mandatory bid shall not be sustained until a statement has been made to the effect that no assessment decision is necessary or that an assessment decision has been made. The bid may also not be declared unconditional if, in the Minister’s opinion, such activity results in a risk to national security.
3.2. Non-compliance with the notification obligation or standstill period
Any breach of this standstill obligation can result in a fine up to € 870.000,- (annually reviewed) imposed by the Minister or, if a fine of this amount is not appropriate, a fine up to 10% of the turnover of the undertaking concerned. These fines can also be imposed in case an undertaking fails to report the acquiring activity.
Sanctions following non-compliance with the notification requirement are not limited to the abovementioned monetary penalty. First of all, the activity can be deemed void or voidable or the Minister may impose a penalty (in Dutch: last onder dwangsom) to prevent undesired effects, or order the undertaking to undo the acquisition activity. If the undertaking does not comply with the order, the Minister is authorized to dispose the acquirer or the undertaking of its shares in accordance with the penalty or otherwise give effect to the penalty imposed.
If an activity that aims to acquire an undertaking, or part thereof, is wrongfully not reported, the Minister can take action in several ways. He can demand that the activity should still be reported after all, he can announce that no assessment decision is required, or he can take such an assessment decision himself.
3.3. Assessment and decision
After the notification is received by the Minister, the Minister will assess whether the acquisition activity may lead to a risk to national security. The Minister can approve or prohibit the activity if the risks for national security cannot be contained. Additionally, the Minister may approve the acquisition activity subject to certain conditions if he deems this necessary to prevent or reduce risks to national security. The act includes a non-exhaustive list of possible conditions, such as the establishment of a separate supervisory board for a Dutch subsidiary.
Additionally, the Minister may revoke an earlier made decision. The Minister can reassess the activity within six months after the risk gained his attention. For such an assessment one of the following requirements must be met: there must be a potential social disruption with economic, social or physical consequences, or there must be an immediate increased real threat to Dutch sovereignty.
4. Retroactive effect
The Dutch government announced that the act will have retroactive effect back to September 8, 2020, after the Council of State criticized the earlier-set date of June 2, 2020. The aim of the retroactive effect is to prevent malicious parties from taking advantage of the period before finalization of the act. This concern is reinforced by the COVID-19 pandemic, as a result of which undertakings have become increasingly vulnerable to hostile takeovers or -investments.
5. Impact of the act
The act broadens the influence the government can exercise when granting permission to invest, or acquire undertakings, in several specific sectors. Investors considering investments in vital sectors or involving sensitive technologies should take into account additional transaction time as well as the potential national security risks to ensure smooth processing of the investment activity at hand.