Security screening of investments, mergers and acquisition – New legislation

Security screening of investments, mergers and acquisition – New legislation

Security screening of investments, mergers and acquisition – New legislation 1920 1000 Caspar van der Winden

Act on security screening of investments, mergers and acquisitions

The Dutch Senate has passed a new law called the “Act on security screening of investments, mergers and acquisitions” which will require notification of investments in certain critical companies and those involved in sensitive technologies. This law will be in addition to existing screening procedures already in place in the Dutch energy and telecom industries. Companies will have to notify the Investment Screening Bureau before closing any transactions that fall under the filing obligation. The Investment Screening Bureau is a part of the Ministry of Economic Affairs and Climate Policy and will make the final decision on behalf of the Minister.

The goal of the new Act is to strike a balance between the Netherlands’ open approach to foreign investments and the ability of the government to intervene in acquisitions that could threaten national security. The impact of these measures is expected to be minimal and will only apply in cases where national security is at significant risk.


The new Act applies to specific categories of critical infrastructure, companies involved in sensitive technologies, and managers of corporate campuses. Critical infrastructure companies covered by the Act include district heating operators, nuclear power companies, KLM and Schiphol Airport, the Rotterdam Port Authority, banks, certain financial market infrastructure companies, and certain companies involved in the exploration, transport, and storage of natural gas. The government has the ability to add more categories of critical companies through a government decree.

Currently, sensitive technologies are defined as military and dual-use products, however, the government can expand this definition through a government decree.

The Act covers a variety of transaction structures, including acquisitions of control, mergers, the creation of joint ventures, and asset transactions. For companies involved in sensitive technologies, the Act also applies to acquisitions of minority shareholdings of 10%, 20%, and 25% and the acquisition of the right to appoint one or more board members. Even increasing significant influence over sensitive technology companies, such as from 10% to 20%, can trigger a notification obligation.

National security

The primary focus of the Act is national security, which encompasses the continuity of critical processes, the integrity and exclusivity of knowledge and information related to vital processes and sensitive technologies, and the creation of strategic dependencies. The Act lays out several factors that the Minister may consider when assessing national security risks, including the investor’s track record, financial stability, ownership structure, and motives, as well as factors related to the investor’s home country, such as sanctions, regional stability, and government programs.

Standstill obligation

The Act also includes a standstill obligation, which requires parties to obtain approval before closing a transaction. The government has eight weeks to make a decision on a notification, but can extend this period by six months in two stages. If additional time is needed to make a formal decision, the government has an additional eight weeks, with the possibility of a six-month extension. The timeline can also be extended by three months if the EU FDI Screening Regulation 2019/452 applies.

The government emphasizes that maintaining an open society and economy is crucial to the Netherlands and that the effects of the Act on the investment climate should be kept to a minimum. The government will first seek to address any potential concerns through mitigating measures, such as additional security protocols, restrictions on commercial conduct, or prohibitions on acquiring certain parts of the target company. Prohibitions will only be imposed as a last resort if risks to national security cannot be mitigated through other means.

Retroactive effect

The Act has been adopted by the Senate and is expected to enter into force early 2023, but with retrospective effect starting from September 8, 2020. This means that investments in critical infrastructure and sensitive technologies made on or after September 8, 2020 may be subject to retroactive screening if necessary to safeguard national security. Additionally, the Minister has the authority to initiate a retrospective investigation if new information comes to light after a transaction has been approved that poses a genuine threat to Dutch sovereignty or a potential disruption with societal, economic or physical consequences.