The New Zealand Government is further amending the Overseas Investment Act 2005 (Act) for the purposes of protecting key New Zealand assets in response to the COVID-19 pandemic. The proposed changes are being introduced in the Overseas Investment (Urgent Measures) Amendment Bill (Bill). 
The Bill introduces some of the key changes proposed in the Overseas Amendment Bill (No.2) as well as introducing a temporary notification power which applies to a range of transactions that are not subject to the current regime.
This article summarises the key changes of the Bill.
Changes to the definition of ‘overseas person’
The bill amends the definition of an ‘overseas person’ in section 7 of the Act. Currently, the Act regards companies, partnerships, trusts and unit trusts as overseas persons for the purposes of the Act if 25% or more of the control, ownership or beneficial interest of such entity is controlled, owned or held (as applicable) by an overseas person or persons. This definition will change by replacing ‘25% or more’ with ‘more than 25%’.
The effect of such means arbitrary ownership structures comprising of 24.9% foreign ownership will no longer be required to stay under the current threshold (25% or more) categorised as an overseas owned and controlled company.
National Interest Test
The “national interest test” allows the relevant Minster to deny Overseas Investment Office (OIO) consent to any investment ordinarily screened under that Act that is considered to be contrary to New Zealand’s ‘national interest’. This is a broad test that gives the Minister a wide discretion to consider what is in the national interest in each particular case. The national interest test will, however, be mandatory where:
- a transaction is before the OIO and a foreign government would directly acquire sensitive assets or hold 10% or greater interest in the target; or
- strategically important businesses are involved (i.e. military, telecommunications, energy etc.).
In addition to this, the Government will have “call in powers”, giving the Minister the power to “call-in” a transaction that is not otherwise the subject of an OIO application, and make that transaction subject to the national interest test. This
call in power will replace the temporary notification requirement once it is removed (see below).
Temporary notification requirement
Under the temporary notification requirement, overseas investors will be required to notify the Government before they proceed with an investment in a New Zealand business, if that investment:
- results in more than a 25% ownership interest;
- increases an existing interest in that business to, or beyond certain thresholds (being 50%, 75% or 100%); or
- results in the acquisition of more than 25% of the business’ assets (by value).
The temporary notification scheme applies to transactions that do not ordinarily require consent and will apply regardless of the dollar value of the investment. The notification regime empowers the relevant Minister to impose conditions on or dispose of investments considered contrary to the ‘national interest’.
Notifications will be made by way of a 2-5 page document that provides details about the transaction, the nature and size of the target, the investor (including its ownership, control and links to foreign governments), and the commercial rationale for the transaction. There is no fee associated with lodging a notification, and it is intended that the notification process will be quick to avoid any undue delay.
The OIO will make an initial assessment within 10 working days of receipt of the notification and the investors will either be told the investment can proceed or that it is subject to a further detailed review (to be completed within 30 working days with the ability to extend this an additional 30 working days if required).
The Minister will then make a final determination on whether the transaction can proceed (with or without conditions), or whether it is prohibited. The notification regime must be reviewed every 90 days and will be removed once the COVID-19 pandemic and its associated economic effects no longer continue to have a significant influence in New Zealand.
The temporary notification power means a wide range of transactions not previously subject to OIO scrutiny, will be required to be notified to the OIO prior to completing the transaction. All business acquisitions, and the raising of foreign capital in many cases, will require notification to the OIO. Although most transactions will be cleared within the 10 working day period, given the uncertainty over how the notification regime will work in practice, it risks increasing the costs and workloads of the Government, overseas investors and their respective advisors and unnecessarily hindering low risk transactions.
The Bill increases the OIO’s enforcement powers with the aim of helping the Government appropriately manage breaches of the Act or actions by overseas persons that pose risks to national security and/or public order. This includes increased pecuniary penalties, enforceable undertakings, injunctive relief, and statutory management.
Fundamentally New Zealand entities
New powers for Ministers to exempt from the OIO regime persons, transactions, interests or assets the Minister considers to be fundamentally owned or have strong connection to New Zealand. The details and criteria that will be used to determine whether an entity is ‘fundamentally New Zealand owned’ is yet to be released.
Simplifying OIO Regime
The Bill also plans to simplify the overseas investment regime and cut unnecessary red tape by removing screening requirements for transactions posing little risk, simplifying the investor test, and imposing timeframes on decision making.
Applications will no longer be required for:
- the acquisition of all land listed in Table 2 of Schedule 1 of the Act (adjoining land);
- fundamentally New Zealand entities; and
- small increases in existing shareholdings, certain corporate restructures, and low risk lending and transactions to support it.
Further changes include the introduction of prescribed time frames for OIO decision making and simplification of the ‘investor test’, so that it only focuses on material risks.
The majority of the proposed changes to be introduced by the Bill will come into force 14 days after the Bill is given royal assent. The commencement date of the “call- in powers” (clause 53 of the Bill) and the proposed changes to the “investor test” (clauses 6(3), 12(7) and (8), 14(2), 15, 16, and 63(2) to (4)) will be a date appointed by the Governor-General by Order in Council, if not earlier brought in by force, 1 year after the date the Bill is given royal assent.
This omnibus Bill is one of two bills being introduced as a package, with the latter to be introduced later this year. The Bill is being fast-tracked through Parliament and is expected to pass mid-June 2020.
The primary purpose of the Bill is to better manage and protect foreign investment in New Zealand’s sensitive assets. The Government has stated that the national interest test and temporary notification powers will rarely be used to decline transactions, and that it is committed to continue to promote beneficial overseas investment in New Zealand. However, the proposed changes will need to be monitored closely to ensure they do not result in unintended consequences, such as an undue increase in consent timeframes and limiting New Zealand businesses access to much needed foreign capital.
Anderson Creagh Lai would be pleased to assist you with any questions you may have about these changes or their implications.
ANDERSON CREAGH LAI LIMITED
Article written by Arthur Crawford
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