Foreign Direct Investments in Australia

The Federal Treasurer is responsible for administering Australia’s foreign investment rules, with the Foreign Investment Review Board (FIRB) advising the Treasurer in relation to the implementation of those rules. Foreign investment in Australian companies and assets can be subject to notification and approval of the Treasurer depending on the nature of the assets/business being transacted and their value.

Australia’s foreign investment rules are not intended to discourage or prohibit foreign investment in Australian industries, but provide a framework to ensure that investment in certain industries or assets is not contrary to Australia’s national interest.

If Australia’s foreign investment laws apply to an investment in a non-listed company, then it may be that the investor will be required to give notice prior to completing the transaction, or obtain the consent of the Treasurer (which may include conditions to be satisfied by the investor).

If an investor is required to give notice or obtain consent for a transaction but fails to do so, the Treasurer has the power to block or unwind transactions.

Separate laws also apply to investments in specific industries. For example, investments in telecommunications, broadcasting, and airports.

Investments by a foreign person (i.e. individual, foreign company, Australian company in which 20% of more interest is held by a foreign individual or company) or foreign governments can fall into two broad categories:

• a significant and notifiable action; and
• other significant action.

A significant and notifiable action will require the investor to give notice of the transaction to the Treasurer and seek a statement of no objection (which may be subject to conditions). A significant action that is not a notifiable action will not require the investor to give notice of the transaction to the Treasurer, but may still be reviewed by the Treasurer and blocked or unwound.

Significant and notifiable actions include:

• an acquisition of 20% of more of shares or units in an Australian company or entity;
• an acquisition Australian land;
• an acquisition of 5% or more of an Australian media business;
• a foreign government acquiring any direct interest in an Australian business;
• a foreign government starting a business in Australia; and
• a foreign government acquiring an interest in an exploration tenement or a mining or production tenement, or at least 10% of a mining, production or exploration entity.

Generally, minimum value thresholds apply to some of the actions listed above, however, the Treasurer has announced temporary measures during the covid-19 pandemic reducing those thresholds to zero for transactions entered into on or after 10:30 pm (AEDT) on 29 March 2020.

The Treasurer will apply the national interest test (i.e. is the transaction contrary to the national interest of Australia) in considering a significant and notifiable action. Factors that the Treasurer may consider in applying the national interest test include:

• national security;
• competition;
• impacts on the economy and community;
• environmental and tax policies; and
• the investor.

In June 2020 the Government announced a proposal to change Australia’s foreign investment laws from 1 July 2021 to further scrutinise investments in businesses that the Government will described as sensitive national security businesses. Further commentary on these changes will be available when the Government releases the legislative amendments.

Significant and notifiable actions must be lodged with FIRB through its website www.firb.gov.au.

Generally, the process can take up to 40 days to consider and notify the applicant, but FIRB can request the applicant to agree to an extension to give them further time or the Treasurer can issue an interim stop order for an additional 90 days to enable the application to be considered. However, under temporary covid-19 measures announced by the Government, FIRB may contact applicants and ask them to agree to a 6-month extension for consideration of applications.

The Treasurer can issue a no objections letter subject to conditions. The applicant may be required to report to the Treasurer their ongoing compliance with the conditions imposed, which may include:

• compliance with Australia’s tax laws and specific reporting to the Australian Taxation Office;
• limitations on the % of ownership permitted;
• submission of further information and reporting; and
• undertaking to take certain actions within a period of time (e.g. commence construction in relation to the acquisition of land).
  

Competition Approval

Australian competition law prohibits an entity from acquiring a company if the transaction would have the effect, or be likely to have the effect, of substantially lessening competition in a market. The Australian Competition and Consumer Commission (ACCC), the competition regulator, has a wide range of powers to deal with transactions that breach the competition restriction referred to above, including seeking an order from the courts to unwind a transaction.

While it is not mandatory to seek the approval of the ACCC prior to a transaction, it is prudent to do so if the transaction raises any competition concerns. If an application is made to the ACCC, or they subsequently review a transaction on their own accord, the factors the ACCC will consider when assessing a transaction include but are not limited to:

• the height of barriers to entry to the market;
• the level of concentration in the market;
• the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins;
• the extent to which substitutes are available in the market or are likely to be available in the market; and
• the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor.