What has happened?
In response to the COVID-19 crisis, the federal government has made temporary changes to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Act).
Why?
The purpose of the temporary changes to the Act is to reduce the possibility of Australian corporations being sold to foreign investors which may pose a risk to Australia’s economic climate. Mr David Irvine AO, Chairman of the Foreign Investment Review Board, in a media release said:
“These temporary measures have been necessitated by extraordinary economic circumstances. Foreign investment is and will continue to be critical to Australia’s prosperity. These temporary measures are necessary to protect the national interest during an historically challenging time for the economy, businesses and the broader community.”
Background: what is the purpose of the Act?
The Act requires certain foreign investments to be notified to and approved by the Foreign Investment Review Board (FIRB) before they can occur. There are a range of tests and thresholds depending on the type of investment. For example, under the Act, private foreign investors must seek FIRB approval where they will acquire an interest that is 5 per cent or more in an Australian media business (as defined in the Act). Another example of a different test is where foreign government owned entities invest in Australian corporations, in which case there is no value threshold as they must always get FIRB approval regardless of the value of the transaction.
Temporary Changes
The temporary changes to the Act are:
Monetary threshold reduced to $0: where foreign investments previously had a monetary threshold under the Act, this has now been reduced to zero. This means that where required under the Act, irrespective of the value or type of foreign investor, the foreign investment will require FIRB approval.
Application processing time extended to six months: in order to deal with the inevitable increase in applications, the time period for review by FIRB has been increased from 30 days to six (6) months. Urgent applications may be prioritised in FIRB’s discretion.
When did the changes start? The temporary changes to the Act came into effect at 10pm AEDT on 29th March 2020, and according to the government, will be in place “for the duration of the coronavirus crisis”. The changes will not apply to agreements made before 10:30pm AEDT on 29th March 2020, even if those agreements have not yet reached completion.
Do the changes apply to you? The temporary changes apply to all foreign investments that require FIRB approval under the Act. This is because the definitions of “substantial interest”, “notifiable interest” and the different categories of investment have not changed.
Further information Further information on these temporary changes under the Act can be found at the FIRB website: https://firb.gov.au/about-firb/news/changes-foreign-investment-framework-0
If you’re unsure whether your agreement requires FIRB approval, please reach out to the team at Jenkins Legal Services. We will ensure that you are compliant with your obligations under the Act and we will make sure your agreement properly reflects the extended application processing period.