On 8 September 2020, a draft bill setting up an ex-ante and ex-post screening mechanism for investments in companies active in vital processes or sensitive technology in the Netherlands was published for consultation. Investments, mergers and acquisitions that took place between 2 June 2020 and the entry into force of the proposed law may also be scrutinised. The draft bill is open for consultation until 7 October 2020. Companies should beware of these new developments in relation to future, and potentially past, M&A deals.
In creating a system for screening investments or other changes of control or influence in the Netherlands, the draft bill complements the existing sectoral regimes. Sectoral regimes currently cover the gas and electricity sector and the telecommunications sector, for which the new law entered into force on 1 October 2020 [see our newsletter of June 2020]. The draft bill serves to ensure investments that are not covered by the sectoral regimes, but which may pose a risk to national security, will also be screened.
The draft bill introduces an ex-ante and ex-post notification requirement for investments and other M&A activities that lead to a change of control or influence in companies with seat in the Netherlands and which are essential for the continuity and resilience of vital processes, active in the field of sensitive technology, have control or significant influence over such companies or are a supplier of companies active in vital processes. A separate order will specify exactly which activities are covered by the new rules.
The draft bill applies to all types of “investment activities” (such as takeovers, mergers, joint ventures and the acquisition of assets with which effective control or, in exceptional circumstances, a significant influence is acquired e.g. by means of a minority stake or preferred stock). The rules apply equally to non-EU and EU investors, including Dutch investors.
An intended investment activity will need to be notified to the Minister of Economic Affairs and Climate by one of the parties subject to the notification obligation (the acquirer or target) and clearance will need to be awaited before it can be implemented.
The review period
The Minister’s review period lasts up to eight weeks, with a possible extension of maximum six months if further investigation is needed. This period may be extended even further if – for example at a relatively late stage – the EU FDI Screening mechanism is activated. During the review period, the Minister will look into aspects including: (i) the (transparency of) the ownership structure and relationships of the acquirer, (ii) whether the acquirer is subject to restrictive measures under international law (such as international sanctions) and (iii) the security situation in the acquirer’s country of residence.
The review process ends with the Minister either (i) clearing the intended activity, (ii) imposing measures to its clearance decision to safeguard national security by, for instance, prohibiting the inclusion in the transaction of certain assets, components or subsidiaries, lowering the allowed percentage of shares to be acquired or requiring certification of all shares of the acquirer or (iii) as a last resort prohibiting the activity all together. A screening decision may be appealed.
In very exceptional circumstances, an initially-approved investment activity may become subject to conditions or be reversed. If the (changed) circumstances could pose a threat to national security, the Minister may order a new notification to be made and may take a new screening decision.
Failure to notify, incorrect or incomplete information or failure to comply
In case of a failure to notify, the Minister may order a notification to be made or impose an administrative fine with a maximum of 10% of the turnover of the undertaking concerned. The provision of incorrect or incomplete information may lead to a new notification being ordered and an administrative or criminal fine. Failure to comply with the measures imposed can lead to further measures being imposed, a prohibition (and reversal) of the investment activity or administrative or criminal fines. Executing an investment activity in spite of a prohibition decision renders the legal acts null and void. Investigative powers include issuing requests for information and conducting dawn raids.
The bill will have retroactive effect, meaning that all investment activities from the 2 June 2020 to the moment of entry into force of the bill also fall within its scope. Not all investment activities will have to be notified; only those involving a reasonable suspicion that an investment activity that took place in the time period could pose a risk to national security. In this case the parties involved are required to notify the activity, which will lead to an assessment decision.
This upcoming bill introduces an ex-ante and ex-post screening regime with far-reaching consequences. Companies are advised to keep this upcoming bill in mind when contemplating future M&A deals, as well as to check their earlier investments in preparation of the bill’s retroactive effect from 2 June 2020.
This article was published in the Competition Newsletter of October 2020. Other articles in this newsletter: