COVID - 19: Australia dramatically tightens foreign investment rules
Dunstan de Souza, Simon Fraser, Alex Rhydderch, Connie Chen and Justin Liang
As part of the Australian Government's response to the COVID-19 pandemic, the Treasurer made an announcement on Sunday 29 March 2020 that all monetary threshold amounts for foreign investments subject to the Australian Foreign Acquisitions and Takeovers Act 1975 (the Act) are now temporarily $NIL in all asset classes.
Any proposed investment by a foreign person in developed commercial land, mining and production tenements and agricultural land now requires Foreign Investment Review Board (FIRB) approval, regardless of the value of the investment. The acquisition of a substantial interest in an Australian entity or Australian business (including agribusinesses) also now requires FIRB approval regardless of value. The NIL monetary threshold for an investment by a foreign person in Australian residential land and vacant commercial land will continue to apply. There is no change to the NIL monetary threshold for an investment by a foreign government investor. FIRB applications continue to be required for those types of asset classes and investors.
It would appear from the announcement that the changes apply to all foreign investors including those with access to previously higher thresholds from Free Trade Agreement / Trans Pacific-Partnership countries (FTA partner countries) such as Canada, Chile, China, Korea, Japan, Mexico, New Zealand, Singapore, Thailand, the United States of America and Vietnam.
There may be even higher level of scrutiny as to the application of the rules under the Act regarding who a foreign person is (including the traceability rules to establish ultimate ownership of an investment vehicle), and what constitutes an exempt investment.
The new regime applies to all new FIRB applications made on, or after 10:30 pm (AEST) Sunday 29 March 2020. We understand that the reduced thresholds should not apply to pending FIRB applications, but we are confirming this position with FIRB.
Regulatory review period extended up to six months
The regulatory decision period to consider relevant FIRB applications will now be extended to six months from the date of payment of the FIRB application fee up from the current 30 day decision period. It is expected that the decision period for some or all pending FIRB applications may also be affected.
This does not mean that an application will take six months to be reviewed. FIRB will prioritise urgent applications for investments that directly protect and support Australian businesses and Australian jobs, taking into account any commercial deadlines related to those proposed investments.
In respect of application fees, the Treasurer has separately announced that if an applicant wishes to withdraw a pending application as a result of the COVID-19 pandemic, FIRB will consider refunding any fees paid. However, an applicant must clearly state the reasons for its remittance request at the time of requesting withdrawal. FIRB retains its discretion not to refund fees where the decision to withdraw is not clearly linked to the pandemic.
There is no suggestion of a reduction or waiver of FIRB application fees on the face of the latest announcement by the Treasurer although that might possibly be forthcoming. These will still need to be paid up front before FIRB considers any new application. Those fees are, for certain asset classes, relatively substantial and will need to be allowed for in any budget.
How will the FIRB changes impact businesses?
FIRB applications are ordinarily considered by FIRB on a first in, first served basis.
While certain applications may now be prioritised in the national interest, we suggest that a FIRB application for any affected transaction (or any request for an exemption certificate) be lodged as soon as possible with FIRB. In this regard, please note that FIRB will ordinarily also consult with other Australian government agencies as part of its review. These agencies will be managing their own existing workflows in difficult and changing circumstances which may impact approval times.
The effect of these new rules on pending FIRB applications, exchanged contracts, the expected timing of settlements and application of financing conditions precedent will also need to be closely considered by counterparties, financiers and other stakeholders.
Whilst it is apparent that a FIRB approval will now be needed for most proposed foreign investments inbound into Australia including those under the previous monetary thresholds, we understand that at this stage at least the existing exemptions under the foreign investment review framework (e.g. the moneylending agreement exemption and the availability of exemption certificates under Division 5 of Part 2 of the Act) will still apply.
Further details of the new investment policy changes will be released by the Australian Government shortly.
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