On 17 May 2022, the Dutch Senate approved a bill introducing a national security control regime for investment screening. The regime will capture transactions that satisfy the mandatory notification requirements, regardless of the nationality of the acquirer. Although expected to be used in exceptional cases only, the Minister of Economic Affairs and Climate (Minister) will have the power to retroactively call-in for review transactions implemented after 8 September 2020. The regime is expected to enter into effect later in 2022. Investors currently involved in deals that may raise national security concerns are advised to evaluate the implications of this regime for deal certainty and timing.
This development forms part of a broader trend at the EU level, as well as in other EU member states, where governments are opting for stricter investment review policies to protect public interests. The national security investment regime will be an addition to the sectoral public interest review mechanisms currently in place that apply to investments in financial institutions, healthcare providers, telecommunications services and infrastructure (such as networks and data centres) and energy generation facilities (electricity and liquefied natural gas). For this purpose, the Minister established the Investment Screening Office (Bureau Toetsing Investeringen) that acts as coordinator of notifications, reviews notifications and advises the Minster on remedies and other measures to mitigate potential risks.
Scope of the regime
Although the exact scope will be set out in delegated acts that are expected to be presented later this year, there are a number of sectors and activities that will in any event be captured:
- Vital suppliers active in three sectors: (i) energy (district heating, natural gas extraction and storage and nuclear energy); (ii) transport hubs (Amsterdam Airport Schiphol and Port of Rotterdam); and (iii) banking (credit institutions, trading facilities and financial market infrastructure).
- Managers of corporate campuses where public-private cooperation takes place on technologies and applications that are of economic and strategic importance for the Netherlands. According to the explanatory memorandum, this captures campuses such as the High Tech Campus Eindhoven.
- Sensitive technology which refers to military and dual-use goods (i.e. goods that can be used for both civil and military use) that are subject to export control rules under Regulation (EC) No 2021/821 or Council Common Position 2008/944/CFSP of 8 December 2008 defining common rules governing control of exports of military technology and equipment. The Minister may also designate other goods and technologies that are essential for the functioning of the defence, police, intelligence and security services of the Netherlands and its allies.
The regime will cover changes of control (within the meaning of the EU Merger Regulation) and, in respect of sensitive technology only, also the ‘acquisition or expansion of significant influence in one or more undertakings’, such as the acquisition or an increase to 10 per cent, 20 per cent and 25 per cent of the votes in the shareholders' meeting of the target undertaking. This gives the Ministry the power to also review acquisitions of minority shareholdings and asset deals. Note that there are no monetary or market-share (notification) thresholds.
The scope can be amended in light of geopolitical changes or economic developments.
The substantive review is to be based on a national security risk assessment. The draft bill provides that several factors are relevant for the review, such as:
- the identity and nationality of the acquirer(s);
- the transparency of the acquirer’s ownership structure;
- the financial situation and track record of the acquirer;
- the political stability and safety situation of the country of registration of the acquirer; and/or
- connections with foreign states or persons subject to EU and/or international sanctions.
The statutory review period is eight weeks, which can be extended to eight months in case of an in-depth review. Requests for information will ‘stop the clock’.
If the Minister finds sufficiently concrete indications that the transaction poses a risk to national security, remedies can be imposed or the transaction can be blocked. The European Commission and other EU member states may comment on the transaction under the EU FDI Regulation, which became fully applicable on 11 October 2020. For more information, see our briefing.
As indicated, the regime is expected to enter into force later this year. However, investors currently involved in deals that may raise national security concerns are advised to evaluate the implications of this new regime for deal certainty and timing. Although expected to be used rarely, the Minister will be able to retrospectively call in transactions that:
- completed after 8 September 2020;
- give rise to national security concerns; and
- have not been subject to a public interest intervention under the current sector-specific regimes.
If called in, transactions will have to be notified and will be subject to substantive review. In addition, deals that have not completed by the time the regime comes into force and satisfy the mandatory notification requirements will need to be notified and cleared before closing.
Implications for investors
- Deal timeline: if a deal subject to the mandatory regime has not closed before the regime has entered into effect, closing will not be permitted until clearance is received. Without such clearance, the deal will be legally void. Investors must therefore self-assess whether deals may fall under the mandatory regime and if triggered accommodate for this process in a deal timetable.
- Deal documents: investors currently negotiating deals that may not complete prior to the new regime coming into force should ensure that they include appropriate conditionality, risk-allocation measures and long-stop dates, allowing for a potential notification and review period.
- Sanctions for failure to notify include fines of up to 10 per cent of worldwide turnover or €900,000 (whichever is greater).
Freshfields has recently advised on multiple transactions involving sensitive activities and has had close interaction with the Dutch Investment Screening Office in this context. Please get in touch for more information.