The Vifo Act in force: internal restructuring, assets and active in sensitive technology

The purpose of the Vifo Act (the Wet veiligheidstoets investeringen, fusies en overnames (Vifo)) is to establish rules by which risks arising from certain acquisition activities can be controlled. The Bureau Toetsing Investeringen (BTI) has published three manuals explaining the following three criteria as mentioned in the Vifo Act: internal restructuring, acquisition of assets and active in sensitive technology.

The Vifo Act creates an obligation to report to the Bureau Toetsing Investeringen (BTI) when acquiring control within a company, which is designated as a vital provider or possesses sensitive technology. Vital providers include companies that operate, manage or provide a service whose continuity is vital to Dutch society. Sensitive technology includes dual-use products whose export requires a license (European legislation: OJEU 2021, L 206), as well as military goods. 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, can result in a fine of up to €900,000 or 10% of the annual profits of the entire group.

The Vifo Act uses several terms to assess whether a specific case falls within the framework and scope of the Vifo Act. To provide a handle and further interpretation of the terms in the Vifo Act, the BTI has now published three manuals. In this article, we discuss the manuals as published by the BTI.

Internal restructuring

When can an internal restructuring qualify as an acquisition activity under the Vifo Act? Restructuring refers to an operation whereby, through one or more transactions within a group, it is brought about that the group structure is conducted through different legal entities than before. A restructuring can be done because of various motives. Only if a restructuring involves (partly) a change of control or the acquisition of significant influence by a (new) shareholder, will the internal restructuring be regarded as an acquisition activity within the meaning of the Vifo Act. The BTI provides the following as a starting point:

“A restructuring that amounts to merely a legal or de facto transfer of the company falling within the scope of the Vifo Act (the target company) to another country does not involve an acquisition activity, provided that the (indirect) ultimate shareholders of the target company remain entirely the same before and after the restructuring.”

A restructuring within one’s own group will therefore only qualify as an acquisition activity within the Vifo Act, and lead to a notification requirement, if the shareholding in the upper (holding) layer changes. It is also important to keep in mind that it is not a question of the final situation of the restructuring, but of looking at each separate step. If one step of the restructuring (a separate transaction) involves a moment when a new shareholder is involved, there may be an acquisition activity. Even if it only involves temporary management of the shares as part of a restructuring.

Assets

The Vifo Act refers to the acquisition of “assets.” The most obvious situation is an asset/liability transaction where, for example, machinery or intellectual property is acquired. The BTI has sought to provide a handle on whether or not the acquisition of assets falls within the scope of the Vifo Act and thus constitutes an acquisition activity. This is the case if the assets being acquired enable an enterprise to function as a vital provider or sensitive technology enterprise.

A case-by-case analysis will need to be made as to whether the asset is essential to the performance of a sensitive technology activity. The BTI has not provided an exhaustive list and notes that an asset may vary from case to case. However, it did indicate that it is important that the asset can be continued as a separate enterprise. This separable part of the enterprise (read assets) should also be able to generate income over time, or be in a current position to produce goods or provide services that can generate income.

“Being active on”

The Vifo Act applies, among other things, to acquisition activities involving companies active in the field of sensitive technology. As a guide to assessing whether a company is “active in the field,” the BTI provides the following:

“A company that conducts research into or within the field of sensitive technology (…) or exploits such technology by developing, processing, manufacturing or incorporating products within it into semi-finished or finished products for the purpose of commercial exploitation, possesses the expertise, capacity and resources relevant to the Vifo Act and is thus active in the field of the relevant sensitive technology.”

The BTI emphasizes that activities must be carried out in the Netherlands. If a company only has a Dutch subsidiary engaged in trading then it is not active within the meaning of the Vifo Act. Conversely, if production, research and/or development activities are carried out by a company abroad that only has a Dutch holding company, it is also not active on this field.

In principle, a company that only deals in finished products will not be active in the field of (highly) sensitive technology. This is because this company often does not have production facilities, expertise or legal rights to deal with the end products itself. The BTI has also drawn up guidelines for more special situations such as universities or academic hospitals, but it will come down to a case-by-case assessment of whether a company is active in the field of (highly) sensitive technology.