A new register of foreign ownership of Australian media assets will shortly be introduced.
The new rules require foreign persons with an interest of 2.5% or more in certain regulated media assets to disclose details of their interest and have those details recorded in a public register.
The introduction of a foreign ownership register was negotiated by One Nation as a condition of their support for a broader media ownership reform package. This package was passed late last year, and included a relaxation of certain media ownership laws.
The new rules apply through amendments to the Broadcasting Services Act 1992 (BSA) which passed both Houses on 22 August 2018 and have now come into force.
Given the important role the media plays in informing and shaping community views, the new register is designed to ensure that the Australian public has transparent information regarding the levels and sources of foreign ownership in Australian media companies.
While there are a number of other disclosure requirements that may currently apply—including an existing requirement under the BSA to notify of deemed control of Australian media companies at an ownership threshold of 15%—the Federal Government has noted that these requirements do not clearly identify the extent of foreign ownership and only start to apply at a much higher threshold than 2.5%.
What is the Register?
The new rules require our media and communications regulator, the Australian Communications and Media Authority (ACMA), to maintain an electronic, publicly available register of foreign owners of media assets (Register).
The Register will set out information about a person where three conditions are satisfied:
- The person is a ‘foreign person’.
- The person has ‘company interests’ of 2.5% in a company.
- That company is an ‘Australian regulated media company’.
A person who meets the above requirements and is required to be disclosed in the Register is referred to as a ‘foreign stakeholder’.
Some of the key information required to be disclosed in respect of each foreign stakeholder includes:
- their name;
- their interests in the company;
- the method used to determine company interests;
- the reason why they are a ‘foreign person’; and
- the country of ordinary residence (for a person), incorporation (for a company) or country in which a person is a foreign government investor (if applicable).
Notifications to ACMA must also include details of the circumstances that resulted in the person becoming a foreign stakeholder, as well as any other information that ACMA may (at its discretion) require be disclosed by issue of legislative instrument.
The Register is not required to include particular information if ACMA is satisfied that disclosure could reasonably be expected to prejudice materially the commercial interests of a person. It is not clear in what circumstances this might apply, but given the purpose of the Register, we expect that this would be applied in only very limited circumstances.
The Register’s Explanatory Memorandum notes the exception is for information not ordinarily provided to third parties due to its confidential information and that it is expected that the information required to be provided will be factual in nature and therefore able to be made publicly available.
Relevant definitions and scope of application
There are three concepts that are important in defining the scope of application of the Register:
- What is a ‘foreign person’?
The rules use the foreign investment legislation to define a ‘foreign person’. That term is defined broadly in the Foreign Acquisitions and Takeovers Act 1975 (FATA) to include non-resident individuals, companies and trusts in which non-residents or foreign incorporations have substantial interests, and foreign governments.
- What is a ‘company interest’ of 2.5%?
The rules refer to the definition of ‘company interest’ set out in the BSA, which is used in applying the media ownership regulations to determine what a notifiable 2.5% interest is.
Those rules deem a person to have a company interest in a company of a particular percentage interest if they have any of the following:
- a legal or beneficial interest or entitlement to that percentage of the shares;
- the ability to exercise control of that percentage of the votes at a general meeting;
- a beneficial entitlement to be paid or credited that percentage of dividends paid; or
- an entitlement to that percentage of the property of the company that can be distributed to members on a winding up.
Company interests are not traced through chains of companies in the same way as under the foreign investment rules. To work out a person’s company interest through a chain of companies, the interests at each link are multiplied together.
- What media companies are covered?
Media companies that hold a commercial television broadcasting licence or a commercial radio broadcasting licence are covered. Companies that publish newspapers that are considered to be significant and associated with a particular local area under the relevant media ownership regulations are also covered.
This would include all of the free-to-air television broadcasters and commercial radio networks, as well as Fairfax and News Corporation.
Initial disclosure period
There will be an initial disclosure period of six months from the commencement of the changes, during which time all foreign holders who held a notifiable interest at the commencement date must disclose that interest to ACMA.
ACMA will then publish and maintain the register on and from the end of the initial six-month period.
A person must notify ACMA within 30 days of becoming or ceasing to be a foreign stakeholder. Foreign stakeholders who have already notified ACMA of their initial interest will also have to update ACMA with details of their interests at the end of each financial year.
While there is no continuous disclosure requirement in respect of changes to holdings, ACMA has a broad power to require foreign stakeholders to notify ACMA of such additional information as it may prescribe within a specified timeframe of not less than 14 days.
The Register’s Explanatory Memorandum notes that this power could be exercised in a wide range of situations. One example it refers to is where there is media speculation about an impending takeover of an Australian media company.
ACMA might also require a foreign stakeholder to update it with details of the stakeholder’s interest where it becomes aware that the interest has changed through the release of a substantial holder notice to ASX (which is required in respect of 5% holdings and any change to such a holding of 1% or greater).
There are now a number of different disclosure or approval thresholds relevant to foreign persons looking to invest in Australian media companies. These include:
- 2.5% foreign register disclosure – the new register will require disclosure of interests at this level in certain regulated media companies.
- 5% substantial holding disclosure – if an ASX-listed company is involved, the person may need to disclose further details at this level.
- 5% foreign investment approval threshold – foreign investment approval is required to acquire an interest of this level in a business of publishing daily newspapers, or broadcasting television or radio in Australia (including on websites from which all or part of those newspapers or broadcasts may be accessed but not including Australian businesses that only publish or broadcast such content through websites).
- 15% media control disclosure – the media ownership regulations require that a notification is made to ACMA at this threshold because the rules deem a person to be in a position to exercise control at this level (or at a lower threshold if the person can control at that lower level) and approval may also be required if this would otherwise result in a breach of the ownership rules.
The introduction of the Register will also mean that the acquisition of an interest in an Australian media company may require disclosure at a much lower threshold than was previously the case.
Having said that, we expect that where the investor is only interested in having economic exposure as opposed to voting or disposal rights to securities in Australian media companies, it will be possible to structure initial investments in a way that does not require immediate disclosure at the 2.5% level.
Another point of interest is that the rules for determining whether you have a 2.5% interest are different to the same rules that apply under the foreign investment regime (for example, a convertible note will not give you a notifiable interest for the purposes of the Register) and different again to the same rules that apply to the rest of the media ownership regime (for example, the interests of your associates are not relevant and you do not automatically trace through 15% interests).This means that a particular investment structure could be notifiable under one regime but not the other.
Given the complexity of the new rules and the need to carefully apply them to different investment structures—especially as they are new and ACMA has a number of discretions in how they will apply—we suggest that specific advice is sought in respect of their application to particular circumstances.