Security test investment, mergers and acquisitions law in effect

On June 1, 2023, the Security Review of Investments, Mergers and Acquisitions Act (in Dutch: Wet Vifo) went into effect. The purpose of the Vifo Act is to establish rules by which risks arising from certain acquisition activities can be controlled.

By acquisition activities in this context is meant an investment, merger or acquisition, although Article 2 (and 3) of the Vifo Act provides an exhaustive list for this term. The Vifo Act establishes an obligation to file a notification with the Investment Screening Bureau (Bureau Toetsing Investeringen (BTI)) when acquiring control within an enterprise that is designated as a vital provider or possesses sensitive technology. By acquiring control, the Vifo Act refers to being able to cast votes in the general meeting of the target company. This must involve the acquisition of significant influence, which already exists from obtaining 10% of the votes in the general meeting.

Scope

The Vifo Act talks about vital providers and sensitive technology. Vital providers include companies that operate, manage or make available a service whose continuity is vital to Dutch society. Examples include large banks or providers of energy or water. Sensitive technology includes dual-use products whose export requires a license (European legislation: OJEU 2021, L 206), as well as military goods. Dual-use products are goods and technology for civilian as well as military use, including items that could potentially contribute to the manufacturing of nuclear weapons or other nuclear explosive devices.

The scope of the Vifo Act may still be broadened or narrowed at later times through an order in council. A technology may be designated as sensitive only if:

it may be essential to the functioning of defense, investigative, intelligence and security services in the performance of their duties;
its availability and presence within the Netherlands or its allies is essential to prevent unacceptable risks to the availability of certain essential products or supplies; or
it is characterized by a broad scope of application within various vital processes or processes that have interfaces with national security.

A formal decision has already been adopted that excludes some items and products from the “sensitive technology” category, but also adds some items and products.

Reporting requirement

In the case of an acquisition activity that falls within the scope of the Vifo Act, a notification must be made to the BTI. A separate notification form has been prepared for this purpose. A notification to the BTI must initially include all information about the target company, the activities and about the proposed acquisition activity. Based on that information, the BTI will test whether the acquisition activity actually falls within the scope of the Vifo Act. Information on the acquirer must also be provided, including the identity of the acquirer, the acquirer’s links to (state) third parties, and whether the acquirer has committed a (relevant) crime in the past. The concrete information to be supplied is detailed in a formal decision.

Risk and retroactivity

If the BTI considers that the risk to national security is significant, the Minister of Economic Affairs and Climate may choose to prohibit the acquisition activity. He may also choose to impose certain conditions or requirements that must be met before the acquisition activity may proceed. Failure to comply with the Vifo Act, and thus failure to meet the notification requirement, may result in a fine. The amount of the fine is up to € 900,000 or 10% of the annual profit of the entire group.

For acquisition activities that took place before June 1, 2023, it is also important to check whether they fall within the scope of the Vifo Act. This is because the Vifo Act applies retroactively to all acquisition activities that took place as of September 9, 2020. The Minister has the option to examine these acquisition activities as well.