A proposal for the Investment, Mergers and Acquisition (Security) Test Act (“vifo Act“) is currently before the House of Representatives for consideration. This proposed law introduces a ‘screening mechanism’ to prevent undesirable acquisition activities. Investments, mergers and acquisitions involving companies that qualify as vital providers or companies that possess so-called sensitive technology and may therefore pose a risk to national security will be subject to a security test. These are complex regulations which, moreover, have not yet been implemented, but may be important for current or future investment activities. Reason enough to list a few important points of this legislation ‘in the making’.

Who will be affected by the vifo Act?

The vifo Act will apply to ‘vital providers’ and ‘companies that possess sensitive technology’. Vital providers include companies active in banking, the port area, transport of heat, air transport, nuclear energy, infrastructure for the financial market, recoverable energy and gas storage. Sensitive technology refers to companies with certain knowledge or technology that could have consequences for national security if it were to leak and end up in the wrong hands. It should be clear that in all situations it can be difficult to determine in advance which companies and which technologies are involved.

Reporting to the Investment Assessment Bureau (BTI)

Both investors in vital providers and companies with sensitive technology and these companies themselves must report changes of control to the BTI. The BTI is part of the Ministry of Economic Affairs and Climate Change. The BTI was previously established and is currently active in the area of reviewing investments in the electricity, gas and telecommunications sectors. With the entry into force of the vifo Act, the tasks of the BTI will therefore be expanded. If there are risks involved, the BTI can attach conditions to the investment or prohibit a proposed investment in extreme cases.

Proceeding with a transaction or standstill requirement

What happens after the notification? The Minister of Economic Affairs and Climate Change (the “Minister”) assesses whether the transaction poses a risk to national security. In practice, this means that the acquisition activities must be halted until the assessment of the notification has been completed. Should the Minister decide that no assessment decision is required, the transaction can proceed. If the Minister decides that the parties concerned must apply for an assessment decision, a so-called standstill obligation applies. The transaction may not take place until the Minister has decided on it. If there are risks involved, the Minister may attach conditions to the proposed investment or prohibit an investment in extreme cases.

Consequences and points for attention for practice

If the proposed investment is prohibited by the Minister, then implementing it will have no effect (void). There are also consequences for investors, purchasers or target companies that do not comply with the mandatory notification. The Minister may then impose a fine of up to 10% of the turnover of the company concerned. Finally, for vital providers, the law is likely to have retroactive effect from 8 September 2020. This means that transactions carried out at this time may fall within the scope of the vifo bill. The Minister can still order a notification to be made. The Minister may also make an ex officio assessment decision. The Minister has eight months after the vifo Act entered into force to do so.

Do you have any questions about this bill as a result of this article? Please contact Lusine Shahbazyan (+316 128 715 76) or Helger Kamerman (+316 510 801 87).

This article was published in the Newsletter Vestius of April 2022

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