Despite the impact that Covid-19 is having on many Australian and international businesses, there are many foreign owned or controlled companies who continue to explore investment opportunities in Australia.
There have been some significant changes to Australia’s foreign investment framework as a result of the Covid-19 pandemic, which foreign persons (and their advisors) must consider before entering into an agreement to acquire certain interests in Australian companies or business assets.
Prior to 29 March 2020, foreign persons (including individuals who do not ordinarily reside in Australia, as well as companies or trusts in which foreign persons hold a substantial interest) were required to obtain the approval of the Foreign Investment Review Board (FIRB) before acquiring certain interests in Australian companies and businesses.
Generally speaking, the requirement to obtain FIRB approval applied only to the acquisition of substantial interests (i.e. interests of 20% or more) in Australian companies or businesses that have an annual turnover above a specified threshold.
However, as of 29 March 2020, all monetary thresholds regarding investments in Australian companies and businesses were reduced to $0. This means that all acquisitions of substantial interests in Australian companies and business assets now require FIRB approval, regardless of the monetary value of the investment or the nature of the foreign investor.
The rationale behind the Federal Treasurer’s swift decision to reduce all monetary screening thresholds was to provide the FIRB with increased oversight of foreign investment during the COVID-19 pandemic. This oversight would allow the FIRB to ensure that foreign investors are not able to utilise the economic pressure being felt by many Australian companies and businesses as an opportunity to invest in distressed assets, in a way that is contrary to Australia’s national interests.
To date, there has not yet been any announcements by the Treasurer as to when the monetary screening thresholds will be returned to their pre-Covid values. It is expected that the reduced monetary screening thresholds will remain in place for the duration of the COVID-19 crisis in Australia.
In light of the above, foreign investors and their advisors should consider the following issues when negotiating any proposals to acquire substantial interests in Australian companies or business assets:
Timing for completion
Given the large volume of applications that must now be processed by the FIRB in response to the changes highlighted above, the standard timeframe for review and approval of a proposed foreign investment may take up to 6 months. Foreign investors and their advisors should begin the FIRB approval process as soon as possible, in order to avoid significant delays to their proposed acquisitions.
Seek advice before signing an Agreement
Foreign investors and their advisors should seek independent advice before entering into any agreement in respect of the proposed acquisition of substantial interests in Australian companies and businesses to ensure that they will not be in breach of the Foreign Acquisitions and Takeovers Act 1975 (Cth). Any agreement which is signed before FIRB approval is obtained must be carefully drafted to ensure that the requirements of the Foreign Acquisitions and Takeovers Act 1975(Cth) have been met.