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The Act on Security Screening of Investments, Mergers and Acquisitions (‘Vifo Act’) entered into force on 1 June 2023 and introduces a mandatory national security regime that applies to investments in vital sectors, sensitive technology and operators of business campuses. The Vivo Act applies retrospectively to all qualifying investments made after 8 September 2020 and applies to both Dutch and non-Dutch investors.
Frits Burg of Pinsent Masons said: “It should be borne in mind that the screening mechanism from the Vifo Act supplements existing screening mechanisms from special sector legislation, such as the Gas Act, the Electricity Act, the Mining Act and the Telecommunications Act.”
“Unlike some FDI screening schemes in other EU member states, the Vifo Act also covers purely domestic transactions. In essence, the Vifo Act applies equally to Dutch and non-Dutch investors. It is designed to protect target companies regardless of the location and nationality of the investor,” he said.
The aim of the Vivo Act is to screen transactions involving target companies, established in the Netherlands, that are active in those sectors that can influence national security. The screening mechanism applies to transactions including mergers and acquisitions; demergers; acquisition of control or significant influence in a company; the acquisition of part of a target company’s assets that are essential to its operation; and acquisition of control or significant influence by purchasing goods under universal title. The Act contains listed investment activities, but is drafted so as to cover all activities that actually result in the acquisition of control.
The Vivo Act further applies not only to acquisitions of target companies active in vital sectors or sensitive technology in the Netherlands, but also targets companies that have control or significant influence over other companies active in those sectors or technologies.
If an investment falls under the scope of the Vivo Act, investors or the target company must notify the Investment Review Agency (BTI) in advance about planned transactions. Failure to notify can result in a fine of up to 10% of the company’s turnover. Qualifying businesses include vital suppliers, operators of business parks and campuses, and suppliers of sensitive technology. Notification of investments made before 1 June 2023 is not required, but as the Vivo Act applies retroactively to investments made in vital providers and certain sensitive technologies after 8 September 2020, the BTI may request a notification for those transactions until 1 February 2024 if it is suspected that the transaction poses a national security risk.
BTI officials will then assess the transaction to determine whether there is a risk to national security, which include a risk to the democratic legal order, security or other interest of the Dutch state or social stability. Investors are legally required to wait for approval before completing the planned transaction, although a waiver may be granted in the event that a transaction is in the public interest with a risk of economic, physical or social damage to society or financial instability, such as liquidation of a company, should the transaction not be completed. Transactions completed without the BTI’s approval will be automatically void.
After receiving notification of a qualifying investment, the minister has eight weeks to assess whether the investment could potentially cause a risk to national security. If investors request a review of the minister’s decision, the minister then has another eight weeks to respond. The minister can extend the time limit for one or both of these processes, but a final decision must be reached within six months of notification.
Frits Burg said: “The Vifo Act could delay certain mergers and acquisitions, but investors should take care not to circumvent the new regime. Completing a transaction before the BTI’s assessment is complete – or before ministerial approval has been granted – carries substantial risks. If a particular investment is blocked, the minister has the power to order the transaction to be partially, or fully, reversed.”
“Investors in Dutch companies are therefore encouraged to seek legal advice well in advance if they are unsure whether a particular transaction falls within the scope of the Vivo Act,” he said.
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