Recently, we published this article about the key elements of the Dutch general foreign direct investment (“FDI”) screening mechanism, known as the Investments, Mergers and Acquisitions Security Screening Act (in Dutch: Wet veiligheidstoets investeringen, fusies en overnames, the “Vifo Act”). In this legal update our experts dive a little deeper into the Vifo Act by discussing the practical guides (“the Guides”) to the Vifo Act, which the Dutch Agency for Assessment and Investments (Bureau toetsing en investeringen, “BTI”) published last month.
The BTI has published three Guides that clarify specific criteria following from the Vifo Act, namely: assets, internal restructuring and being ‘active in’. The Guides can be amended and updated from time to time by the BTI based on changing insights, developments in the market or technology, or as a result of changed laws or regulations.
Assets
The Guide for assets (vermogensbestanddelen) discusses whether the acquisition of one or more assets qualifies as an acquisition activity within the meaning of Article 2 sub e of the Vifo Act. The Article stipules the following:
This Act applies to the following acquisition activities if they relate to a target company that is a vital provider or
manager of a corporate campus or is a sensitive technology company:
Sub e acquiring assets of a target company if they are essential for it to function as a vital provider or manager of a corporate
campus or as a company in the field of sensitive technology
Assets according to the Vifo Act include inter alia essential intellectual property rights and licenses, key personnel, and the portfolio of customer or supplier contracts. The acquisition of the assets can be realized through, for example, an asset-liability transaction, purchase agreement, or outsourcing agreement.
Once an acquired asset is identified, it is important to determine whether this asset can be acknowledged as a part of the business that can continue as a separate undertaking. The possibilities for separate continuation are (in true legal fashion) dependent on the specific circumstances of the case.
Following the identification of a separable part of a business, it needs to be assessed whether the acquirer obtains enough assets of the identifiable part to be able to effectively operate an undertaking. An undertaking, by definition, must engage in economic activities with a commercial purpose, regardless of the profit realized. It should be capable of generating income, either now or in the future, or be in a position to produce goods or provide services that can yield revenue. Earning a profit, though not immediately necessary, is a fundamental objective of an undertaking. This holds true even if the undertaking is currently operating at a loss, with the anticipation of future profitability.
Internal restructurings
The Guide concerning internal restructurings (herstructureringen) discusses when an internal restructuring might qualify as an acquisition activity under the Vifo Act. It defines restructuring as a process where, through one or more transactions within a group, the corporate structure is altered by involving different legal entities than before. For instance, such restructuring might lead to the control of an ultimate holding company, where shareholders hold their shares, shifting to another holding in a different jurisdiction. This might also involve changes in intermediate holdings and reorganization or regrouping of activities within the group under different legal entities, while the overall group remains unchanged.
In cases where restructuring involves a change in control or, in certain cases, a significant influence gained by a (new) shareholder, it is treated and assessed as an acquisition activity as per the Vifo Act.
General rule
If a company only moves its legal or factual seat from one country to another without changing its (indirect) ultimate shareholders, it does not count as an acquisition under the Vifo Act. This holds true as long as the ultimate shareholders remain completely unchanged before and after the restructuring.
The general rule applies strictly. In case the restructuring leads to any new (minority) shareholders in the acquiring company or the target company, or if the ultimate control changes during the restructuring process, the restructuring is considered an acquisition and therefore must be notified. Similarly, temporary management or the introduction of new minority shareholders in a company working in sensitive technology during restructuring also counts as an acquisition, requiring notification under the Vifo Act. Lastly, the transfer of an interest in a target company from one investment fund to another managed by the same controller may also trigger an obligation to notify.
Active in
The third and final Guide discusses when an undertaking can be considered to be active in (actief zijn op) the field of sensitive technology.
General rule
The general rule is that an undertaking engaged in research within the field of sensitive technology, as defined in the Vifo Act, or exploiting such technology by developing, processing, producing, or incorporating it into semi-finished or finished products for commercial use may be considered active in the field of sensitive technology. These production, research, and/or development activities must be conducted in the Netherlands. A Dutch subsidiary or branch focused only on trading does not qualify as active under this act. Likewise, a Dutch holding company functioning merely as a “letterbox company” with activities conducted by foreign subsidiaries is not deemed active under the Vifo Act.
Particulars
The Guide also goes into detail concerning some particulars of the criterion ‘active in’. As such the Guide addresses specific subjects, such as suppliers, highly sensitive technologies, wholesalers or retailers, and universities and sets out further what does, and what does not constitute to being ‘active in’ the respective categories.
Conclusion
As the notifications become more prevalent, the Guides provide the necessary guidance in order to navigate the Vifo Act successfully.
