On Sunday, 29 March 2020, the Treasurer Josh Frydenberg announced that all proposed foreign investments will temporarily be subject to assessment by the Foreign Investments Review Board (FIRB), regardless of value or the nature of the foreign investor.1
This change comes in light of ‘extraordinary economic circumstances’ as the coronavirus continues to cause uncertainty and disruption to national and international markets.
The Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Act) regulates the acquisition of Australian land, businesses and entities by foreign investors. Prior to the Treasurer’s announcement on 29 March 2020, various monetary thresholds applied to determine whether certain acquisitions were ‘significant actions’ and ‘notifiable actions’ which required an application for assessment and approval by FIRB.
The applicable monetary threshold depended on the nature of the acquisition and the identity and nationality of the acquirer. By way of example, private foreign investors from some of Australia’s free trade agreement partner countries such as the US and New Zealand had a monetary threshold of $1.192 billion for non-sensitive businesses and $275 million for sensitive businesses. For private foreign investors from non-FTA partner countries, the corresponding threshold was $275 million. Agribusiness and agricultural land acquisitions were subject to much lower monetary thresholds in recognition of the sensitivity surrounding foreign investment in those assets.
As of 10.30pm AEDT on Sunday, 29 March 2020, all foreign investments governed by the Act will have a monetary threshold of $0. The consequence of this is that all ongoing and proposed foreign investments will require assessment by FIRB.
The announcement on 29 March 2020 also stated that timeframes for processing new and existing applications would be extended from 30 days to up to six months, with urgent applications given priority.
Consequences for businesses
Given the new $0 threshold, many acquisitions which would not have previously required approval will now need to be screened by FIRB. Both investors and vendors need to be aware of the impact of this change on current and proposed M&A transactions, including the need to prepare and submit an application for FIRB approval, the payment of associated application fees to FIRB and the need to factor the FIRB approval process into deal documentation and timelines.
Regarding timelines, the increased volume of applications that FIRB is now required to consider will inevitably mean that acquisitions are delayed. The extension of the statutory review period from 30 days to 6 months is indicative of the expected increase in FIRB’s workload. As a consequence, vendors that need to close deals expeditiously in this uncertain time may wish to reconsider the need for foreign investment.
In good news, FIRB has temporarily changed its policy on refunding application fees. Previously, any application fee paid to FIRB was non-refundable, including where the application was withdrawn as a result of the relevant transaction not proceeding. FIRB has now indicated that it will consider refunding an application fee if there has been a delay to, or deferral of, an acquisition the subject of a current FIRB application, where that delay or deferral is due to ‘measures being implemented globally, and in Australia by governments, businesses and individuals, in relation to the COVID-19 pandemic’.
If an applicant wishes to obtain a refund, it must clearly state its reasons for the request at the time of withdrawing its application. FIRB retains the discretion not to refund the fee if it is not satisfied that the withdrawal is linked to the economic impact of the coronavirus pandemic.
Further updates to come
At this stage, there are no regulations giving effect to, or guidance notes advising on, the changes announced by the Treasurer on 29 March 2020. It still remains to be seen whether further clarification on what constitutes an ‘urgent application’ for fast-tracked review will be provided.
It is also unclear at this stage how long the $0 threshold will be in place. This will clearly depend on the extent of the economic impact of the coronavirus pandemic, both in terms of intensity and duration.
Assistance and advice
If you require assistance in making an application to the FIRB or require specific advice on your business’ foreign investments or proposed foreign investments please contact one of our corporate and commercial team members for further discussion.
This article was written by Jamie Restas, Partner, Kate McKeough, Partner and Cam Steele, Special Counsel.
1.The Hon Josh Frydenberg, ‘Changes to foreign investment framework‘ (Media Release, 29 March 2020) https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/changes-foreign-investment-framework