Happy first anniversary! One year of the Vifo Act: an update

The Dutch Investments, Mergers and Acquisitions Security Screening Act (Wet Veiligheidstoets investeringen fusies en overnames – Vifo Act) came into force on 1 June 2023 (see our July 2023 newsletter). The Vifo Act introduced a general investment screening regime with the aim of protecting national security in the Netherlands. This article provides a short overview of our key findings of the Vifo Act’s first year and an outlook to its future. 

The first year of the Vifo Act – our key findings

1. The Dutch opt for a narrow interpretation: the first year has shown that the Investment Screening Bureau (Bureau Toetsing Investeringen (BTI)) interprets the scope of the Vifo Act rather narrowly. The majority of the 50+ notifications in the first year related to tech companies. In addition, the BTI has confirmed that it would rather not see the scope of the Vifo Act widen as a result of the revised EU FDI Reglation (the current draft of which adds sectors that should be subjected to screening).    
2. When in doubt, reach out: the BTI lived up to its promise and has been very willing to provide guidance on the applicability of the Vifo Act. It has done so both in informal contacts (within short timeframes!) and by publishing guidance papers (on (i) internal restructurings, (ii) acquisitions of assets and (iii) the meaning of being ‘active in’ sensitive technology; see our January 2024 newsletter) and various frequently asked questions (including on letterbox companies, greenfield investments, convertible loans and share pledges). Whereas it initially seemed that the BTI would at times require notifications for non-notifiable transactions, it is now clear that it is not seeking to cast the net widely and often confirms (on request) that the Vifo Act does not apply if the situation is not straightforward. There is therefore is no need to let sleepings dogs lie – which is supported by the court judgment discussed under point 8.
3. Preparation is key: review timelines remain relatively unpredictable, but the one thing that is clear is that providing detailed information on the target’s activities and the investor (its ownership structure in particular) avoids delays.
4. Phase I is crucial: if the Phase I investigation leads the Minister to conclude that a screening decision is required (i.e. it will proceed to Phase II), companies can expect that commitments will be required. A screening decision being required means that the Minister has identified potential risks to national security that will need to be addressed by offering commitments.
5. An imperfect merger control analogy: when applying the Vifo Act, the BTI largely follows merger control rules (e.g. as to when an acquisition of assets qualifies as an acquisition and on when notification obligations apply to convertible loans and share pledges). One important deviation concerns the fact that there is no “control on a lasting basis” requirement under the Vifo Act. Consequently, also temporary shifts in equity interests may need to be notified.
6. Hiding can harm: a clear red flag for the BTI is when investors are trying to hide. Trying to stay under the radar is not only difficult – the BTI requires full disclosure of ownership structures – but can also lead to delays and extra scrutiny. This also applies to passive investors with very limited capital commitments and no controlling rights. 
7. EU screening authorities love to talk: it is clear that national screening authorities have frequent contacts – also outside of the EU cooperation mechanism. This should be taken into account when deciding on a coordination strategy for (voluntary) FDI filings in several member states.
8. The Dutch court is not afraid to push back: The Vifo Act granted the Minister of Economic Affairs and Climate a (limited) call-in power for investments that had already been implemented before the Vifo Act came into force. Exercising this power, the Minister ordered Anteryon, a company active in micro-optical products, to submit a notification under the Vifo Act. The Minister did so without having a full picture of the transaction structure. Anteryon disagreed, arguing that the transaction in question did not result in a change of control and that therefore the Vifo Act did not apply, and decided to seek an interim injunction. On 25 April 2024, the District Court of Rotterdam ruled that the Minister should have first assessed whether the transaction fell within the scope of the Vifo Act. This could have been done by issuing further requests for information. The court also held that in this case there was reason to doubt that the transaction fell within the scope of the Vifo Act. The transaction involved the acquisition of a 66% shareholding, but did not entail any voting rights or other control rights. The acquirer already exercised control over Anteryon by virtue of governance rights linked to its pre-existing minority shareholding. A judgment in the main proceedings will follow later. 

An outlook to the future

In its second year, the Vifo Act will likely get company from a new investment screening regime and a sector-specific regime will be updated. First, the Electricity Act 1998 and the Gas Act will be replaced by the new Energy Act (Energiewet). The proposal for the Energy Act is currently under review in parliament and is expected to lower the notification thresholds. The Dutch legislature is also drafting a separate screening regime for the defence sector. The interplay between this new regime and the Vifo Act remains to be seen. In addition, the European Commission intends to start monitoring the risks related to outbound investments to determine whether there is a need for policy responses in this area, such as an outbound investment screening regime. The Dutch government has welcomed this initiative positively. 

The (current) narrow scope of the Vifo Act could be extended to include more sectors in the near future. In February, Parliament passed a motion to bring the vegetable and seed breeding industry under the scope of the Vifo Act. The revised EU FDI Screening Regulation may furthermore lead to an expansion of the Vifo Act – but this is not expected before 2027. 

To end with politics: the key points of the four parties forming the new Dutch government confirm ongoing concerns about economic espionage, which may lead to increased scrutiny. The document outlining these points stresses the need to reduce strategic dependencies. The newly appointed Prime Minister (a former spy chief) is said to confirm that the Dutch “opportunistic trader’s mentality” has reached an end, and that – with increased threats coming from countries like China – issues such as security, law and order are now higher on the political agenda.