On 22 March 2021, a new investor test will be introduced for all consent applications under the Overseas Investment Act (Act), bar a few residential land exceptions. This is one of several measures introduced by the Overseas Investment (Urgent Measures) Amendment Act 2020. The new investor test will provide significant changes for applicants. The Act shifts from a four part discretionary test to a new prescriptive twelve factor character and capability assessment.
The new test provides clarity to investors about the types of behaviour and history that would show that an investor is a potential risk to New Zealand. Its purpose is to determine whether investors are suitable to own or control any sensitive New Zealand assets. The test is met if none of the factors are established; or if one is established, the Minister is satisfied that this does not make the investor unsuitable to own or control a sensitive New Zealand asset.
The new investor test will apply to all new consents from 22 March 2021, as well as instances where consent was applied for prior to 22 March 2021 but the underlying transaction has not been entered into prior to that date.
Who does the new test apply to?
The new test is applicable to an overseas investor; this includes the ‘relevant overseas persons’ and the ‘individuals with control of the relevant overseas person’.
A ‘relevant overseas persons’ is an overseas person or an associate that is making the investment. Individuals will be found to be an ‘overseas person’ if they are not a New Zealand citizen or ordinarily resident in New Zealand. Likewise, a company that was incorporated overseas or is more than 25% owned or controlled by an overseas person will be an ‘overseas person’. There are also similar rules surrounding trusts and partnerships. ‘[I]ndividuals with control of the relevant overseas person’ will typically be shareholders that hold 25% of the shares or voting rights, directors and anyone else that the Minister may consider to have control.
Each of the above groups will be required to meet the new investor test in order to purchase a sensitive asset, except for some residential exceptions.
What is a ‘sensitive asset’?
The Act sets out that sensitive assets includes transactions involving any sensitive land such as residential land or non residential land in excess of 5 hectares, any interest in fishing quotas and the purchase of significant business assets that exceed $100 million dollars.
The New Investor Test
The new investor test looks at eight character factors and five capability factors. It provides a significant departure, with a shift from holistic, discretionary, general assessment criteria to a set of clear cut, yes or no factors. For example, previously an investor was required to prove that they had, “business experience and acumen”, “demonstrated financial commitment to the overseas investment” and were “of good character”.
Contrast that, with the new test factors below being:
For character, if the investor:
- has at any point been sentenced to a term of imprisonment of 5 years or more, or for an indeterminate period capable of running for 5 years or more;
- has, in the last 10 years, been:
- convicted and sentenced to a term of imprisonment of 12 months or more, or for an indeterminate period capable of running for 12 months or more;
- ordered to pay a civil penalty for a contravention of any enactment;
- imposed with a penalty for a contravention of the Act or its regulations;
- convicted and sentenced to pay a fine – where the investor is not an individual;
- has any other proceedings ongoing, that could result in a penalty listed above;
- has, in the past 10 years, entered an enforceable undertaking or an equivalent agreement with any regulator for any contravention or alleged contravention of any enactment;
- is a person not eligible for visa or entry permission under section 16 of the Immigration Act 2009.
For capability, if the investor:
- is prohibited from being a director or promoter of, or involved in the management of, an incorporated or unincorporated body;
- is subject to a management banning order or prohibited to act as a creditor, lessor, transferee or buy-back promoter;
- is liable, in the last 10 years, to pay a penalty under the Tax Administration Act 1994 or an equivalent overseas enactment for:
- an abusive tax position;
- evasion or similar act;
- has outstanding unpaid tax of $5 million or more in New Zealand or an equivalent amount due and payable in another jurisdiction (converted to New Zealand dollars).
How to meet the new test
To meet the new investor test, the investor will either: have to trigger none of the investor test criteria or provide compelling evidence to show why triggering one of the factors does not make them unsuitable to own or control sensitive assets. If one of the factors is met, the investor will be required to provide the following additional information:
- the name(s) of the individuals and entities the factor applies to;
- the name of the relevant court or regulatory body and the date of the decision;
- a short summary of the matter;
- the steps the investor would take to prevent such a situation occurring again;
- any further comments that the investor wishes to make; and
- any documents relating to the decision.
Land Information New Zealand will assess the investor’s application on the above information to determine whether the investor would be suitable to own or control sensitive New Zealand assets.
If you have any questions about the changes to the Overseas Investment Act or the new investor test and how this may impact your application, please get in touch with our 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.