On 1 June 2023, the Dutch Act on security screening of investments, mergers and acquisitions (the Wet veiligheidstoets investeringen, fusies and overnames or the “Vifo Act”) entered into force, applying retroactively as of 9 September 2020. The Vifo Act provides the Dutch government with a tool to review transactions in certain sectors. Review of transaction will be carried out by the Bureau for Verification of Investments (the Bureau Toetsing Investeringen or “BTI”). The Vifo Act may have a major impact on transactions in those sectors. Below we answer the key questions for companies and their advisers who may be affected by the Vifo Act.
Which transactions are covered by the Vifo Act?
The Vifo Act applies to acquisition activities. This includes in any case investments, mergers, acquisitions and demergers through which a buyer acquires control over a company. The concept of control is based on the definition in competition law used by, among others, the Authority for Consumer and Markets.
In addition, a broader definition of acquisition activities applies if a target company is active in the field of sensitive technology. In that case, a transaction falls under the Vifo Act if the buyer gains significant influence over the target. This may already be the case if a buyer acquires 10% of the voting rights.
Which sectors are covered by the Vifo Act?
Transactions must be reported to the BTI if the target company operates in any of the following sectors:
- vital providers in the sectors of heat transport, nuclear energy, air transport and ground handling, port area, banking, financial markets infrastructure, energy, gas storage;
- providers of sensitive technology including dual-use products (as defined in regulation 2021/821), military goods and technologies designated by ministerial decree (the AMvB designates quantum technology, photonics technology, semiconductor technology, high assurance products);
- managers of corporate campuses.
The list of relevant sectors and technologies is expected to be reviewed regularly. The Vifo Act grants the possibility to bring additional sectors and technologies under the scope of the Act by ministerial decree.
Who is covered by the Vifo Act?
Transactions fall within the scope of the Vifo Act if the target company has a local nexus. This is not so much about the place of establishment or the legal status under the articles of association. It is mainly about the factual connections with the Netherlands: is the company managed from the Netherlands and is production or research carried out in the Netherlands?
In addition, it is important to note that all acquirers fall within the scope of the Vifo Act. It is irrelevant whether the acquirer is from the Netherlands, Europe or any other country. If the transaction falls within the scope of the Vifo Act, then the parties must report the transaction to the BTI, even if the acquirer is a Dutch company.
What should I do if a transaction falls under the Vifo Act?
Transactiond falling within the scope of the Vifo Act must be notified to the BTI. A notification form, which companies must use to report their transaction to the BTI, is attached to the Decree on security screening of investments, mergers and acquisitions. The notification form with a brief explanation is also available on the BTI’s website.
Transactions that need to be reported may not be implemented until the Minister has given permission. Until then, a standstill obligation applies.
What test does the BTI apply?
When a transaction is reported to the BTI, it is assessed whether the transaction poses a risk to national security. This is a broad concept. Specifically, the BTI looks at whether:
- the transaction leads to a disruption of the continuity of vital processes;
- the preservation of the integrity and exclusivity of knowledge and information with critical or strategic significance for the Netherlands is at risk;
- the transaction leads to unwanted strategic dependence of the Netherlands on other countries.
The test mainly focuses on the acquirer and the parties behind the acquirer. Relevant factors include the transparency of the ownership structure of the acquirer, the existence of sanction measures, the security situation in the country of establishment and the acquirer’s track record.
What can the BTI decide?
The BTI’s review proceeds in two phases: the screening phase and the review phase. In the screening phase, the BTI assesses whether there is a risk to national security. If not, the transaction may go ahead. If so, the parties must apply for a review decision. The BTI renders a decision in the screening phase within eight weeks. However, the deadline can be extended, by up to six months, if additional investigation is required.
A more detailed investigation follows in the review phase. If after that substantive review the BTI concludes that the transaction leads to a risk to national security it may take a number of measures.
- In most cases, the BTI is expected to decide that parties should take mitigating measures. These are measures that modify the transaction so that the risks to national security are removed. These may include, for example, modifying the transaction so that a specific business unit is not acquired or transferring sensitive technology to another party.
- If the risks to national security cannot be removed through mitigating measures then a transaction may be prohibited.
The review phase is again subject to an eight-week decision period. That period can also be extended by up to six months. However, the period for additional investigation during the screening phase is deducted from that maximum period. It is possible to challenge decisions of the BTI through objection and appeal before the administrative court.
When does the Vifo Act apply?
The Vifo Act came into force on 1 June 2023. The BTI can review transactions falling within the scope of the Act as of 1 June 2023 and companies involved in such transactions must file a notification.
One peculiarity is that the Vifo Act can apply retroactively to transactions. Until eight months after its entry into force (1 February 2024), the minister can decide to review past transactions. The look-back period is not unlimited. It concerns transactions carried out between 8 September 2020 and 1 June 2023. If the minister decides that a past transaction will be reviewed then parties must still submit a notification to the BTI. The Minister has now made use of that option: the acquisition of chipmaker Nowi by Nexperia (with a Chinese owner) must be notified to the BTI.
Are there penalties if I violate the Vifo Act?
If parties fail to report transactions under the Vifo Act, they (both) run the risk of a fine in the amount of € 900,000 or – if higher – a fine of 10% of annual turnover. In addition, acquired voting rights will be suspended and a notification must still be filed. Providing incorrect information can also result in a fine of 10% of annual turnover imposed on the party that provided the incorrect information.
Should you have another question about the Vifo Act, do not hesitate to contact us.
