The Bill is the second of two bills first introduced in 2020 to amend the Overseas Investment Act 2005 (OI Act). The Bill was introduced to allow the Government to both effectively manage the risks posed by foreign investment and to support productive overseas investment by reducing the regulatory burden of the overseas investment regime. Most changes come into effect from 5 July 2021 with other changes to be introduced over the next six to twelve months.
The Bill also introduces amendments to the recently implemented National Security and Public Order Regime (NSPO Regime), which replaced the Emergency Notification Regime (EN Regime) on 7 June 2021. We comment below on some of the key changes to the OI Act introduced by the Bill and summarise key aspects of the NSPO Regime.
Changes to the OI Act
Changes to take place from 5 July 2021
Removing Screening Requirements for Lower Risk Transactions
Under the Bill, certain low-risk transactions will no longer require OI Act consent. Key changes include:
- transactions that result in an overseas person increasing their existing ownership or control interest in sensitive land will only require consent if the investment exceeds an ownership or control limit (25%, 50%, 75% and 100%);
- certain companies that are both incorporated and listed in New Zealand, and certain New Zealand listed managed investment schemes will no longer fall under the definition of an ‘overseas person’ under the OI Act;
- leases of sensitive land for a term of less than 10 years will no longer require OI Act consent (except where the lease relates to residential land); and
- the national interest test will now apply where a foreign government holds more than 25% ownership interest in an investor seeking to acquire sensitive land or significant business assets or invest in a fishing quota (the current threshold being 10%).
OI Act Consent Application Process
The Bill also simplifies OI Act application requirements for investors, including by streamlining processes around the new investor test. Provided there are no substantial changes since the last time an investor passed the investor test, a streamlined investor test assessment may apply to previously screened and approved investors. In addition, investors can also apply for a standalone assessment of the investor test in preparation of future transactions.
Further changes to the OI Act will come into effect over the next six to twelve months. These include:
- the simplification of the ‘benefit to New Zealand’ test. The current ‘with or without’ counterfactual test will be replaced with a comparison of ‘before and after’ the investment. In addition, the requirement for the Minister to take a proportionate approach in determining whether the benefit to New Zealand test is met will be now set out in the OI Act;
- the ‘benefit to New Zealand’ test will further be simplified by the replacement of the 21 specific factors currently required to be taken into account when applying the test to seven broad factors; and
- a more stringent “modified benefit to New Zealand test” will apply to acquisitions of estates or interests in farm land which exceeds five hectares in area. In addition, tighter rules will apply in relation to farm land advertising, including requiring advertising to non-overseas persons to take place before an overseas transaction is entered into.
National Security and Public Order Notification Regime
The Bill also amends the NSPO Regime, which came into effect on the repeal of the EN Regime on 7 June 2021. Under the NSPO Regime, certain transactions which do not otherwise require OI Act consent may be required to be notified to the Overseas Investment Office (OIO), or may be notified to the OIO on a voluntary basis. Notified transactions are then assessed for national security or public order risk.
In broad terms, transactions which require notification under the NSPO Regime involve investments in strategically important businesses (SIBs) or their assets. The definition of SIB is defined in both the OI Act and its regulations. Generally, SIBs include businesses in key national infrastructure, such as ports and airports, telecommunication infrastructures and electricity generation. Whether the NSPO Regime applies to a transaction can be a complex question and overseas persons should obtain legal advice before entering into any transaction involving the acquisition of securities or assets in New Zealand.
If you would like any further information about the proposed changes, or how they may affect your business, then please contact the Business Advice Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.