Australia: COVID-19: Foreign investment under stricter review temporarily

Introduction

The Government on 29 March 2020 announced temporary changes to the foreign investment review regime for the duration of the current COVID-19 crisis to deal with the implications arising from the spread of COVID-19.

The Government, whilst recognising that foreign investment remains vital to Australia’s long term economic success and stability, considers the temporary changes are necessary to safeguard the national interest as COVID-19 puts intense pressure on the Australian economy and business.

Changes introduced

The effect of the temporary changes introduced are to reduce immediately the monetary screening thresholds for all foreign investments subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) to $0.

Practically, this means that all foreign investment subject to FATA, irrespective of value and the nature of the foreign investor but provided all the other criteria for significant action and notifiable action are met, now needs a letter of “no objection” or an exemption certificate from the Foreign Investment Review Board (FIRB) permitting the transaction.

However, these changes will only impact corporate transactions involving an acquisition of a "substantial interest" (that is, generally an interest of 20 per cent or more - but note that lower percentage thresholds apply to some sectors and foreign government investors).

It has also been announced that FIRB will work with existing and new applicants to extend timeframes for reviewing applications from 30 days to up to 6 months where appropriate.

The Government has advised that FIRB will continue to assess foreign investment applications against the national interest (including support for employment) on a case by case basis and will seek to accommodate commercial deadlines where ever possible.

The Treasurer’s press release also highlighted that the Government will prioritise urgent applications for investments that protect and support Australian business and Australian jobs.

The Foreign Investment Review Board is updating the material on its website, including guidelines, in light of the Government’s announcement. We are continuing to keep in contact with FIRB as further information about the changes are issued.

What you should do if you if you are a foreign person progressing the acquisition of an Australian interest that would now require a “no objection” letter from FIRB?

If you are a foreign person progressing the acquisition of an Australian interest that will now require a “no objection” letter form FIRB. You will require either:

• A “no objection” letter from FIRB to the acquisition or an exemption certificate before entering into the agreement for the transaction.
• The provisions of the agreement entered into to acquire or sell the interest be not binding until you have obtained the “no objection” letter from FIRB to the acquisition or an exemption certificate.

What you should do if you are a foreign person with an existing agreement to acquire an Australian interest?

If you are a foreign person who has entered into an agreement to acquire an Australian interest before 10.30pm on 29 March 2020 (AEDT) and a “no objection” letter was not required to proceed with the transaction at that time, FIRB has advised the new FATA regulations will specify that the temporary changes do not apply to that agreement. This is the case, whether or not the acquisition has yet occurred and regardless of whether there are unmet conditions or not in the agreement.

If you are a foreign person who has entered into a binding agreement to acquire an Australian interest and you hold an exemption certificate, please see also our comments about exemption certificates below.

What you should know if you have an existing exemption certificate which would permit the acquisition of an Australian interest?

All existing exemption certificates remain in force.

However, it is important to be aware, that under FATA such exemption certificates may be varied or revoked on the Treasurer’s own initiative if the Treasurer is satisfied that the variation or revocation is not contrary to the national interest. This is not a new risk, it has always been a risk of having an exemption certificate.

Whilst the Government’s announcement does not indicate that any variations or revocations to exemption certificates are being planned and our FIRB contacts are not currently aware of any such plans, we have asked FIRB to let us know if this position changes.

Important note: These updates are generic in nature. If you have any specific legal concerns relating to the impact of COVID-19 on your transaction, please reach out to one of the authors. This update is current as at 30 March 2020.