Update: Draft bill on the security screening of investments, mergers and acquisitions
In previous news items of 14 September 2020 and 8 March 2021, I informed you of the draft bill on the Economy and National Security Review. In the news item of 8 March 2021, I reported that the cabinet had agreed on 18 December 2020 to send the bill to the Council of State for its advice and that the bill would be made public when submitted to the Lower House.
On 30 June 2021, the bill, named the security screening of investments, mergers and acquisitions bill (wetsvoorstel wet veiligheidstoets investeringen, fusies en overnames), was, together with the explanatory memorandum, submitted to the Lower House. It is clear from the text of the submitted bill that the draft bill I previously reported on has been amended in a number of respects. I will set out the key points of the bill below.
The bill applies to certain acquisition activities specified therein which relate to:
- a target company established in the Netherlands which is regarded as a vital provider or as a company active in the field of sensitive technology whereby the relevant acquisition activities result in a change of control in that company (article 2 of the bill); or
- a target company established in the Netherlands that is active in the field of sensitive technology, whereby the relevant acquisition activities result in the acquisition or increase of significant influence by an acquirer in that target company (article 3 of the bill).
For an explanation of the definition of control, the bill makes reference to Section 26 of the Competition Act (Mededingingswet), which states that control is the possibility of exercising decisive influence on the activities of an undertaking on the basis of factual or legal circumstances. Article 4 of the bill explains in which cases the acquisition or increase of significant influence in a target company active in the field of sensitive technology can occur.
Vital providers and enterprises active in the field of sensitive technology
Article 7 of the bill contains a list of categories of companies that can be seen as vital providers within certain sectors, including companies active in the field of transport of heat, nuclear energy, banking, extractable energy and gas storage. Article 8 of the bill stipulates that 'sensitive technology' includes military goods and so-called 'dual-use' products (products that can be used for both military and civilian purposes) whose export is subject to licensing. By an Order in Council, vital providers in other sectors can be brought within the scope of the bill and other technologies can be designated as sensitive technologies.
Notification requirement and assessment
Pursuant to the bill, an acquisition activity shall not take place before the Minister of Economic Affairs and Climate Change (i) has announced that no assessment decision is required, or (ii) has made an assessment decision. Article 11 of the bill imposes an obligation on those subject to notification (i.e. the acquirer and the target company) to notify the Minister of any intention to carry out an acquisition activity. Within eight weeks of receiving the notification (with the possibility of postponement by no more than six months), the Minister shall announce whether an assessment decision is required, which will occur if an acquisition activity may lead to a risk to national security. In assessing whether an acquisition activity might result in a risk to national security, inter alia the following aspects will be taken into account:
- the transparency of an acquirer's ownership structure and relationships,
- sanctions imposed on the acquirer or on any natural person or legal entity or non-state entity under whose influence the acquirer operates; and
- the security situation in the acquirer's country of residence, the security situation in the country of its head office or the security situation in neighboring countries.
If the assessment shows that the acquisition activity entails risks to national security, the Minister may set requirements or attach conditions to the assessment decision in order to limit those risks to an acceptable level. In extreme cases, the Minister may prohibit an acquisition.
If the requirements set or conditions attached to an acquisition activity are not properly implemented or observed, the rights acquired by an acquirer or target company through the acquisition activity cannot be exercised, with the exception of the right to the relevant company’s profits, dividends and distributions from the reserves.
As mentioned earlier, the intention was for the bill to take effect retroactively from 2 June 2020. This date has been changed to 8 September 2020, being the day on which the draft bill was submitted for consultation.
The bill will be debated in the Lower House within a few months. It is expected that the bill will enter into force early next year.
We will keep you informed of any developments.