Advocaat & Partner
The Act on Security Screening of Investments, Mergers and Acquisitions (Wet Vifo)
As a matter of Dutch national security, the Act Vifo, which aims at controlling the risks involved with M&A transactions in delicate sectors, became law on June 1, 2023, with retrospective effect as of September 9, 2020. In this article the most important aspects of this new legislation and the consequences for future and existing investments and M&A transactions will be covered.
The newly implemented Act on Security Screening of Investments, Mergers and Acquisitions (in Dutch: ‘Wet veiligheidstoets investeringen, fusies en overnames’ or ‘Wet Vifo’) provides the Dutch Authorities with the legal framework with which to review the potential risks transactions regarding certain vital providers may pose to national security.
Under this act, all acquisition activities which acquire control in Dutch undertakings that are active in vital processes, sensitive technologies and/or high-tech campuses are to be reported to the Investment Review Agency, (In Dutch: ‘Bureau Toetsing Investeringen’ or ‘BTI’). For the definition of control, the act simply refers to the competition law of the Netherlands, which is also used by the Dutch Authority for Consumer and Markets. With regard to the sensitive technologies, a significant influence is deemed sufficient to trigger the notifying obligation. When acquiring at least 10% of the voting rights of the target, the influence may already be considered significant.
Such vital providers may be Schiphol Airport, the Port of Rotterdam, providers of (nuclear) energy, but also banks and other major players in the financial sector. Sensitive technologies are military products as well as products which may also be used for military purposes, so called dual-use products. The Minister may by order in council (in Dutch: Algemene Maatregel van Bestuur) also declare other technologies to be sensitive. This allows the Act to stay up to date and relevant by keeping up with the technological advancements such as Artificial Intelligence. At the moment of writing, so far only quantum technology, photonics and semiconductor technology have been added by the Minister to the list. When a buyer acquires control of one of the aforementioned targets or an essential part of one of these targets, the BTI should be notified as soon as possible.
After receiving the notification, the BTI shall make an assessment as to whether the transaction should be deemed a risk for national security due to a possible discontinuation of the vital service, leakage of critical or strategic information from the Netherlands, and/or whether an unwanted strategic dependence on other nations may evolve from the transaction. Relevant factors for this assessment are the overall transparency of the investor’s ownership structure, the country where the investor is based, possible criminal records of the investor, and finally the degree of cooperation in the overall review procedure as well as the truthfulness of the submitted information.
If the risk to national security is substantial, the Minister of Economic Affairs and Climate Policy may prohibit the transaction or demand that certain conditions be met prior to the completion of the transaction. This standstill obligation shall be in force until a decision, has been taken by either the BTI or the Minister. Depending on this decision the investment may be partially or even fully reversed. When parties neglect to notify the BTI, they are at risk of receiving a fine of up to € 900,000 or 10% of their annual profits. Due to these far reaching consequences, it is of major importance for all parties involved to assess whether an obligation to notify the BTI exists prior to actually completing the transaction.
The main takeaway of this act is that from June 1st onwards, investors should, when investing in the Netherlands, consider their obligation to notify the authorities or risk having to reverse the transaction and receive additional fines.
Even if the transaction has already occurred, investors should be aware of the retroactive effect which applies the Act to all deals made from 9 September 2020 onwards. The Minister has until February 2024 to review those acquisitions prior to the implementation of the Act. Most recently, the Minister has decided to apply this tool to retroactively review the acquisition of chipmaker Nowi by Nexperia which now has the obligation to notify the BTI.
In order to notify the BTI, a notification form introduced through ministerial decree must be filed and submitted to the BTI. This BTI-form includes questions about the acquisition and its following control as well as the motivations for the transaction and any possible risks this may pose to national security. Failure to inform the BTI of all requested and/or correct information may result in a fine of 10% of the annual turnover imposed on the provider of said information.
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