Background
On 1 February 2018, the Commonwealth Government updated its guidance in relation to agricultural land acquisitions by foreign investors.
Foreign investors seeking FIRB approval for an agricultural land investment will now need to demonstrate that the agricultural land has been the subject of an ‘open and transparent sale process’. The Government’s aim is to ensure that Australians have had ‘sufficient opportunity to bid in any sale process of agricultural land’.An open and transparent sale process means:
- Public marketing/advertising was undertaken for the sale of the property, using channels that Australian bidders could reasonably access (e.g. advertised on a widely used real estate listing site or large regional/national newspaper);
- The property was marketed/advertised for at least 30 days; and
- There was equal opportunity for bids or offers to be made for the property while still available for sale.
The Government and FIRB have historically had regard to the ability of Australians to participate in the sale process for agricultural land acquisitions when considering foreign investment applications. By way of example, the conduct of the widely marketed sale process was a factor in the Government’s ultimate decision to approve the sale of S. Kidman & Co Limited (HWL Ebsworth Lawyers acted for S. Kidman & Co Limited in relation to that sale).
The new guidance aims to provide prospective foreign investors with greater certainty regarding the Government’s expectations in relation to the conduct of the sale process.
Issues for consideration
Three particular issues for consideration arise out of the new guidance:
Corporate acquisitions
The agricultural land foreign investment rules apply not only to the acquisition of land itself, but also to the acquisition of an interest in a company with significant agricultural land holdings (an ‘agricultural land company’). The S. Kidman and Co Limited sale was an example of a corporate sale which triggered the agricultural land foreign investment rules.
The ‘open and transparent sale process’ requirements therefore also apply to the sale of agricultural land companies. However, the new guidance (in particular the requirement to widely advertise the land on real estate listing sites or in large regional or national newspapers) is focused on the sale of land parcels rather than agricultural land companies. The marketing process for large corporate sales generally involves a corporate adviser or merchant bank directly approaching potential purchasers, which would not satisfy the criteria set out in the new guidance.
FIRB has confirmed that, if the sales process for an agricultural land company does not meet the ‘marketed widely’ criteria set out in the new guidance, the applicant would need to satisfy the Treasurer that the sales process still provided Australians with the opportunity to participate. Factors that the Treasurer may consider include whether the sale and appointed sale adviser were known to the general public due to media coverage.
Confidentiality
Vendors commonly seek expressions of interest from potential purchasers on a confidential basis. If a vendor of agricultural land or an agricultural land company wishes to sell confidentially, the vendor will need to consider whether the process it follows can satisfy FIRB’s requirements should its preferred purchaser be a foreign investor. If a vendor does not propose to follow the ‘marketed widely’ criteria set out in the new guidance, FIRB recommends that the vendor contact FIRB early in the process to discuss the vendor’s reasons and the ways in which Australians will still be given sufficient opportunity to participate.
Purchaser-initiated sales
It is not uncommon for a potential purchaser to approach the holder of a property or company with an offer to buy, even where that property or company is not currently being marketed for sale.
Prima facie, a sale to foreign investors in response to such an offer will not satisfy the ‘open and transparent sale process’ requirements under the new guidance. The vendor may therefore be required to test the market more broadly before FIRB approval would be given for such an acquisition. This would lead to additional transaction costs and may dissuade potential foreign investors from making such approaches.
This article was written by Jamie Restas, Partner and Cam Steele, Special Counsel.