Australia's foreign investment rules, generally speaking, encourage foreign investment in Australia.
Foreign investment is regulated by the Foreign Acquisitions and Takeovers Act ('FATA') which is administered by the Foreign Investment Review Board ('FIRB'), a division of the Australian Treasury.
The FATA provides a notification and approval process for proposed investments in Australia by foreign persons which may result in foreign control or ownership of Australian businesses or companies. The Treasurer may make wide ranging orders, including refusing to permit an investment to proceed or requiring an investment to be undone, if the Act is breached or the investment is considered contrary to the national interest.
Notification is compulsory for specified investments. Although not compulsory in other cases the Treasurer is empowered to make orders prohibiting the investment if considered contrary to the national interest. It is therefore the practice to notify the Treasurer of intended investments which meet certain minimum criteria and to seek notification that Treasury does not object to the proposed transaction proceeding.
Compulsory notification
Compulsory notification is required for proposed acquisitions of:
- shares resulting in the acquirer holding a substantial interest in an Australian corporation
- any investment in urban land (land which is not used for primary production), except for specified exemptions.
A foreign person acquires a substantial interest in an Australian corporation if:
- that person together with associated persons directly or indirectly acquires 15% of the shares or voting power of the corporation
- that person together with other foreign persons and each of their associated persons directly or indirectly acquire 40% of the shares or voting power of the corporation
- that person already holds a substantial interest, there is any increase in the interest held.
Notification is only compulsory if the Australian corporation has:
- total assets of at least A$5 million
- total assets of at least A$3 million if more than 50% of the assets of the corporation comprise land used for primary production ('rural land')
- more than 50% of its assets are urban land.
Notification not compulsory
The Treasurer has power to review certain other types of arrangements which could facilitate a takeover of Australian companies and businesses. These include:
* the acquisition of the assets or an interest in the assets of an Australian business
* agreements resulting in foreign interests having the right to representation on the board of directors of any Australian company
* arrangements for leasing, hiring, managing or otherwise participating in the profits of an Australian business
* where the total assets involved are more than A$5 million (A$3 million if more than 50% of the assets are rural land)
* the acquisition of a foreign corporation:
- which has Australian assets of at least A$20 million
- whose assets are valued at more than A$5 million and at least 50% are Australian assets.
FIRB also examines proposals to establish new businesses in Australia where the total amount of the new investment (including the value of leased equipment) exceeds A$10 million. Such proposals will be approved unless judged to be contrary to the national interest.
Examination of proposals
Foreign investment guidelines provide that proposals (which meet the criteria set out below) relating to manufacturing, services, resource processing, oil and gas, non-banking financial intermediaries, insurance, stockbroking, tourism (hotels and resorts) rural properties, agriculture, forestry and fishing are examined without the need to demonstrate economic benefit or to provide for Australian equity participation. Such proposals are approved unless judged to be contrary to the national interest.
The criteria are:
- the consideration or total assets of the company or business does not exceed A$50 million
- the total investment in establishing a new project or business does not exceed A$50 million
- the value of the assets of Australian subsidiaries, where there is a takeover of an offshore company, does not exceed A$50 million or where the Australian assets do not exceed 50% of the worldwide assets of the company being acquired.
However, certain areas are sensitive on public policy grounds and the financial limits referred to above will be disregarded where the businesses concerned are in areas such as mining, the media, aviation, banking(but not non-bank financial institutions) and real estate.
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The information contained in this article has been prepared by the Minter Ellison Legal Group. Professional advice should be sought before applying the information to particular circumstances.
