The Overseas Investment (Urgent Measures) Amendment Act 2020 (“Amendment Act”) was passed on 28 May 2020 and received Royal Assent on 2 June 2020. The majority of the Amendment Act will come into force on 16 June 2020. While most provisions of the Amendment Act have not changed from what we initially reported on here, there is some further clarifying detail in the final version of the legislation as passed.
We summarise the key changes and application of the Amendment Act below.
WHEN WILL THE AMENDMENT ACT APPLY?
The Amendment Act will apply to:
- transactions entered on or after 16 June 2020;
- applications received by the Overseas Investment Office (“OIO”) on or after 16 June 2020 (regardless of when the transaction is or was entered into);
- transactions entered into before 16 June 2020 in respect of which the Overseas Investment Act 2005 (“Act”) requires an application to be made on or after 16 June 2020 (e.g. for retrospective consent); and
- any other matters that relate to events or circumstances on or after 16 June 2020.
TEMPORARY EMERGENCY NOTIFICATION REGIME
The Amendment Act introduces a temporary emergency notification regime. This allows the Government to review overseas investments not ordinarily screened under the Act in the following circumstances:
- Securities: Where the transaction will result in an overseas person acquiring a more than a 25% ownership or control interest in a New Zealand business or will increase an existing more than 25% interest in a New Zealand business to either a more than 50% or 75% interest, or a 100% interest, irrespective of the value of the transaction; or
- Property: Where the transaction will result in an overseas person acquiring property in New Zealand used to carry on business in New Zealand (whether by one transaction or a series of related or linked transactions), if the value of the property amounts to more than 25% of the value of all of the seller’s property before the acquisition is made, also irrespective of the value of the transaction.
In determining the value of property, the most recent financial statements, accounting records of the person or business and all other circumstances that affect, or may affect the value of the property, may be taken into consideration. Valuations of the property which are reasonable in the circumstances may also be relied upon.
A foreign investor must notify the OIO if the proposed transaction falls within the scope of the temporary emergency notification regime by providing basic information about the transaction such as:
- the identity of the investor;
- the ownership and control of the investor;
- any links to a foreign government; and
- the nature and size of the business being purchased and the commercial rationale for the purchase.
The Government has advised that there will be no fee for lodging a notification under the temporary emergency notification regime and the form will be made available on the OIO’s website.
Review of the proposed transaction
Where notification is required under the temporary emergency notification regime, the proposed transaction will be reviewed by the relevant Minister to determine whether it is ‘contrary to New Zealand’s national interest’. The term ‘national interest’ is not defined in legislation, but the Government’s guidance on the application of the national interest test states that the Minister may consider a broad range of factors, including whether:
- the target business is in financial distress; and
- the consideration for the proposed transaction is at a fundamentally lower value than its pre-COVID position.
If the Minister determines that the proposed transaction is contrary to the national interest, the Minister may impose conditions on, prohibit, order disposal of the investment, or recommend that the investor be put into statutory management. The OIO intends to provide investors with initial feedback on whether their transaction can proceed or if it will be subject to further review within 10 working days. The Overseas Investment Amendment Regulations 2020 provide for an overall timeframe of 40 working days from receipt of the notification (plus an extension period of 30 working days if required).
The Minister must publish all decisions on notifications except in respect of transactions which proceed without any conditions imposed (we expect that the majority of transactions will not be subject to conditions).
Review of the temporary emergency notification regime
The Minister must review the temporary emergency notification regime every 45 days to ensure that the classes of transactions subject to it are not broader than necessary. The Minister must also review whether the effects of COVID-19 continue to justify the temporary emergency notification regime remaining in place every 90 days.
CALL-IN POWER TO REPLACE THE TEMPORARY EMERGENCY NOTIFICATION REGIME
Once the temporary emergency notification regime is removed, there will be a permanent call-in power which will allow the Government to review overseas investments not ordinarily screened under the Act where the transaction is an overseas investment in “strategically important businesses”. The purpose of this is to manage significant national security and public order risks associated with transactions of this nature. Following review, the Minister may impose conditions, prohibit or require the disposal of transactions if the proposed transaction may give rise to a significant risk to national security or public order.
