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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.

Author

Lewis Apostolou is a corporate and securities partner and head of the Australia Funds Transactions Group. He helps clients undertake domestic and cross-border capital markets and M&A transactions. Lewis has been ranked as a leading lawyer for investment funds in Chambers Asia Pacific since 2012.

Author

Frank Castiglia is a partner in Baker McKenzie's Sydney office, and as one of Australia's leading capital markets lawyers, Frank has advised on some of the largest transactions in recent times.

Author

Kate Jefferson joined Baker McKenzie’s Sydney office in 2005 and worked in the Firm’s New York office in 2007 and 2008. Kate also undertook a four month secondment to at a global investment bank. Kate previously worked for Herbert Smith Freehills from 2001 to 2005 and as a management consultant to the London Stock Exchange from 2000 to 2001.

Author

Ben McLaughlin is the chair of the Global Healthcare Industry Group and a partner in Baker McKenzie's Sydney office. He has over 25 years' experience in advising leading Australian and international public companies on mergers and acquisitions (M&A) and equity capital markets. Ben conceptualized the Baker McKenzie Healthcare MapApp, an acclaimed mobile application that enables clients to access over 1,000 pages of legal summaries. He has been recognized by Chambers for his work in Australian and international M&A matters, as well as in pharmaceuticals and life sciences. Ben is admitted to practice law in Australia and the US, and is an adjunct member of the Faculty of Law at the University of Sydney.

Author

Eric Thianpiriya joined Baker McKenzie in April 2014 and is a senior associate in the Firm's Energy, Resources, Infrastructure and Corporate group. He has considerable international experience, having previously spent eight years working in London, at both a Magic Circle and Silver Circle firm. Prior to practising in London, he worked as a tipstaff to a judge of appeal at the Court of Appeal of the Supreme Court of New South Wales.