NEW YEAR, NEW FOCUS FOR FOREIGN INVESTMENTS IN AUSTRALIA
2021 begins with a new focus for the Australian Foreign Investment regime. The difficulties with cross border M&A in 2020 were made all the more difficult in Australia with the removal of all monetary thresholds limiting review under the Foreign Acquisitions and Takeover Act 1975, and extension of the period for statutory review from 1 month to 6, adding cost, complexity and uncertainty.
The Australian Foreign Investment regime that was in place for most of 2020 is fortunately behind us, and whilst most monetary thresholds have been re-instated a new mandatory national security test has been introduced without any monetary threshold. This article focuses on some of the material changes in the Australian Foreign Investment regime for 2021 from a transport sector perspective. The regime is complex and far reaching. It is important to seek legal advice on your particular scenario as there are significant consequences for non-compliance.
Who must apply?
The Foreign Acquisitions and Takeover Act 1975 requires a ‘foreign person’ to provide notification. The definition of a foreign person is quite extensive and includes:
An individual not ordinarily resident in Australia (non-resident);
A company, partnership or trust in which a non-resident individual, a foreign company or a foreign government holds a substantial interest (including in aggregate with others); or
A foreign government.
New Zealanders are not considered foreign persons in relation to the acquisition of residential land, but may be considered foreign persons for other investments.
Notifiable National Security Actions
Mandatory Australian foreign investment approval must be sought by a Foreign Person who does or intends to:
start up a National Security Business or acquire a direct interest in a National Security Business; or
acquire an interest in Australian land or in an exploration tenement in respect of land that isconsidered National Security land. National Security land is Defence premises or land in which anational intelligence agency is known to have an interest.
National Security Businesses are businesses which if disrupted or carried out in a particular way may create national security risks and include:
businesses regulated under or holding assets regulated under the Security of Critical Infrastructure Act 2018;
a carrier or carriage service provider under the Telecommunications Act 1997;
businesses providing critical goods, services or technology for military or intelligence services use (both for Australian and foreign forces or agencies);
businesses storing or having access to “protected” or highly classified information; or
businesses storing, collecting, maintaining or accessing personal information of Australian defence and intelligence personnel which if disclosed could compromise Australia’s national security.
The Treasurer can now also “call-in” for review actions which have not been notified, if the Treasurer considers the action may pose national security concerns. The Treasurer also has a Last Resort Power which can be triggered for reviews after 1 January 2021 if there was a false or misleading statement oromission, or there is a change in the business which could not have been foreseen which alters the national security risk.
Industry guidance on National Security notification
The Foreign Investment Review Board (FIRB) has provided guidance that foreign investors proposing to invest in businesses or entities with contractual relationships with the Australian Department of Defence (including in the transport and logistics sectors) should make a voluntary notification. Acquisition or investment in a provider of aircraft, watercraft, satellites, or related technologies to the Australian Department of Defence would be subject to mandatory notification.
Acquisition of an interest in one of the 20 maritime ports listed under the Security of Critical Infrastructure Act 2018 would require foreign investment approval. FIRB suggests that a voluntary notification should be made for any acquisition of a business owning or operating any of the 57 additional prescribed ports under the Maritime Transport and Offshore Facilities Security Act 2003. Voluntary notifications are also recommended for any acquisitions of a business or entity operating a security-controlled airport or a Regular Public Transport operator under the Aviation Transport Security Act 2004, or a Regulated Air Cargo Agent under the Aviation Transport Security Regulations.
Foreign Government Investors
A Foreign Government Investor includes a corporation in which a foreign government (or separate foreign government entity) holds an interest of at least 20% directly (or together with one or more associates). The definition also catches an entity which is held 40% or more by multiple foreign governments or government entities, even if no one foreign government holds an interest of 20% or more.
A new exemption was introduced from January 2021 exempting entities which would meet the 40% multiple foreign government test if the entity is an investment fund in which no single member is able to influence any individual investment decisions and the foreign governments participate as investing members of the fund only. If the exemption is not met, then the requirement to seek Foreign Investment approval will apply for all new entity set ups, acquisitions of Australian entities or business, regardless of value, and any acquisition of an interest in Australian land, which includes any interest which may provide occupancy rights for 5 years or longer.
Acquisitions of an Australian entity via an offshore acquisition are also caught and subject to Foreign Investment review unless:
the Australian total asset value for the foreign entity is less than 5% of their global total assets;
the Australian total asset value is less than A$61 million; and
none of the Australian assets are assets of a Sensitive Business or a National Security Business.
Current Thresholds
The current thresholds, following the January 2021 changes for major business-related notifiable actions, are set out below. There are specific thresholds applicable under certain free trade agreements, so it is important to seek guidance. Where the monetary threshold is ‘nil’ this means that all of the relevant actions are subject to Foreign Investment review:
Different thresholds also apply for mining and production tenements, agricultural land and residential land which are not addressed in this bulletin.
Contact: Adam Martin
i. Higher threshold applies to entities incorporated in Chile, China, Hong Kong, Japan, New Zealand, Peru, Singapore, South Korea, USA and any other countries for which the Comprehensive and Progressive Agreement for Trans-Pacific Partnership made 8 March 2018 is in force.
ii. Sensitive developed commercial land includes airports and maritime ports.