Navigating Dutch FDI Notification: Are Internal Restructurings captured?

Introduction

The ‘Investments, Mergers and Acquisitions Security Screening Act’ (Wet veiligheidstoets investeringen, fusies en overnames, the Vifo Act) entered into force on 1 June 2023. The Vifo Act is an FDI ex-ante general screening mechanism designed to protect Dutch national security and prevent unwanted strategic dependence of the Netherlands on foreign countries. 

The Vifo Act applies to investments in companies established in the Netherlands (i) involved in vital processes, (ii) active in (highly) sensitive technologies, or (iii) operating a business campus. The Vifo Act catches all mergers and demergers, acquisitions and other investments that result in (a) a change of control over a relevant company, (b) the acquisition of a relevant company, or, in case of highly sensitive technologies, (c) an acquisition or increase of ‘significant influence’ over a relevant company.

To assist investors with the application of the Vifo Act, the designated national competent authority, the ‘Bureau for Verification of Investments’ (Bureau Toetsing Investeringen, BTI) has published several Guidance Documents as well as a FAQ Document. 

Experience shows that each national FDI regime has a different approach to the treatment of internal corporate restructuring and whether they fall within the scope of the clearance regimes. In the Netherlands, the definition of ‘control’ (and ‘significant influence’ in case of highly sensitive technologies) is essential for determining whether transaction may trigger an FDI notification. Control concerns the ability to exercise decisive influence, as in competition law. Significant influence can exist if 10%, 20% or 25% of voting rights can be exercised or if there is a right to appoint or dismiss one or more board members. 

In this blog, we focus on the BTI Guidance on Internal Restructuring and briefly touch upon the other guidance documents.

BTI Guidance on Internal Restructuring

Generally, an internal restructuring that does not result in a change in the ultimate beneficiary is not captured by the Vifo Act. This principle is interpreted strictly, it only applies if the restructuring does not result in a change of the (indirect) ultimate beneficial owner (UBO), i.e. there is no change of control. Furthermore, the target and the acquirer must have the same UBO prior to and after the transaction. If, however, an internal restructuring within a corporate group results in a change of control or, in case of highly sensitive technologies, acquiring or increasing significant influence by a (new) shareholder, the transaction will trigger a notification obligation under the Vifo Act.

According to the ‘Internal Restructuring’ Guidance, such restructuring may be subject to the Vifo Act in case of the following (non-exhaustive) situations:

1. The internal restructuring results in the introduction of new (minority) shareholders (directly or indirectly) of the target company. Even if this (minority) shareholding is only temporary as a result of different steps in the transaction plan of the internal restructuring. We consider this aspect controversial as this would not apply to regular transactions given the requirement of the acquisition of control. It can be that BTI refers to highly sensitive technology situations, where the threshold has significant influence (10%, 20% or 25%), but this is not clear from the guidance. We thus recommend touching base with BTI if such a situation occurs;
2. The shares of the target company are being temporarily held by a third party in the course of an internal restructuring (i.e. administration office, notary or other external advisor/custodian with fiduciary duties that result in exercising or could lead to exercising control over the target company);
3. The internal restructuring of a group that is active in ‘highly sensitive technologies’ results in new minority shareholders with ‘significant influence’ over the target company. In that regard, BTI’s Guidance Document provides the following example as depicted in the figure below:

Source: BTI Guidance on Internal Restructuring, December 2023, p. 4.

Company Z holds a significant influence over its subsidiaries A, B, C, and D, who are all active in the area of ‘highly sensitive technologies’. Z conducts an internal restructuring by establishing subsidiary Y of which Z holds only 90% of the shares. 10% of the shares, however, are being held by company X. Finally, Z places its former subsidiaries A, B, C, and D under control of Y. Because X obtains significant influence in Y, this internal restructuring is subject to the Vifo Act and must be notified, even though the UBO remains the same (Z). 

4. Finally, the transfer of interest in a target company from one investment fund to another investment fund, even if both are controlled by the same manager, triggers a notification obligation. This is due to potential involvement of different (type of) capital providers in the acquiring fund. 

Other BTI Guidance and the FAQ

The BTI has also published two other specific guidance documents, namely the BTI Guidance on ‘Assets’ and the BTI Guidance on ‘Active in’. 

• The ‘Assets’ Guidance provides further information on when a notification obligation is triggered in case the transaction concerns assets such as part of an undertaking, business secrets, key employees, key contracts, machinery, intellectual property, and/or knowhow. 
• The ‘Active in’ Guidance further elaborates on what being ‘active in’ sensitive technology and in ‘highly sensitive technology’ means. Generally, this concerns research, exploitation, development, processing, manufacturing and/or incorporating sensitive technology for commercial exploitation.

Regarding the general guidance provided in the FAQ Document, it is worth mentioning that BTI can perceive pledge rights on shares or convertible loans as obtaining ‘control’ in case the agreements regarding the exercise of the pledge right or the convertible loan would lead to acquiring such control over the target company.

Final remarks

BTI’s Annual Report 2023 shows that 46 notifications were received by BTI in 2023 after the entry into force of the Vifo Act. In 93% of the notifications, BTI found no national security risk. BTI issued 34 decisions, of which BTI imposed measures in (only) one case. The average processing time of most investigations under the Vifo Act was between 27 and 53 days. BTI also provided informal guidance in eight instances.

As publicly available information on FDI decisions and enforcement is very limited, the guidance by BTI, the FAQ document and the annual reporting are welcome additions to understanding the scope and applicability of the Dutch FDI regime. Additionally, we can gladly provide you with more information from experience.

If you need more information or further guidance in this area, please contact Janneke Kohlen, Tialda Beetstra, and Sander Wagemakers.

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