In our article on 31 March 2020, we discussed the temporary measures introduced by the Australian Government which apply during the COVID-19 pandemic, and alluded to possible permanent reforms to Australia’s foreign investment framework.

On 5 June 2020, the Australian Treasurer announced a 21 point reform package to change how foreign investment proposals are assessed and approved as well as how Australia’s foreign investment regulations are enforced.

The key takeaways are as follows:

  • New restriction on foreign persons acquiring 10% or more in (or starting or acquiring control of) “sensitive national security business” – the definition will be confirmed during consultation
  • New powers to the Treasurer to review foreign investments which did not require FIRB approval and to impose or change conditions in approvals after approvals are granted, if national security concerns emerge
  • Change to the definition of “foreign government investor” so as to facilitate indirect investment by government pension funds
  • A new Register of Foreign Ownership to be introduced to allow greater oversight and information gathering, as well as facilitate information sharing with Australian government agencies and (where national security issues arise) international counterparts
  • Increase to existing penalties and greater powers to investigate breaches of foreign investment regulations and conditions attached to FIRB approvals
  • Above changes to commence 1 January 2021 subject to consultation and Parliament – changes apply prospectively, not retrospectively

This reform package is driven by national security concerns and similar changes adopted by other countries including the UK, the USA, China and New Zealand. While national security was already part of the national interest test, these reforms show where the Australian Government considers the greatest risk to Australia’s national interest may rise. Foreign investments in technology, energy, communications, data collection and storage, water infrastructure, ports and defence infrastructure will now face greater scrutiny. It will be important to include a convincing business case to include in any FIRB application.

Treasurer Frydenberg will release the draft laws in July. Industry and community consultations will be conducted over July and August. The government is seeking to implement the changes as of 1 January 2021.

The current COVID-19 temporary measures (nil monetary threshold) announced on 29 March 2020 are scheduled to expire on 1 January 2021. At this stage, it is likely they will be replaced by the reform package above, rather than be extended.

However, FIRB is now experiencing such a significant workload that (other than for straightforward simple applications, e.g. office lease) it is managing expectations by routinely requesting an extension to the statutory deadline for new applications to 6 months.

This presents a timing challenge to foreign investors, because:

  • If you lodge a FIRB application after June 2020, there is a risk that your application may not be processed until 2021 when the new reforms are currently targeted to commence.
  • If you wait until after 1 January 2021 to sign your transaction document, the monetary thresholds are scheduled to return to pre-COVID levels by then, but you will need to conduct a fresh analysis to understand how the amended foreign investment regulations apply to your transaction.

It is therefore important to carefully review any transactions you may be considering to see if a FIRB application should be lodged during June 2020. For more information please contact a member of Thomson Geer's M&A Team. 

Brendan Tegg | Principal | TG Endeavour | +61 475 823 784 | [email protected]

Helen Jin | Special Counsel | Thomson Geer | +61 2 8248 5883 | [email protected]