Covid-19 coronavirus: temporary changes to Australia's foreign investment laws
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Australia has introduced significant temporary changes to the notification requirements under the Foreign Acquisitions and Takeovers Act (FATA) administered by the Foreign Investment Review Board (FIRB).
These changes apply across the board to all foreign investors from all countries and for all types of investors e.g. private investors, foreign government investors, sovereign wealth funds etc.
Financial (but not percentage) thresholds reduced to zero
The dollar thresholds, which apply in determining whether particular foreign investments require FIRB approval, are now $0. Previously the applicable threshold could be as high as A$1,192 million depending on the type of investment and the home country of the investor. However, the changes do not alter the percentage tests, which continue to apply as before. So, for example, FIRB approval will be required for (among other things):
- acquisitions of 20 per cent or more in an Australian company or trust;
- acquisitions of 10 per cent or more in an Australian agribusiness or land entity, or where the foreign person has a legal arrangement in place with the entity or is in a position to participate, influence or control the management of the entity;
- acquisitions of 5 per cent or more in an Australian media business, as defined under the FATA;
- acquisitions of 10 per cent or more in any Australian entity by a foreign government investor, or where the foreign government investor has a legal arrangement in place with the entity or is in a position to participate, influence or control the management of the entity; and
- acquisitions of interests in land including under leases or licences which have a term (together with the period of any option to extend or renew) of 5 years or more,
in each case, no matter how small the financial investment.
Acquisitions outside of Australia will need to be carefully assessed for downstream FIRB issues.
Extended timetable for decision making
Statutory deadlines for the consideration of applications may be extended by up to six months (however, urgent applications for investments that protect and support Australian business and Australian jobs will be prioritised). FIRB has already started writing to applicants for cases where it is seeking a 6 month extension. The extension request does not mean that the application will take the whole 6 months; rather FIRB wishes to avoid having to focus on multiple short term extensions, which take up significant administrative time.
To counter the increased level of notifications, FIRB is proposing to increase significantly its resources to deal with extra cases and is looking to refine its processes to triage and prioritise the most important applications. The flip side is that we may see some non-priority transactions take the full period or be deferred e.g. internal reconstructions.
Some applicants may decide to withdraw their applications in which case FIRB will consider refunding or waiving the fee in cases where the ability of foreign investors to progress investment decisions has been affected by the Covid-19 pandemic.
Period of temporary measures
The temporary measures apply from 10:30 pm AEDT 29 March 2020 for the duration of the coronavirus crisis. These changes will not apply to agreements entered into pre 10:30 pm AEDT 29 March 2020 although we are yet to see the regulations to define the types of agreements to which this grandfathering relates to.
While existing FIRB approvals and exemption certificates are not directly affected by the changes, investors are encouraged to review their terms and conditions to ensure that they have not been impacted by the changes. Material changes to the transaction notified may lead to a requirement for new approvals, bringing with it the expanded timeline.
Rationale for changes
The changes to the foreign investment review framework are designed to protect Australia’s national interest, and ensure appropriate oversight over foreign investment, at a time when the spread of the coronavirus is putting pressure on the Australian economy and business.
The Government recognises the importance of investment at this time where that is consistent with the national interest.
The changes should be seen as part of a measured response by the Australian government to Covid-19. While many more transactions will require FIRB approval and that may take longer, FIRB has stressed that this is not an investment freeze, and indeed we have seen circumstances where FIRB has moved very quickly in circumstances to protect Australian business and jobs.
Foreign investors will need to review their prior approvals as well as prior guidance regarding the need for, or timing of, any FIRB approval, and factor the new temporary regime into their decision-making processes.
For more information on the potential impact of coronavirus on the foreign investment issues relevant to your business, please speak to your usual A&O corporate contact.