Out-Law Guide 7 min. read
07 Jun 2023, 5:40 pm
However, there has been significant debate in the Netherlands in recent years about the risks associated with essential parts of the business landscape being strategically dependent on third country actors. This debate intensified during the Covid-19 pandemic and the potential economic and security threats posed by foreign countries including China and Russia.
As a result, the Netherlands has just introduced a broad investment screening regime, with effect from 1 June 2023. This complements existing sector-specific investment screening for the Dutch energy and telecom sectors. These regimes apply irrespective of the nationality of an acquirer. A separate screening agency, the Bureau Toetsing Investeringen (BTI), has been established to enable thorough screening under each of these regimes.
The Netherlands has mandatory screening regimes for certain acquisitions in the energy and telecoms sector. The Dutch government is also developing a separate regime for investments in Netherlands-based defence companies, with more details being expected in the course of 2023.
Notification to the BTI is necessary for the acquisition of control over companies managing electricity production installations exceeding 250MW and liquified natural gas installations in the Netherlands, or the acquisition of the assets themselves. Notification needs to take place at least four months prior to the envisaged implementation. The BTI will then assess whether the acquisition gives rise to public safety or supply certainty risks, in which case it could be approved subject to remedies or prohibited altogether. Failure to notify means that a transaction is voidable.
An elaborate investment screening regime applies to certain telecom businesses in the Netherlands. The regime came into force in October 2020 through amendments to the Dutch Telecommunications Act, which now requires BTI notification before a foreign investor can acquire “predominant control” over a Dutch “telecommunication party”, which leads to “relevant influence” on the Dutch telecoms sector.
The concept of “predominant control” differs from the EU and Dutch competition law concept of “control”, and also includes the acquisition of at least 30% of voting rights. The definition of a “telecommunication party” includes companies offering electronic communications networks or services, hosting services, internet exchange points, trust services or data center services in the Netherlands – excluding data centers that are designed solely or predominantly for a company’s own use.
There has been significant debate in the Netherlands in recent years about the risks associated with essential parts of the business landscape being strategically dependent on third country actors
Notification is necessary if the relevant transaction leads to “relevant influence” for the acquirer, who is also responsible for notifying. Notification is therefore not necessary if the acquirer already had “relevant influence” before the transaction. This materiality threshold is further defined in implementing legislation, and covers provision of the following services in the Netherlands:
“Relevant influence” can also cumulatively exist if the acquirer and/or target company offer more than one of these services, such as if they provide an electronic communications network as well as data centre services. In such cases, the size of the different services needs to be aggregated in accordance with a detailed formula laid down in legislation.
This notification regime is not suspensory, but if closing takes place prior to the BTI’s decision, parties run the risk of having to reduce or reverse their controlling interest if there were to be a prohibition decision or conditional approval. Upon receiving a notification, which needs to be submitted at least eight weeks before the envisaged implementation of a transaction, the BTI will, in principle, have to decide within eight weeks whether the transaction will be prohibited. It can however decide to extend this period for up to six months to conduct a more in-depth investigation and ‘stop the clock’ in case of formal questions.
The BTI can prohibit a transaction if this were to lead to a "threat to the public interest". This could more specifically be the case if an acquirer:
In case of failure to notify, the BTI may still order notification of the transaction and also impose a fine of up to €900,000.
In May 2022, the Dutch parliament approved legislation for a cross-sectoral investment screening regime, known as the ‘Vifo Act’. The Vifo Act entered into force on 1 June 2023 and has retroactive effect until 8 September 2020. The Dutch government estimates that this regime will roughly be applicable to up to 1,460 companies currently active in Netherlands. Although the Vifo Act has generally been well received, some investors and companies have expressed their concerns about the expected regulatory impact and deterrent effect on investments relating to potential future growth areas, like quantum technology and photonics.
In short, the Vifo Act will cover certain transactions relating to Netherlands-based companies that:
The obligation to notify applies to both the acquirer and target company. The new regime will cover acquisitions of “control”, but a lower threshold of “significant influence” will apply to certain categories of “highly sensitive technologies”, which can already be the case as of a 10% shareholding. The regime also covers the establishment of full-function joint ventures, mergers, demergers and the acquisition of essential assets. Transactions that are subject to sector-specific investment screening are excluded from the Vifo Act’s scope.
According to the Act, “vital suppliers” include heating network operators, certain companies active in the field of nuclear energy, KLM, Schiphol Airport and certain ancillary services, Rotterdam Port Authority, banks, and various companies operating in the fields of financial market infrastructure and natural gas. New categories of vital suppliers can, and are expected to, be added in the future.
The Act’s definition of “sensitive technology” covers dual-use items for which an export license is required pursuant to EU Dual-Use Regulation 2021/821, as well as military items covered by the EU Common Military list and technologies relating to quantum mechanics, semi-conductors, high assurance information security and photonics. There are also some specific dual-use and military technologies classified as being “highly sensitive”, meaning that the lower notification threshold of “significant influence” applies.
Upon receiving a notification, the BTI will, in principle, have eight weeks to assess whether an acquisition could pose national security risks and whether a more in-depth screening decision, known as ‘Phase 2’, is necessary. The initial review period can be extended with up to six months. The Phase 2 review period is another eight weeks, which can again be extended – although Phase 1 and Phase 2 extensions may cumulatively not exceed six months. In addition, these review periods can be suspended through formal information requests by the BTI.
Substantively, the BTI will assess the national security risks of a transaction taking account of the continuity of vital processes; integrity and exclusivity of knowledge and information considered of vital or strategic importance for the Netherlands; and strategic dependencies on other countries. The Vifo Act also contains more detailed risk assessment criteria relevant to vital suppliers and sensitive technologies. If a transaction gives rise to national security risks, this can lead to an approval decision subject to remedies or, as a last resort, prohibition of a transaction.
The Vifo Act also applies retroactively to transactions that took place between 8 September 2020 and 1 June 2023, the date on which it entered into force. For a period of eight months after entry into force, the BTI can still order notification of such prior transactions where they fall within the material scope of the Vifo Act and where there are reasonable grounds to suspect national security risks. Transactions relating to business campuses and sensitive technologies added through implementing legislation are excluded.
In case of failure to notify the BTI in a timely fashion, it can impose a fine of up to 10% of company turnover and order notification of the transaction. A transaction implemented in violation of a prohibition decision or conditional approval by the BTI is automatically void.
07 Jun 2023