Despite rapid developments across the EU with respect to foreign direct investment (FDI) screening, the developments in this field were at a slower pace in the Netherlands. Until this week: the Dutch government seeks to apply retroactive effect to FDI screening legislation that is currently in the making. This means that investors should already take Dutch FDI screening into account, although the relevant legislation is not expected before 2021.
FDI screening: recent developments in the Netherlands
On 18 April 2019, the Dutch Minister of Justice and Security announced a broad package of measures to protect the Dutch economy and open society against unwanted foreign influences. The measures included a review of acquisitions and investments to assess national security risks. In November 2019, the Dutch Minister of Justice and Security and the Minister of Economic Affairs and Climate jointly informed the House of Representatives about the introduction of the announced investment screening. The Ministers indicated that the proposed screening for national security risks would entail an obligation to notify acquisitions and investments in vital infrastructure or in companies that develop high-quality technology that is related to national security.
Although draft legislation is not expected before the last quarter of 2020, the Minister of Economic Affairs and Climate informed the Dutch parliament this week that the future FDI screening legislation is intended to have retroactive effect. In light of the Covid-19 crisis, the Dutch cabinet wishes to create a possibility for the competent minister to retroactively scrutinize investments carried out in the period from 2 June 2020 up to the entry into force of the relevant legislation.
The scope of the legislation would regard investments in or acquisitions of:
- providers of vital processes and vital infrastructure (e.g. so essential that their failure would threaten national security) and
- companies active in high-quality sensitive technology.
According to the Minister, the screening criteria will be comparable to the criteria set out in the so-called ‘telecommunications sector (undesirable control) bill’ (Wet Ongewenste Zeggenschap Telecommunicatie) (Bill) that was passed by Parliament last month. Although the Bill focuses on the telecommunications sector, this clarification may give an indication on the screening to be expected. On the basis of the Bill, an investment or acquisition requires notification to the competent minister if (a) predominant control is acquired and (b) this control leads to relevant influence in the telecommunications sector.
Predominant control includes a situation in which (i) one or several parties (acting in concert) hold at least 30% of the voting rights in the general meeting of shareholders, (ii) one or several parties (acting in concert) have the right to appoint or dismiss more than half of the members of the board or the supervisory board or (iii) a party has one or more shares with special statutory rights with respect to the control. Relevant influence includes a situation where abuse or deliberate failure of the relevant business can interrupt the availability of certain products or services relevant to a public task in the area of national security. The competent minister will assess whether the transaction can lead to a threat to the public interest. This may be the case, for example, if there are grounds to suspect that the acquirer of control intends to influence the business to enable abuse or deliberate interruption.
Investor beware
In his letter, the Minister acknowledges that the retroactive effect of the FDI screening rules can lead to uncertainty for businesses and investors. According to the Minister, this uncertainty is limited due to the defined time period for the retroactive effect and because the screening’s scope is consistent with the scope communicated earlier. It should be noted, however, that the exact assessment criteria are still to be determined, adding to the uncertainties.
Regardless of the exact scope and criteria for the screening, it is clear that investors should already carefully consider the possibility of screening in the Netherlands. And with FDI screening now clearly on the Dutch government’s agenda, further developments may not take long.
