Temporary changes to Australia’s foreign investment review framework were effective as at 10.30pm, by legal time in the ACT, on 29 March 2020 (Effective Time). The changes were made in response to the economic impact caused by the COVID-19 pandemic.
Key changes and implications
Key changes to the foreign investment review framework and their implications are summarised below.
Reduction in monetary threshold for all notifiable and significant actions taken after the Effective Time to zero
Under Australia’s foreign investment review framework:
- all notifiable actions (as defined under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA Act)) taken by foreign persons must be subject to approval by the Treasurer; and
- the Treasurer may make orders prohibiting significant actions (as defined under the FATA Act), or requiring those actions to be undone, if they are or would be contrary to national interest.
As a result of a reduction in the monetary threshold for all notifiable and significant actions (regardless of origin of investor), investments which were previously not subject to approval by the Treasurer will now be subject to such approval, provided they are or will be made on or after the Effective Time (unless the action is covered by an agreement entered into before the Effective Time).
Some examples of investments which are now subject to approval by the Treasurer under the FATA Act due to the legislative changes include:
- Acquisition of an interest in developed commercial land in Australia by any foreign person regardless of value (previously a threshold of $275 million);
- Acquisition of interest in agricultural land by any foreign person regardless of value (previously a threshold of $15 million); or
- Acquisition of at least 20% of interest in an Australian entity regardless of value (previously a threshold of $275 million).
It is expected there will be an increase in the number of FIRB applications, hence delaying the applications review process and target transaction timeline. Depending on the types of acquisitions and amount of the application fee, this change will also affect the projected costs and profits of foreign investments.
Extension of the statutory decision period from 30 days to up to 6 months
In practice, the Treasurer “invites” applicants to request to extend the decision period under the FATA Act. The Treasurer will now have the right to seek extensions of up to 6 months on all existing and new applications, taking into account any commercial deadlines related to the proposed investments provided by the applicants.
Although requests to extend the decision period are strictly speaking “voluntary”, it is common practice to accept the invitations as the Treasurer may otherwise issue interim orders prohibiting the proposed acquisitions for a period up to 90 days. If an order or decision is not made by the Treasurer within the period specified in the interim orders, the applications will lapse.
Moving forward
The changes above are reflected in the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (Cth).
If you are a foreign person and are proposing to undertake a significant or notifiable action as defined under the FATA Act, you should consider:
- seeking to amend the relevant agreement to extend the contractual timeframe to obtain a ‘no objection’ notification from the Treasurer and the transaction completion date, or at least a right to extend those dates if certain conditions are met (e.g. provision of written evidence that the Treasurer has requested an extension of the decision period);
- submitting an application with supporting information to the Treasurer as soon as possible, setting out the commercial imperatives and impact if a decision cannot be made by a certain date, so that your application may be prioritised; and
- review the investment budget and project timeline to ensure that the acquisition is still commercially practicable and beneficial.
If, as a foreign person, you no longer wish to proceed with the acquisition, you may withdraw the FIRB application and apply for a refund of the application fee. However, a refund will only be made if the Treasurer is satisfied that it is not contrary to the national interest to do so.
For further information, please contact the Property + Projects Team.
Mike Ellis: mike.ellis@vincentyoung.com.au
Yanlie Leung: yanlie.leung@vincentyoung.com.au