NATIONAL INTEREST TEST
The Amendment Act also introduces a “national interest” test which allows the Minister to decline consent to an overseas investment that already requires consent under the Act if it is considered contrary to New Zealand’s national interest. In applying the national interest test, a broad range of factors may be considered and will vary, depending on the nature and likely impact of the proposed investment. For example:
- investments in large businesses, businesses that have significant market share, or businesses that hold unique assets or operate in particularly sensitive areas of the economy (for example, dual-use or military technology, the health sector, and other critical national infrastructures) may raise more national interest concerns than investments in other types of businesses; and
- investments that enhance economic prosperity by, for example, increasing New Zealand’s productivity, bringing in new technologies or creating jobs, are less likely to be contrary to New Zealand’s national interest.
Across all investments, factors that may be generally considered include:
- national security, public order and international relations;
- the investment’s effect on competition in New Zealand;
- economic and social impact; and
- alignment with New Zealand values and interests and broader policy settings.
There is an automatic condition imposed on a consent granted in relation to a transaction of national interest. Each consent holder must not, in relation to the sensitive assets in which the relevant investment is made, act or omit to act with a purpose or an intention of adversely affecting national security or public order.
SIMPLIFYING THE REGIME
The Amendment Act will remove the requirement for consent for certain lower-risk transactions. Lower-risk transactions are transactions where all of the following criteria apply:
- the transaction has not been given effect to before commencement of the Amendment Act;
- consent has not been granted for the transaction before commencement of the Amendment Act; and
- the transaction would either:
- not require consent under the Act immediately after the Amendment Act commences, or
- be eligible for a standing consent (further details below). Broadly, if a transaction is not required to obtain consent after the Overseas Investment Amendment Bill (No.3) (the “No.3 Bill”) is in effect, it will be granted a standing consent under the Amendment Act.
The Amendment Act streamlines the assessment criteria for certain lower-risk transactions that are entered into during the epidemic period (from 16 June until 42 days after the No.3 Bill is enacted) by way of granting unconditional standing consents to all transactions:
- New Zealand incorporated and New Zealand-listed issuers: where the transaction would not require consent under the No.3 Bill’s definition of an “overseas person”. The No.3 Bill will amend the definition of “overseas person” to exclude listed issuers that are not bodies corporate.
- Management schemes: entered into by a managed investment scheme that is a listed issuer established under New Zealand law and both:
- 50% or less of the value of the investment products in the scheme have been invested on behalf of overseas persons; and
- 25% or less of the investment products in the scheme that entitle holders to vote are beneficially owned by or on behalf of overseas persons, each of whom beneficially own 10% or more of those products (alone or together with associates);
- Sensitive land adjoining land: if the transaction involves sensitive land that would not require consent if the new Schedule 1 of the No.3 Bill were enacted (e.g. land adjoining certain regional parks will no longer require consent under the No.3 Bill);
Transfer of certain debt securities: that have the effect of a transfer of an interest or right that is solely an interest in or right to be paid money that has been deposited with, or lent to another person (unless a convertible security debt is involved).
A transaction granted with a standing consent is expressly exempt from the temporary emergency notification regime.
Other changes in the Amendment Act which simplify the Act’s regime include amending the investor test so that only serious proven offences and matters before the Court are considered in the character assessment.
The enforcement powers set out in the Overseas Investment Bill (No .2) have been brought forward by the Amendment Act. Broadly, the OIO may accept enforceable undertakings where appropriate for mid-level breaches of the Act. The maximum penalties for breaching an undertaking are NZ$50,000 in the case of an individual or NZ$300,000 in any other case. The OIO is provided with the ability to seek specific injunctions.
NO. 3 BILL
Most of the remaining Phase II reforms (previously reported on here) have been carried into the No. 3 Bill and will proceed following the normal legislative process, including:
- changes to farm land advertising;
- new tax information disclosure requirements;
- benefit test changes; and
- timeframes for ordinary consent applications.
If you would like any further information about the upcoming changes, or how they may affect your business, then please contact the Business Advice Team.
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.