Foreign direct investment reviews 2021: Netherlands

Sarah Beeston and Dr. Pim Jansen authored this publication¹

On October 1, 2020, the Telecommunication Sector (Undesirable Control) Act (Wet ongewenste zeggenschap telecommunicatie) came into force. This Act stipulates that an investment or acquisition requires notification to the competent minister if predominant control is acquired and this control leads to relevant influence in the telecommunications sector.

Other sector-specific legislation that can affect foreign investment can be found in sectors such as electricity and gas:

• Article 86f of the Electricity Act 1998 (Elektriciteitswet 1998) requires parties to any transaction involving a production installation with a nominal electric capacity of more than 250 megawatts or an undertaking that manages such production installation to notify the transaction to the Minister of Economic Affairs and Climate Policy
• Article 66e of the Gas Act (Gaswet) requires parties to any transaction regarding a liquefied natural gas (LNG) installation or an LNG company to notify the transaction to the Minister of Economic Affairs and Climate Policy

This sector-specific approach is about to change. On June 30, 2021, a proposal for general FDI legislation (The Investments, Mergers and Acquisitions Security Screening Act, Wet veiligheidstoets investeringen, fusies en overnames) was sent to the Dutch House of Representatives for the next steps in the legislative process. The future FDI legislation is intended to have retroactive effect, back to September 8, 2020.

WHO FILES

The parties to the transaction are required to notify investments that meet the conditions of the Draft Act to the Minister of Economic Affairs and Climate Policy. In practice, the Investment Review Agency (Bureau Toetsing Investeringen) will conduct the assessment on behalf of the Minister. 

TYPES OF DEALS REVIEWED

In principle, all mergers, acquisitions and investments resulting in a "change of control" or "significant influence" over vital undertakings based in the Netherlands, may be subject to the Draft Act.

The Draft Act distinguishes between several categories important to national security based on the assessment by the National Coordinator for Security and Counterterrorism. The Draft Act further includes specific conditions within these categories to establish whether an undertaking qualifies as a "vital provider or as active in the field of sensitive technology" for the purposes of the Draft Act. 

Vital providers and sensitive technologies: Undertakings that qualify as vital providers include operators of heating networks, nuclear energy providers, air transport, airport and port management operators (Schiphol Airport and the Port of Rotterdam in particular), banks and other players on the financial market, renewable energy providers and natural gas operators.

The Draft Act includes the possibility to add categories by governmental decree, although this has not happened as of this writing. Sensitive technologies include strategic goods such as dual-use and military goods, of which the export is subject to export controls.

SCOPE OF THE REVIEW

Relevant is whether the investment, merger or acquisition poses a risk to national security. National security refers to security interests that are essential for the democratic legal order, security or other important interests of the Dutch state or social stability. The Draft Act explicitly notes the following interests:

• Safeguarding the continuity of critical processes
• Maintaining the integrity and exclusivity of knowledge and information of critical or strategic importance to the Netherlands
• Preventing unwanted strategic dependence of the Netherlands on other countries

To assess the risk of the investment to national security, particular attention is given to the following factors:

• The transparency of the investor's ownership structure and relationships
• The investor's identity and criminal record
• Whether the investor is directly or indirectly subject to restrictive measures following from national and international law, such as Chapter 7 of the Charter of the United Nations
• The security situation in the country or region of residence of the investor
• The degree of cooperation of the investor in the review procedure

Other, related criteria might apply, such as particular attention to the track record of the investor in the activities concerned, its financial stability and its motives for the investment. The reputation and potential influence of the investor's home state are likely to be of particular importance as well.

SCOPE OF THE DRAFT ACT

The Draft Act is limited to mergers, acquisitions and investments resulting in a "change of control" or "significant influence" over the vital undertakings. The concept of control follows the definition under EU and Dutch competition law and can, for instance, include the creation of a joint venture or the acquisition of certain assets.

The concept of significant influence is only relevant in relation to undertakings active in sensitive technologies. An interest of 10 percent or more and/or the ability to appoint or dismiss one or more board members is considered to constitute significant influence. Further clarification on the concept of significant influence may follow by means of governmental decree.

REVIEW PROCESS TIMELINE

The review procedure consists of two phases. The first phase starts with the notification. The Minister has eight weeks to assess whether the investment could potentially cause a risk to national security. This period can be extended to a maximum of six months. The first phase ends with a notification that no review decision is necessary or that further review is necessary.

The second phase starts upon submission by the notifying party of a request for a review decision. The Minister then has another eight weeks to assess whether the investment causes a risk to national security. This decision period can also be extended to six months. However, the time used for review in the first phase will be deducted, meaning that the maximum time before a final decision is taken is six months.

A "stop the clock principle" applies, meaning that if the Minister requests additional information, the decision period is suspended until the required information has been provided. The decision period can also be extended by an additional three months if required to share the notification with the European Commission and/or other Member States in accordance with the EU FDI Regulation.

_{¹ Sarah Beeston (T +31 20 6789 650, Beeston@vandoorne.com) is a partner and Dr. Pim Jansen (T +31 20 6789 123, JansenP@vandoorne.com) is a lawyer with Van Doorne. White & Case LLP has no affiliation with Van Doorne.}

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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