Certain features of the Overseas Investment Act 2005 (“Act“) that have caused frustration in the past could be set to change. The Act is currently in the midst of a two stage review. The first stage, completed last year, saw the introduction of residential homes being caught by the provisions of the Act, as well as a range of other changes such as a simplified process being introduced for some forestry transactions.
The second stage, which is now underway, was kicked off by the Government issuing a Consultation Document, which sets out a number of proposals for further reform of the Act.
This stage of the review focuses on three areas:
What is screened – A review of the types of sensitive assets and the type of interests being acquired. Specifically, this includes reviewing land that is considered sensitive only because of what it is next to. People are often surprised to hear that they are caught by the Act when there is an overseas investment in a piece of land (or a company which has an interest in some land) in an industrial area, but it happens to be next to a reserve. The proposed changes include amending the types of ‘adjoining land’ that make a piece of land sensitive. Importantly, the proposed changes include the possibility of removing recreational reserves from the definition of land that makes an adjoining piece sensitive. People are often even more surprised to find that the Act applies even if the interest that is being acquired is only a lease with a term of more than 3 years. Another possible change being considered is increasing the term of a lease to 10 years before it is caught by the Act. In our view, these proposed changes would make the regime less cumbersome and are likely to be welcomed by foreign investors.
Who is screened and when – This includes reviewing the current definition of ‘overseas person’ and the extent to which small transactions or changes in shareholdings of an overseas person that has no control over the sensitive assets will be caught by the Act. Specific areas of review include ‘tipping point’ for requiring consent. Currently, for example, any increase in shareholding of an overseas person who holds 25% or more of the shares of a company which owns sensitive land would be subject to consent, even if the change did not result in the overseas shareholder having more control over the asset. Also, the requirement for consent can be triggered inadvertently in a number of ways including, for example where an overseas person’s shareholding increases when other shareholders participate in a share buy back. In our experience, one of the difficulties faced in respect of these types of transactions being caught by the Act is that it is difficult for investors to show the benefits to New Zealand that will be created from the transaction, when often the intention is just for business to continue as usual.
How screening is done – This part of the review looks to consider improvements on the screening progress. This review is broken up into two parts. The first considers assessing investors’ character and capacity and looks at simplifying the investor test. The second looks at screening impacts on investments and options to amend the tests that are used to establish whether an investment will benefit New Zealand. Proposals include a new “national interest test” which would provide a greater discretion to Ministers to decline an application. The “special land” provisions, which require certain land to be offered back to the Crown, and the requirements relating to farmland advertising, are also being reviewed.
Overall, the intention of the review and the proposals appear promising. Treasury is currently in the process of analysing submissions made in response to the consultation document. Following which, we may see some further reform to New Zealand’s overseas investment regime.