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The Australian Government has announced temporary changes to its foreign investment review framework so as to protect the national interest.

Key Highlights

    • Monetary threshold for foreign investment applications will now be $0.
    • Statutory deadline for application decisions extended from 30 days to up to 6 months (but with priority given to urgent applications aimed at saving Australian businesses and jobs). Impact on applications currently being processed is unclear.
    • No change announced to the application percentage thresholds but position will become clearer once draft legislation released.
    • Impact of changes on transactions signed but not yet completed uncertain. Potential significant impacts on existing transactions not previously requiring approval.
    • Additional conditionality may be included in any approval granted by FIRB.
    • Australian remains open for business but there will be closer scrutiny of transactions in certain sectors (eg. healthcare manufacturing).
  • Draft legislation could be released as early as today and temporary measures will remain in place for the duration of the current crisis

FAQS

What changes have been announced? Changes relating to both the monetary thresholds and timeframes for reviewing applications have been announced – namely that:

  1. the threshold is $0 for determining whether particular foreign investments are subject to approval; and
  2. the decision period for obtaining approval is up to 6 months from the date that the application fee is received for foreign investment applications involving significant actions and/or exemption certificates.
When do the changes take effect? 10:30pm on 29 March 2020.
Is all foreign investment into Australia now subject to approval from FIRB? The announcement made by the Australian Government stipulates that these temporary measures only relate to foreign investment transactions into Australia that are subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA).

For example, from a corporate perspective, these changes will only impact transactions involving an acquisition of a “substantial interest” (i.e. generally an interest of 20% or more – but note that lower percentage thresholds apply to some sectors and foreign government investors).

Are these amendment likely to have any impact on the acquisition percentages thresholds? Despite the very limited information currently available, it seems unlikely that there will be any change to the acquisition percentage thresholds in the FATA.
What impact will these changes have on Australian transactions that have been signed but not yet completed? Based on currently available information, it appears that these changes will apply to deals that have signed but not yet completed.

The reduction in the monetary threshold to $0 means that purchasers under the relevant transaction documents which were previously exempt may now need to obtain approval from FIRB prior to completion of the relevant transaction (and which approval could take up to 6 months).

Undoubtedly, these changes will have a significant impact on deal certainty in respect of existing transactions as increasingly parties may now look to exercise termination rights.

Can FIRB approval be obtained in less than 6 months? Yes, it is possible (but not a certainty) as FIRB has publicly confirmed that extending the statutory deadline to 6 months does not mean that it will take the full 6 months for it to process an application. FIRB will prioritise urgent applications for investments that directly protect and support Australian businesses and Australian jobs. On this basis, it would not be unreasonable to expect that recapitalisation proposals for Australian target companies will be given priority by FIRB.
Will these changes impact the terms of any approval granted by FIRB? FIRB has historically imposed stringent conditions (particularly around data protection and tax matters) as part of its approval of foreign investment transactions. Further, in announcing these changes, FIRB confirmed that additional conditions may be applied to an approval to address identified risks on a non-discriminatory basis. Further, from a practical perspective, this could result in companies being subject to ongoing obligations which would not have previously applied in circumstances where investors were previously not required to apply for approval.
Will transactions in additional sectors to “sensitive sectors” be subject to increased scrutiny? Cross border transactions in strategic sectors (such as healthcare manufacturing) may encounter more scrutiny, face a prolonged approval process, be subject to more stringent conditions and potentially be blocked at this highly sensitive and volatile time.
What impact will these changes have on ASX capital raisings? The impact is expected to be limited. As no change has been announced to the percentage acquisition thresholds (usually 20% unless a media company or agribusiness), this will still allow foreign investors (excluding foreign government investors) to acquire shares on market in most companies, and to participate in capital raisings, that fall below such percentage thresholds or within certain exemptions (eg. for rights issues) without FIRB approval.
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.