The Treasurer announces significant changes to the FIRB regime in response to the COVID-19 pandemic

On 29 March 2020 the Treasurer announced drastic changes to the Foreign Investment Review Board (FIRB) regime in response to the Covid-19 pandemic. While stressing that the changes do not change the fact that Australia is supportive of foreign investment, the Treasurer’s changes will have a significant impact across the whole of Australia’s economy.  

$0 threshold for all inbound investment

The Foreign Acquisitions and Takeovers Act 1975 (FATA) regulates foreign investment into Australia, requiring all investment to obtain approval unless an exemption applies or the investment is below the relevant monetary thresholds. 

With effect from 10.30pm Sunday, 29 March 2020, all these monetary thresholds are now $0. This significant change is in response to a concern that the current economic climate will see distressed assets and businesses looking to sell at discounted prices.  The fear is that foreign investors may take advantage of such a situation and snap up these assets which may not necessarily be in Australia’s national interest given the global crisis.

The previously applicable monetary thresholds varied depending on the nature of the investment as well as the type of investor.  For example until this announced change, the acquisition of an interest in developed commercial land by a foreign investor did not require FIRB approval unless the value of the land was in excess of $275 million (or $60 million for certain sensitive land) while the acquisition of an interest in vacant commercial land had an investment threshold of $0.

The threshold reductions apply to all investors, including ‘Agreement country investors’ which, due to bilateral trade agreements, are in some circumstances granted higher thresholds.

By way of example, a foreign person now requires FIRB approval before:

• entering into a commercial lease for more than five years (including extensions);
• acquiring (that includes entering into an option or contract to acquire) an interest of 20% or more of the shares in any Australian company; and
• acquiring (that includes entering into an option or contract to acquire) any interest in land in Australia.

Thresholds reduced but exemptions still apply

Importantly, the Treasurer’s announcement does not impact the exemptions contained in the FATA and supporting regulations. For example, under certain circumstances money lending arrangements are exempt from the FATA regime, as are acquisitions in Australian companies and businesses of less than 20% (assuming the entity does not hold significant Australian land assets).

When assessing if FIRB approval is required, it is now more important than ever to consider whether these exemptions are available, as the more sweeping monetary thresholds no longer apply.

Application timing

The Morrison Government’s announcements also provides for an extension in the statutory approval time frame from 30 days to up to six months.  Priority will be given to applications that protect and support Australian business and Australian jobs.

The FATA provides that a decision by FIRB should be made within 30 days, and notification of that decision within 10 days, and amending that statutory time frame would require Parliamentary approval.  However, FIRB has numerous options available under the existing legislative regime to extend the decision making period and this announcement is a warning to investors to expect lengthy delays.

This extended timetable will significantly impact transactions currently on foot or soon to be entered into. End dates for satisfaction of conditions precedent should all be reviewed to confirm that they adequately cater for the increased time frame for FIRB approval.

Conclusion

In recent weeks the economic response to the Covid-19 pandemic has moved from stimulus to survival and protection. These drastic changes to the FIRB regime represent the Government’s latest steps to ensure Australian business can come out the other side of the economic slow down.

The FATA is at the best of times a complicated Act to navigate, always made more difficult by the subjective aspect of the national interest test, and now with the Covid-19 response the question of what is in the national interest will be entirely different to what has previously been the case.     

McCullough Robertson can assist you with any queries relating to the new FIRB regime or foreign investment generally.  Please reach out to one of our FIRB specialists for more information.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.