Yesterday, the Government announced that it is urgently amending the Overseas Investment Act (“Act“) to protect New Zealand’s businesses and assets from opportunistic foreign acquisitions as the economy recovers from the COVID-19 fallout. The changes follow similar moves in other jurisdictions (including Australia) and essentially bring forward the “national interest test” and other critical measures of the Phase Two reforms that were publicly announced in late 2019, but with some temporary amendments to respond to the urgent COVID-19 situation.
Temporary notification requirement
The urgent amendments to the Act will temporarily apply a “national interest test” to all foreign investments (that are not already subject to the Act), regardless of dollar value, where the transaction will result in a more than a 25% foreign ownership interest in a New Zealand business or more than 25% of its assets, or will increase an existing foreign ownership interest up to or beyond 50%, 75%, or 100%.
This temporary power will take the form of a simple notification requirement. It will be reviewed every 90 days and will remain in place for as long as it is necessary to protect the national interests of New Zealand while the economic aftermath of COVID-19 continues to significantly impact the country. It is difficult to assess how long this may be.
The Government has advised that the process will be quick to ensure investment is not unduly delayed while protecting Kiwi businesses from being preyed upon by foreign investors as they recover from the damage caused by COVID-19. The details of the notification requirements and established timelines are not yet clear.
“National interest test”
In addition to the above temporary measures and once they have been lifted, a “national interest test” for our most strategically important business assets will remain. This will apply to transactions that are already subject to the Act, with a minimum threshold of $100 million (or higher, if set by the terms of an international trade agreement), as well as investments in sensitive land and fishing quota. The test will provide the Minister with broad discretionary power to deny consent to any investment that the Minister considers is contrary to New Zealand’s national interest.
Other Phase Two Reforms Accelerated
Other measures of the Phase Two reforms will also be fast-tracked, such as equipping the Overseas Investment Office with enhanced enforcement powers.
Further, in recognition of the anticipated need for capital by New Zealand businesses in the near term, the requirement for certain low-risk transactions to obtain OIO consent will be removed from the Act’s regime. This will include purchases by fundamentally New Zealand entities (as referred to in our earlier article on the Phase Two reforms) and small changes in existing shareholdings. In addition, the Act’s supporting regulations will be amended to extend existing exemptions and remove two further classes of low risk lending and portfolio management transactions from screening.
We expect that the business community will welcome this simplification of the Act’s regime which aims to cut some red tape and promote productive, sustainable, and inclusive foreign investment.
When will these changes come into effect?
The critical COVID-19 measures of the Phase Two reforms are expected to be in force by mid-June. The balance of the Phase Two reforms will be progressed in the usual way to ensure that they are fully considered by Parliament.
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.
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.