December 5, 2018

Going Down Under: Australian business acquisitions by foreign investors – Restrictions and approvals for foreign purchasers

Foreign purchasers can be required to obtain approval under Australia's foreign investment framework, which includes the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA).

We lay out the foreign investment framework for cross-border deals into Australia and look at the exemption certificate for business acquisitions.

Am I a “foreign person”?

A foreign person includes:

  • A corporation or a trustee of a trust in which either:
  • an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds:
    • an interest of at least 20% in the corporation; or
    • a beneficial interest in at least 20% of the trust's income or property.
  • two or more persons (each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government) hold either:
    • an aggregate interest of at least 40% in the corporation; or
    • an aggregate beneficial interest in at least 40% of the trust's income or property.
  • General partners of limited partnerships where:
    • an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds at least 20% in the limited partnership; or
    • two or more persons (each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government) hold an aggregate interest of at least 40% in the limited partnership.
  • A foreign government, including entities in which a foreign government or separate government entity holds a prescribed interest.
  • In certain circumstances, a foreign person's associate.

Keep checking yourself

Foreign acquirers should monitor changes to their ownership structure throughout the sale process.

An entity can turn foreign even with seemingly small changes in their ownership.

The role of the Foreign Investment Review Board (FIRB)

The Foreign Investment Review Board (FIRB) examines proposals and advises on their national interest implications. With the benefit of this advice, the Federal Treasurer decides whether a proposal is contrary to Australia's national interest.

Once the Treasurer is satisfied that a proposal is either:

  • Not contrary to the national interest. The Treasurer issues a no objection notification allowing the acquisition to proceed, subject to any conditions that the Treasurer considers necessary.
  • Contrary to the national interest. The Treasurer can either:
    • prohibit the proposed transaction; or
    • if the transaction has been consummated, order the foreign person to dispose of its interest.

When do I need to notify the FIRB?

The FATA categorises transactions into:

  • Significant actions - where notification is voluntary. In practice, foreign persons choose to notify the Treasurer because of the certainty afforded by a no objection notification.
  • Notifiable actions - where notification is mandatory. Failure to notify can attract criminal liability and civil penalties and orders.

Foreign persons must notify and get prior approval before acquiring an interest in, or control of:

  • if no special rules apply, 20% or more in:
    • an Australian business that is valued above the relevant threshold described below; or
    • an offshore company whose Australian subsidiaries or gross assets are valued above the relevant threshold described below.
  • 5% or more in the media sector, regardless of value.

Other legislation, limits and requirements apply to acquisitions in land and in specific industries, such as banking, transport and telecommunications.

Thresholds – Investors from US, New Zealand, Singapore, Chile, China, Japan or Korea

For an enterprise or a national of the US, New Zealand, Singapore, Chile, China, Japan or Korea (excluding foreign government investors), the threshold values for notification are:

  • Non-sensitive businesses: A$1.134 billion.
  • Sensitive businesses: A$261 million.
  • Media: Acquiring at least 5% of an Australian media business.
  • Agribusiness:
    • for Chile, New Zealand and the US: A$1.134 billion.
    • for China, Japan, Korea and Singapore: A$57 million (based on the value of the consideration and the total value of other interests held by the foreign person and its associates in the entity).

Thresholds – Investors from other countries

For other acquirers, the thresholds are:

  • Any business sector (other than media): A$261 million.
  • Media: Acquiring at least 5% of an Australian media business.
  • Agribusinesses: A$57 million (based on the value of the consideration for the acquisition plus the total value of other interests held by the foreign person and associates in the entity).

Thresholds – Foreign governments

Foreign governments must always notify:

  • All direct interests in an Australian entity or Australian business. A direct interest is generally an interest of at least 10% or an interest that gives the acquirer the ability to influence, participate in, or determine, the business' or entity's management or policies.
  • When starting a new Australian business.

Exemption certificates for business acquisitions

Foreign acquirers can take advantage of an exemption certificate for acquisitions of interests in the assets of an Australian business or securities in an entity, including interests acquired through the business of underwriting (Business EC).

This exemption is intended to facilitate low risk or low sensitivity transactions - those unlikely to raise significant national interest issues. Business ECs are considered on a case-by-case basis.

A Business EC:

  • allows a foreign person to apply once prior to making any acquisitions and seek pre-approval for multiple acquisitions;
  • can reduce the cost and regulatory burden of separate applications for large investment funds and private equity investors, for example;
  • levels the playing field for foreign acquirers with Australian investors. They are not hindered by timing delays when taking part in a competitive sale process; and
  • benefits investors without defined target acquisitions when they seek approval but intend to make a series of passive investments in sectors or industries that are typically not considered sensitive from a national interest perspective.
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