A MATTER OF URGENCY - OVERSEAS INVESTMENT ACT
Posted by Kellie Bright on August 26 2020 in News
Urgent amendments to the Overseas Investment Act 2005 (Act) were implemented on 16 June 2020 in response to Covid-19. While most of the changes were announced by Government prior to New Zealand entering into the first lockdown in March, some measures have been expedited under the Overseas Investment (Urgent Measures) Amendment Bill (Bill) to protect vulnerable firms and assets from ‘fire sales’ to overseas investors.
Temporary Emergency Notification Requirement
The most substantial change is the introduction of a temporary notification regime for overseas investors. Along with the current screening mechanisms under the Act, overseas investors must now notify the Overseas Investment Office (OIO) of all investments, regardless of value or whether any interest in land is involved, that would result in:
- more than 25% overseas ownership of a New Zealand business or its assets; or
- an increase to an existing holding beyond 50% or 75% or up to 100%.
The OIO will complete an initial assessment within 10 working days of notification to ensure the transaction is not contrary to New Zealand's national interest. The test applies to investments that warrant greater scrutiny, including:
- where a foreign government or its associations would hold a 10% or greater interest in the asset;
- investments that are found to present national security risks; and
- investments in certain specified strategically important industries and high-risk critical national infrastructure.
If a transaction is determined to be contrary to New Zealand’s national interest, the Government may require a more detail assessment to be undertaken, including imposing conditions to manage risk, or declining consent altogether. Otherwise, we expect those that meet this test to proceed quickly.
This notification requirement is to be reviewed every 90 days and will remain in place only as long as is required to protect vulnerable New Zealand businesses under strain due to Covid-19.
Simplified Screening Regime
A number of other positive amendments have been expedited to simplify and provide clarify surrounding the screening process for overseas investments.
Investor Test: The investor test has been replaced by a more targeted and pragmatic assessment. Most notably, the business acumen and financial commitment limbs of the investor test have been removed, and only serious and proven matters and allegations are required to be considered.
Low-risk Transactions: Some low-risk transactions no longer require consent. A new concept referred to as an ‘automatic standing consent’ now provides consent to transactions without the need for an application by an overseas investor. For example, New Zealand incorporated companies listed on the NZX will no longer be an overseas person, unless:
- the company is more than 50% beneficially owned by one or more overseas persons; or
- one or more overseas persons who each own 10% or more of the securities either:
- individually or together control the composition of 50% or more of the company’s governing body; or
- exercise or control the exercise of more than 25% of the voting power at a meeting of the company’s security holders.
Certain categories of adjoining land have been significantly reduced. This applies to land which is currently considered sensitive solely because it adjoins other types of sensitive land, including coastal marine areas (directly), lakebed conservation land, national parks and certain regional parks, and certain land significant to Maori. The screening threshold for leases and other less-than-freehold interest has also been increased from three to ten years.
The next ‘phase 3’ reform to the Act is expected to go through the normal legislative process and is anticipated to pass within 12 months. Further details on these changes can be found here.
We recommend that overseas investors seek legal advice about how these changes may affect them.
Kellie Bright | Special Counsel
t +64 9 300 8753 | Kellie.Bright@shieffangland.co.nz
John Kearns | Partner
t +64 9 300 8752 | John.Kearns@shieffangland.co.nz
Aidan Tattley | Solicitor
t + 64 9 300 8757 | Aidan.Tattley@shieffangland.co.nz
This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.