The Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) has recently been amended so that transactions that result in foreign investors gaining, whether now or in the future, influence or control over an Australian company are now subject to Australia’s foreign investment rules.
What do the amendments mean?
Parties involved foreign investment transactions should be aware that:
- foreign investment transactions by way of options to take up unissued shares, convertible notes, and other more sophisticated financing instruments or structures giving overseas financiers potential “equity upside” or voting power, will be subject to:
- the Treasurer’s powers to assess, impose conditions on, and prohibit such transactions
- the FATA’s compulsory notification regime
- the amendments operate retrospectively from 12 February 2009, so that foreign investors must notify the Treasurer, within 30 days of the FATA amendments receiving Royal Assent, of any proposal entered into after 12 February 2009 that would have required compulsory notification under the FATA had it been amended at the time of entering into the proposal (unless the Treasurer was previously notified under the voluntary notification regime).
“Substantial interest” and “aggregate substantial interest”
“Substantial interest” and “aggregate substantial interest” are the key concepts underpinning the reach of the FATA’s application to the acquisition of shares in Australian companies by foreign investors. A substantial interest in a company is where a person, alone or together with any associates, is in a position to control at least 15 per cent of the voting power of a company or holds interests in at least 15 per cent of the issued shares in a corporation. An aggregate substantial interest is where two or more persons together, including with any associates, hold at least 40 per cent of the voting power or interests in issued shares.
Under the FATA as amended, substantial interest is a broader concept, which now includes “potential voting power” and “rights that, if exercised, might result in the holding of an interest in issued shares”:
- “potential voting power” is a new definition in the FATA, which includes any voting power in an Australian corporation that may come into existence in the future and that might be exercised at a general meeting of the Australian corporation
- “rights that, if exercised, might result in the holding of an interest in issued shares” is not defined in the FATA, but is a new concept in the FATA that requires all rights, whether exercisable presently or in the future and whether conditional or not, to any interests in shares in an Australian corporation to be counted when determining whether a foreign investor has a substantial interest in that Australian corporation.
The compulsory notification regime under section 26 of the FATA requires a foreign investor to notify the Treasurer, in the prescribed form:
- when the foreign investor begins to hold a substantial interest or aggregate substantial interest in an Australian corporation
- when the foreign investor, if it already holds a substantial interest or aggregate substantial interest in an Australian corporation, increases its substantial interest or aggregate substantial interest.
The compulsory notification regime now also applies to foreign investors who hold “potential voting power” and/or “rights that, if exercised, might result in the holding of an interest in issued shares”.
Parties involved in transactions subject to the FATA should ensure that they quickly come up to speed on Australia’s expanded foreign investment regime and also be aware of other recent developments in foreign investment regulation and policy discussion.