Temporary Changes to the Australian Foreign Investment Framework
Following the announcement by the Australian Government of temporary changes to its foreign investment review framework, the Foreign Investment Review Board (FIRB) has released a Q&A, which may be found here.
Recapping the announced changes
All proposed foreign investments into Australia subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Act) will require approval, regardless of the value of the investment or the nature of the foreign investor, where the other conditions for FIRB notification are met. The zero dollar threshold also applies to significant actions, which enliven the Treasurer's powers to make an order under the Act.
This reflects the monetary thresholds that apply to "foreign government investors", and private acquisitions in Australian media businesses, residential land proposals, mining and production tenements, and vacant commercial land proposals.
As announced by the Government, the changes are effective as of 10:30 pm AEDT 29 March 2020.
To ensure sufficient time for screening applications, FIRB will extend the statutory timeframes for reviewing applications from 30 days to up to six months.
Are there any exemptions?
While the dollar sum "threshold test" will be met in relation to all acquisitions in Australian entities, businesses or land, the other conditions of a significant or notifiable action must also be met. There is no change to the meaning of "significant action" and "notifiable action" as presently provided.
In particular, and in keeping with the present framework, acquisitions by private foreign investors of less than 20 per cent in an Australian entity generally do not require FIRB approval. Applicants should note that certain entities presently require approval at a lower percentage threshold. This includes publicly-listed Australian agribusinesses and land entities which require approval for acquisitions of more than 10 per cent.
Will the review period changes apply to applications presently being considered by FIRB?
Delays in processing will impact both new and existing applications. FIRB has indicated it will be seeking to extend statutory deadlines on many existing applications up to six months. This approach is not universal and FIRB has indicated it will not request an extension in all cases.
FIRB case officers will contact applicants to discuss the expected time-frame for processing their applications, taking account of any commercial deadlines related to those proposed investments.
FIRB has indicated that priority will be given to processing applications for investments that protect and support Australian businesses and jobs. This will make it increasingly important that an applicant is able to demonstrate that a particular acquisition has benefits for Australian businesses and jobs.
What if agreements have already been entered into?
The changes will not apply to agreements entered into prior to 10:30 pm AEDT 29 March 2020, including acquisitions that have not yet completed, regardless of whether there are unmet conditions or not.
What conditions may be placed on FIRB approvals?
FIRB has indicated that, consistent with current screening processes, the type of conditions which will be imposed on applications will be determined on a case-by-case basis and will be applied to address a specific risk to the national interest.
This may mean additional or more stringent conditions may be applied to FIRB approvals than in the past. This will be borne out as approvals are processed.
What if an application is urgent?
The Government has indicated they will prioritise urgent applications for investments that protect and support Australian businesses and Australian jobs.
We suspect this will be relied upon in the case of recapitalisations, in particular. Applicants may make additional submissions to FIRB regarding the commercial imperatives or broader economic impacts of an approval sought.
For how long will the changes be in place?
FIRB has reemphasised that the changes are temporary measures that will remain in place for the duration of the coronavirus crisis.
Can applications be withdrawn?
FIRB has previously announced that it will consider refunding an applicant's paid fee where the applicant decides to delay or defer their investment – and therefore withdraw their application – in response to the economic conditions associated with the coronavirus pandemic. It is not clear whether this may extend to those seeking to withdraw in response to increased processing times.