The dramatic changes announced by Treasurer Josh Frydenberg on 29 March 2020 to Australia’s foreign investment regime, in response to the economic upheaval caused by the COVID‑19 pandemic, have become law. As set out in our previous alert on these issues (which you can find here, the announced changes reduce all of the relevant monetary screening thresholds for Foreign Investment Review Board (FIRB) approval to nil, and as a consequence, processing times for FIRB applications are expected to be significantly extended.
The Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (Amending Regulations) will take effect from the announcement time, being 10.30pm Sunday, 29 March 2020.
Background
The previously applicable monetary thresholds varied depending on the nature of the investment as well as the type of investor. For example until the recently announced changes, 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 Morrison Government’s announcement also foreshadows likely extensions of 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 Amending Regulations – general impact
The Amending Regulations bring about the announced changes by repealing the entirety of Part 4 of the Foreign Acquisitions and Takeovers Regulations 2015 (FATR). Part 4 of the FATR provided the applicable threshold for each type of investment regulated by the Foreign Acquisitions and Takeovers Act 1975 (FATA). Now, as a result of the Amending Regulations, Part 4 provides a $0 threshold across the board.
The Amending Regulations do not apply to any agreement entered into before 10.30pm on 29 March 2020, even if the agreement was still conditional.
Student accommodation, retirement villages and solar farms
Prior to the amendment, the FATR expressly excluded premises that provide residential care, retirement villages or student accommodation from the strict rules applicable to ‘residential land’. Being excluded from the residential land provisions generally meant that these types of properties were classed as developed commercial land, therefore obtaining the higher monetary threshold mentioned above. Despite developed commercial land now also being subject to the $0 threshold, the Amending Regulations removed this section from the FATR entirely.
A second similar amendment has been the removal of the regulations which provide an exemption for operating solar and wind farms. The FATR previously provided that where land had an operating wind or solar farm on it, a purchaser could disregard the fact the land may also have been classified as agricultural land. Again, this regulation gave access to the higher threshold of $275 million rather than the lower $15 million cumulative threshold that would apply to agricultural land.
It is unclear why the Government has made these amendments given the fact the overarching impact of the Amending Regulations is reducing all thresholds to $0. The supporting material released by the Government states these sections were removed because they had no relevance given the removal of Part 4 as a whole. However this approach has not been taken with similar, now irrelevant, sections in the regulations which leads to questions as to why these provisions have been specifically removed. It is possible that they may not be reinstated when circumstances return to normal.
Application timing
A final interesting item about the Amending Regulations is that they make no changes with respect to the timing of FIRB approvals. This means that FIRB will simply continue to use its current powers to extend the assessment timetable rather than amending the existing regulations. This hopefully is a sign that FIRB will only use the 6 month timetable where appropriate and other, less complicated transactions, can be processed at a faster pace.
What does this mean?
The Amending Regulations largely bring into effect the COVID-19 induced policy changes as announced by the Morrison Government. How long these temporary heightened restrictions will be in effect for, and whether the Government takes this opportunity to bring about broader changes to the foreign investment regime in areas such as retirement villages, student accommodation and renewable energy developments are now the key questions.
In any event, the impact of the $0 threshold and extended application timetable make early consideration of FIRB requirements more important than ever.