On 29 March 2020 the Commonwealth Government announced that due to the impacts of COVID-19 the monetary screening thresholds for all foreign investment subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) had been temporarily reduced to $0.
This was done because the Commonwealth Government, whilst recognising that foreign investment remains vital to Australia’s long term economic success and stability, considered that temporary changes were necessary to safeguard the national interest as COVID-19 puts intense pressure on the Australian economy and business.
The reduction in the monetary screening threshold to $0 has been effected by the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (Cth) (FATA Amending Regulations).
Practically, this means that a greater number of foreign investments 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 need a “no objection” notification or an exemption certificate from the Foreign Investment Review Board (FIRB) permitting the investment.
It is important to note however that whilst the Explanatory Memorandum for the FATA Amending Regulations states the changed regulations are intended to be in place for the duration of COVID-19, it will take another action of the Commonwealth Government to revoke or change back these regulations as the FATA Amending Regulations are not expressed to only apply for a specific time frame.
Guidance Note 53
FIRB has published Guidance Note 53: Temporary Measures in response to the coronavirus (Guidance Note 53) to address the effects of the temporary changes to the foreign investment regime.
We outline below a number of scenarios on which Guidance Note 53 provides guidance.
Existing no-objection notification
If you are a foreign person who holds an existing no-objection notification before 10:30pm on 29 March 2020 (AEDT) (Starting Time) with respect to a proposed investment action to acquire an Australian interest, Guidance Note 53 confirms (as expected) that you do not have to apply to FIRB again when entering into the agreement for that investment action or completing the investment action, as long as the investment action is taken within the timeframe specified in the no-objection notification.
Existing exemption certificates
If you are a foreign person who held an exemption certificate before the Starting Time, that exemption certificate is still valid provided that any specified conditions continue to be met.
Pre-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 the Starting Time and a “no objection” notification was not required to proceed with the investment at that time, the temporary changes do not apply to that investment. This is the case, whether or not the investment has occurred and regardless of whether or not there are unmet conditions in the agreement.
Guidance Note 53 provides that to determine whether an agreement has been reached before this time, the agreement will need to be one where the parties’ negotiations have been completed and the parties have arrived at a mutual understanding of all of the essential elements of their bargain. That is, an agreement does not cover any preliminary negotiation stage or other circumstances short of a mutual understanding between the parties of all of the elements to the bargain.
Exercise by foreign person of pre-existing option to acquire an Australian interest
If you are a foreign person who has entered into an option agreement to acquire an Australian interest before the Start Time and a “no objection” letter was not required to proceed with the acquisition of that option at that time, Guidance Note 53 indicates that because the foreign person acquires the interest at the time they acquired the option, then the exercise of the option will likely not of itself give rise to any new significant or notifiable action.
FATA exemptions prescribed by the Foreign Acquisition and Takeovers Regulations 2015 (Cth) (FATA Regulations)
With one exception all exemptions detailed in Part 3 of the FATA Regulations are still in place.
The exception is the exemption under Section 38(5) of the FATA Regulations relating to non-foreign government investors proposing to acquire an interest in an aged care facility, a retirement village or certain student accommodation. This exemption has been repealed by the FATA Amending Regulations.
Changes to application review process
In respect of the FIRB application review process Guidance Note 53 reflects that:
- FIRB will work with existing and new applicants to extend statutory timeframes for reviewing applications from 30 days to up to 6 months
- FIRB is introducing administrative measures to ensure that the great majority of applications are processed much faster by bringing in additional staff and triaging applications using a risk-based approach
- FIRB will continue to prioritise urgent applications for investments and will also prioritise more routine transactions (for example a new lease for developed commercial land) that protect and support Australian businesses and Australian jobs and more routine acquisitions
- A foreign person is encouraged to submit their application to FIRB early in the proposed investment process.
National interest test and other conditions
Guidance Note 53 documents that FIRB will continue to assess foreign investment applications against the national interest (including support for employment) on a case by case basis and, where appropriate, will apply conditions proportionately to address identified risks on a non-discriminatory basis.
Important note: These updates are generic in nature. If you have any specific legal concerns relating to the impact of COVID-19 on your investment, please reach out to one of the authors. This update is current as at 30 April 2020.