The Australian Government last week made major changes to the foreign investment review regime which are due to come into effect on 1 January 2021.
The most significant changes include the new concept of ‘national security business’ and ‘national security land’. These concepts will be defined via regulation which we expect to see shortly. All foreign investors will need to seek approval to purchase national security land or businesses (or commence a national security business), regardless of the value. Investors should expect that business that operate or maintain Defence, Telecommunications, Digital, Electricity and Gas operations will be included, as will business that manage critical ports and other critical Infrastructure.
The new powers also include a call-in power to allow the Treasurer to review actions that did not seek approval to purchase or that have since developed into a national security business. After reviewing the Treasurer can impose conditions on the business operations, prohibit the investment or require disposal of the business. This power will not be available to actions that have been issued a no objection notification or an exemption certificate.
The final major component is the Treasurer’s last resort power, this will allow the Treasurer to have a second look at an action that has already received a no objection notification or have proceeded with conditions imposed. This last resort power can be used if, a false or misleading statement or omission was made in the application; the structure of the business has materially changed; or the market relevant to the action has materially changed. The Treasurer can use this power to impose further conditions, prohibit the investment occurring or require disposal of the business or asset.
The Foreign Investment Review Board (FIRB) and Treasury will be increasing their compliance capability to ensure that foreign investors are abiding by any conditions imposed and to ensure that actions are not occurring without approval. It will be important to ensure that FIRB are kept up to date on actions and that investors ensure that they are complying with conditions.
The ‘National Interest’ test remains that allows the Treasurer to prohibit an action if it is not considered to be in the national interest. The broad ‘National Interest’ power of the Treasurer to prohibit an investment means investment cases must be well targeted and the benefits to the Australian economy and community articulated and understood.
To coincide with the introduction of these reforms:
- the FIRB monetary screening thresholds will revert to at least pre-COVID levels from 1 January 2021; and
- the FIRB application fee structure will be overhauled, with most applications to attract higher fees from 1 January 2021.
Foreign investors should use the limited time available pre-Christmas to assess whether to lodge FIRB applications before the fee structure changes on 1 January 2021 or whether to hold off on entering into transactions until after 1 January 2021.
For further information, please contact a member of our national M&A team.
Helen Jin | Special Counsel | Thomson Geer | +61 2 8248 5883 | [email protected]
Brendan Tegg | Principal | TG Endeavour | +61 475 823 784 | [email protected]