On 1 June 2023, the Dutch Act on security screening of investments, mergers and acquisitions (the Wet veiligheidstoets investeringen, fusies en overnames or the “Vifo Act”) entered into force. Please note that the Vifo Act applies (in part) retroactively as of 9 September 2020.
The Vifo Act provides Dutch authorities with a legal supervisory framework in the event that transactions in certain sectors may pose a threat to the national security. Due to the Vifo Act, investments, mergers and acquisitions that result in specific control in certain sectors are subject to a notification requirement and security test. The Bureau for Verification of Investments (the Bureau Toetsing Investeringen or "BTI") receives the notifications and reviews the potential risks to the national security.
Scope
The Vifo Act applies to certain acquisition activities. In short, these are transactions that result in acquiring control or significant influence in a target company. The notification obligation and security test apply to transactions in two types of target companies in the Netherlands: vital providers and vital processes and companies that are active in sensitive technologies. Vital providers include, for example, the Harbour Master and Mainport Schiphol, which provide vital processes for the Port of Rotterdam respectively Schiphol Airport. Providers of sensitive technologies include providers of military goods, dual-use technologies - such as computer chips and nuclear materials - and the technologies in the fields of quantum mechanics, photonics and semiconductor technology. In the run-up to the Vifo Act, it was suggested that technologies in the fields of artificial intelligence, biotechnology and robotics should be included in the scope. For now, these fields are not included in the scope. However, the Vifo Act does offer the possibility of expanding the list of sensitive technologies in the future.
Notification and penalties
During the period starting on 9 September 2020 and ending on 31 May 2023, companies can still be ordered to report transactions that fall within the scope of the Vifo Act. This is a passive notification obligation. This instrument was used in for example the acquisition of the Delft-based chip manufacturer Nowi, which was acquired late last year by Nexperia, a subsidiary of a Chinese technology company. As of 1 June 2023, transactions falling within the scope of the Vifo Act must be proactively notified to the BTI.
Before the transaction may proceed, the BTI must approve the transaction. Before an approval has been rendered, a standstill obligation applies. The BTI assesses the risks of the transaction to the national security using, among other things, sanctions lists and the situation in the country in which the acquirer is based. If the security risks are present, the BTI may in extreme cases prohibit a transaction.
If the acquirer or company should have reported a transaction and neglected this obligation, a number of sanctions can be imposed. The Vifo Act offers the possibility of imposing a sixth-category administrative fine (EUR 900,000) or a fine of up to 10% of the company's annual turnover. Furthermore, the exercise of acquired rights (such as voting rights in the general meeting) can be suspended. In addition, an order under administrative coercion can be imposed which means that in certain cases the acquired shares will be disposed on behalf of and at the expense of the acquirer or the company.
Our recommendations
Be alert. Should there be a notifiable transaction within the meaning of the Vifo Act, parties would be wise to make a timely notification - at least eight weeks in advance - so that the BTI can perform the security test and a transaction is not unnecessarily delayed. The duty to notify rests on both the management of an acquirer and the management of the company. In addition to various penalties under the Vifo Act, disregarding the duty to notify the BTI could potentially lead to personal liability of the directors.
If you have a question about the Vifo Act, do not hesitate to contact Ilse Ekkel.