Revocation of ENR
On 26 May 2021, the Government announced that it will revoke the temporary emergency notification regime in the Overseas Investment Act 2005 (Act) from 7 June 2020.
This means that transactions entered into on and from that date which fall below the usual thresholds for consent under the Act will no longer need to be notified to the OIO under the ENR (although note that transactions entered into between now and 7 June will still need to be notified).
Introduction of ‘call-in’ regime
However, what it also means is that the new ‘call-in’ or National Security and Public Order (NSPO) notification regime will replace the ENR and apply to certain transactions that do not need consent but might be contrary to national security and public order.
The NSPO regime gives the OIO and Ministers the power to call-in for review overseas investments in ‘strategically important businesses’ (SIB) that would not otherwise require consent. For example, an investment by an overseas person that is valued at less then $100 million and does not involve sensitive land could still be called in for review if the target is a SIB.
Such transactions will be assessed to determine whether they give rise to national security and public order risks. If a transaction is found to be contrary to national security or public order, the Minister can block the transaction or give direction orders that are subject to such conditions that the Minister considers appropriate to manage any risks associated with the investment.
Strategically important businesses
A SIB is a business that:
researches, develops, produces, or maintains military or dual-use technology;
is a ‘critical direct supplier’ – these are usually listed on the OIO’s website here, but if not the critical direct supplier has an obligation to notify an intending purchaser of its status;
is involved in ports or airports and is a lifeline utility under the Civil Defence Emergency Management Act 2002;
is an electricity generator with a total capacity exceeding 250MW or provides electricity lines services;
provides a large or medium drinking-water supply under the Health Act 1956, provides a waste water or sewage network that services 5,000 or more people, or disposes of sewage or storm water for 5,000 or more people;
is involved in telecommunications services as defined in the Telecommunications (Interception Capability and Security) Act 2013;
is a media business with significant impact;
is involved in an irrigation scheme (as prescribed in the regulations); and
develops, produces, maintains or otherwise has access to (1) sensitive information in connection with the supply by the business or services to an intelligence security agency, the Department of Prime Minister and Cabinet, or the Ministry of Foreign Affairs and Trade, or (2) data sets of sensitive information relating to 30,000 or more individuals.
Sensitive information means information that is genetic, biometric, health or financial information of individuals or relates to the sexual orientation or sexual behaviour of individuals, or is official information that is relevant to the maintenance of national security or public order. Regulation 3B of the Overseas Investment Regulations further refines what amounts to sensitive information for the purposes of the Act. For example, financial information is not sensitive unless it is information used to determine an individual’s financial position or credit score.
For media businesses the call-in power only applies when an overseas investor intends to acquire a more than 25% ownership or control interest. In the case of listed issuers, the threshold is 10% or more. In any other case it applies to the acquisition of any interest, no matter the size or value.
It is mandatory to notify the OIO of a transaction involving the acquisition of a SIB that researches, develops, produces, or maintains military or dual-use technology or is a ‘critical direct supplier’ before the transaction is given effect to as a direction order is required from the Minister before it can proceed.
Otherwise notification is voluntary. A transaction that is voluntarily notified will, if it is judged not to be contrary to the national interest and public order, be granted a direction order allowing it to proceed, thereby protecting it from a subsequent challenge under the NSPO regime.
A transaction that is not notified runs the risk of being called in by the Minister and having an adverse direction order made against it – even if it has already been given effect to.
For this reason it is critically important that all transactions that fall below the usual thresholds for OIO consent are carefully assessed to see whether they involve a SIB or critical direct supplier and should be notified under the NSPO regime.
The enactment of the Overseas Investment Amendment Act 2021 on 24 May 2021 brings into effect a number of other changes to the overseas investment regime. We will publish an update on these shortly.