Emergency notification regime to begin

POSTED BY Graham Jordan
Tamara McConnell
16 June 2020

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Photo by Markos Mant on Unsplash

In late 2019, the Government proposed much anticipated partial overhaul of the Overseas Investment Act 2005 (Act), governing foreign investment law in New Zealand. With the advent of Covid-19, a few aspects of the proposed changes were expedited (and some new provisions introduced) and passed into law under the Overseas Investment (Urgent Measures) Amendment Act 2020 (Urgent Measures Act). One of the main drivers behind the Urgent Measures Act was the desire to protect vulnerable New Zealand assets from being sold under “fire sales” to overseas buyers, while also giving due weight to the operation and viability of distressed businesses. The balance struck was to test that any such sales are in New Zealand’s national interest.

With a few exceptions, Urgent Measures Act came into effect today (16 June 2020), together with the supporting Overseas Investment Amendment Regulations 2020. In particular, the Urgent Measures Act imposes a new emergency notification regime (with zero dollar value threshold) and fast tracks certain of the initially proposed changes.

Emergency notification regime

The key feature of the Urgent Measures Act is the introduction of a compulsory notification regime. Investment transactions, not already subject to screening under the Act, will need to be notified to the Overseas Investment Office (OIO) where the investment will result in:

  • an overseas person controlling more than 25% of an existing NZ business (or an overseas person increasing its existing level of control in an NZ business beyond the 25%, 50% and 75% thresholds); or

  • an overseas person acquiring more than 25% of a NZ business’ assets (by value).

The notification obligation applies even if the transaction values are below the ordinary screening threshold of $100 million (or higher for investments from certain exempt jurisdictions) and regardless of the nature of the assets. However, it does not apply in certain limited exceptions. The notification can be made on-line, and there should be no fee payable to the OIO for making the notification.

Following notification, the Government will assess the transaction against the “national interest” test (see below). The initial review period is expected to be around 10 working days, and the transaction can only be effected once the Government gives a direction order in relation to that transaction (with or without conditions). If further scrutiny under the national interest test is required, there will be additional 30 working days to review the notification, with the ability to extend for a further 30 working days (i.e. a maximum of 70 working days from notification). If the transaction is considered to be contrary to New Zealand’s national interest, the Minister can make a number of orders, including:

  1. a direction order permitting the transaction with conditions;

  2. a prohibition order stopping the transaction; or

  3. a disposal order requiring disposal of assets already acquired by the overseas person.

For transaction certainty, overseas investors should aim to notify the OIO of the relevant transaction as soon as practicable (e.g. as early as the signing of a definitive term sheet) and also make the transaction agreement(s) conditional on obtaining a direction order (or, if any conditional order is made, the investor being satisfied with those terms). The regime must be reviewed no later than 45 days after its commencement (31 July 2020) and then reviewed no more than 90 days apart after the initial review. It is also a temporary regime and will be replaced by a more permanent call-in regime for transactions that are transactions of national interest.

Fast track reforms (“national interest” test, standing consent and new investor test)

Notable reforms initially proposed in late 2019, which were expedited and passed into law under the Urgent Measures Act, include the following:

  • Introducing the new “national interest” test – The national interest test gives the Government the power to decline consent to an overseas investment transaction that it regards as contrary to New Zealand’s national interest. While the term “national interest” is not defined in the Act, the test will concern transactions that involve:


    • non-New Zealand government investors (i.e. non-NZ government investors holding greater than 10% of the business/asset); or

    • strategically important businesses (SIBs) – such as businesses in military or dual-use technology, ports or airports, electricity, water, telecommunications, irrigation, media businesses with significant impact, and businesses that develop, produce, maintain or otherwise have access to sensitive information.

Initially, the national interest test will apply to all transactions requiring consent under the Act, as well as those requiring notification under the temporary regime. Once the notification regime is replaced by the more permanent call-in regime, the national interest test will apply to transactions that are required to be screened under the Act (i.e. sensitive land / significant business assets) or those that involve SIBs.

  • Introducing a standing consent (effectively an exemption) for NZX listed issuers and managed investment schemes – In the case of an equity issuer, the issuer will only be regarded as an overseas person if either:
    • one or more overseas persons will beneficially own more than 50% of the issuer’s securities; or

    • overseas persons who own 10% or more of the issuer’s securities control the composition of 50% or more of the issuer’s governing body or exercise or control the exercise of more than 25% of the voting power at a meeting of the issuer (noting that shareholders who own less than 10% are not counted for this test, unless they are associates).

  • Simplifying the “investor test” – In particular, the previous requirement to assess the overseas investor against the “business experience and acumen” relevant to the overseas investment and “financial commitment” to the overseas investment will be removed. This change, however, will come into force at a later date by Order in Council (but no later than 2 June 2021).

Going forward

The Overseas Investment Amendment Bill (No 3) (No 3 Bill) has also been introduced, and contains the measures originally proposed in late 2019 which the Government considered did not need to be expedited under the Urgent Measures Act (e.g. removing “short-term leases” from the scope of the Act etc). Public submissions on the No 3 Bill can be made until 31 August 2020. The Finance and Expenditure Committee will also be scrutinising the changes made by the Urgent Measures Act, so submitters have an opportunity to comment on their experience with the urgent changes over the next few months. We will be providing another update on the No 3 Bill as it moves through the legislation process.

POSTED BY Graham Jordan
Tamara McConnell
16 June 2020

VIEWED 10 TIMES

PERMALINK