New laws to replace the Foreign Acquisitions and Takeovers Act (Act) have been passed and are scheduled to take effect from 1 December 2015.
The reforms represent the most significant overhaul of Australia's foreign investment regime since that legislation was introduced 40 years ago. Fundamentally, the new laws seek to balance the aims of encouraging foreign investment in Australia and ensuring continued protection of Australia's national interest.
In some respects, the foreign investment regime has been modernised and streamlined, reflecting the Government's commitment to creating an investment environment that recognises the need for foreign investment to support the development of the Australian economy, with changes intended to facilitate investment by foreign investors. In particular, there are increased notification thresholds, simplified definitions, broader exemptions, relaxed tracing rules and closer alignment with Australia's takeovers regime. The new laws also codify and clarify key aspects of the Government's foreign investment policy, to seek to provide greater certainty for foreign investors.
However, the reforms are also intended to strengthen the integrity of Australia's foreign investment framework. From 1 December, there will be new fees for approval applications and more onerous penalties and stronger powers for the Treasurer to make disposal and other orders for breaches.
These changes reflect the Government's approach to more rigorously review and enforce foreign investment laws to protect Australia's national interest, which has also been demonstrated by recent actions by the Treasurer in refusing to approve the acquisition of Australia's largest agricultural landholding and continuing to order the disposal of further residential properties.
The new laws have significant implications for various forms of foreign investment in Australia. Some key changes are highlighted below and are explained in more detail in client alerts which can be accessed through the links below:
Investments in Australian entities and businesses
Direct investments by foreign governments are now more specifically dealt with in the new laws and foreign government investors specifically fall within the definition of foreign persons for the purposes of the Act.
The new laws distinguish between:
- notifiable actions, which must be mandatorily notified to the Foreign Investment Review Board (FIRB) and for which approval must be obtained before they can proceed; and
- significant actions, which are not mandatorily notifiable, but for which investors may still wish to consider seeking a no objection statement as comfort before completing a major transaction.
The "substantial interest" threshold for acquisitions requiring notification has increased from 15% to 20%, in line with the threshold under the takeovers regime, and a number of specific new exemptions have been introduced for certain types of corporate acquisitions, such as for acquisitions by means of rights issues or dividend reinvestments, acquisitions through underwriting, and indirect acquisitions via offshore transactions.
There are also increased penalties, both criminal and civil, for breaches and these penalties can also extend to officers of corporations who authorise or permit contraventions and to other third parties who knowingly assist a foreign investor to breach the laws.
Investments in Australian agribusiness
Foreign investments in agribusiness were previously regulated in the same way as other business investments but are now separately regulated and generally subject to lower notification thresholds so that approval will now need to be obtained for a broader range of transactions involving agribusiness.
The new laws include a sunset clause which provides that the laws in relation to the Register of Foreign Ownership of Agricultural Land will expire and cease to have effect on 1 December 2016 if a register of foreign ownership of water entitlements is not established by that time.
Investments in Australian real estate
The new regime for investments in real estate is broadly similar in terms of the nature of transactions and interests requiring notification, but material changes have been made in relation to heritage listed property, pre-approval for off-the-plan developments and acquisitions of interests in land owning corporations and trusts. The thresholds for notification of investments in real estate have been raised in most circumstances except in the case of vacant and residential land.
However, significant new civil penalties have been introduced for breaches which can be as much as 25% of the value of property acquired in breach of the Act, and the Treasurer will have broader powers to make disposal and other orders for breaches.
Banking and Finance – moneylending exemptions
To facilitate banking and finance transactions in connection with foreign investments, the moneylending exemptions, which apply to interests acquired for the purposes of certain moneylending agreements, have been broadened. In particular, these exemptions are now available to not only lenders but also their subsidiaries, holding entities, security trustees and receivers, and may be relied on by providers of financial accommodation such as bank guarantees and letters of credit. They also cover the acquisition of interests by way of enforcement of a security.