On 13 May 2020, the Governments announced fast tracked changes to strengthen the Overseas Investment regime in response to the COVID-19 pandemic. These changes aim to protect distressed New Zealand assets from overseas investors where such investments are contrary to New Zealand’s national interest. Additionally, some changes release restrictions on low risk investments to ensure they can receive the support they require to survive unprecedented economic downturn in the wake of COVID-19.
The Government proposed changes to the Overseas Investment Act 2005 (Act) earlier this year, and due to the COVID-19 pandemic has selected certain amendments to be fast tracked. The remaining proposed amendments will be handled through the normal legislative process. This has been done by way of two separate bills:
- The Overseas Investment (Urgent Measures) Amendment Bill (Urgent Measures Bill); and
- The Overseas Investment Amendment Bill (No 3).
The Urgent Measures Bill contains the amendments to be fast tracked. Some initiatives of the Urgent Measures Bill which tighten the current regime include:
- Bringing forward a national interest test to automatically apply to investments which already require consent and which warrant greater scrutiny (such as where a foreign government will hold 10% or more, or for investments in a strategically important business such as ports, airports, water infrastructure). The test is intended to be a backstop tool which will be used only where it is necessary to ensure protection of New Zealand’s national interests.
- Temporarily requiring foreign investors to notify the Government of any investment that is not already subject to screening (regardless of value) where such investment:
- Grants them control of more than 25% of an existing business;
- Increases an existing level of control in a New Zealand business above certain thresholds; or
- Results in the acquisition of more than 25%of a New Zealand’s business’ assets (by value).
- Replacing the above temporary notification requirement (once lifted) with a narrower national security and public order call-in power to allow the government to review investments in strategically important business that do not require consent under the Act.
The temporary notification measures are to enable the Government to consider whether these investments are contrary to the national interest, and potentially impose conditions or block the investment. No action notices should be issued within 10 working days (with longer time periods applying if a detailed review is required).
The Urgent Measures Bill also simplifies processes and releases current restrictions by:
- Removing the requirement for screening transactions which pose little to no risk such as fundamentally New Zealand entities acquiring sensitive New Zealand assets and small increases in existing shareholdings.
- Imposing timeframes on decision making through the regulations to provide certainty to investors.
- Simplifying the investor “good character” test so that only serious proven offences and matters before the court will be considered, and New Zealand investors will no longer have to satisfy the test. This aims to make the process less costly and time consuming.
The Government aims to have the changes in force by mid-June to ensure that the gap can be closed as quickly as possible. For more information, see the Minister’s media statement, key questions, or the Cabinet paper.
These initiatives are being introduced to protect New Zealand’s national interest in the wake of COVID-19 and to seek to ensure New Zealand does not lose important assets in its economy. Whilst we welcome the simplification of the regime for low risk transactions, we note that it will cause uncertainty for many “notifiable” transactions, which could materially impact timelines as parties will not have an objective measure of whether a review will ultimately be required. The changes also give the Government a heightened level of control over how a private party may wish to deal with its property rights, by deeming businesses (for example key tourism businesses) as nationally important. This may impact upon the ability of such businesses to seek offshore equity in a situation where it is not receiving other substantial government support.
We note that the temporary measures are to be reviewed every 90 days, and once they end, the national interest test will remain for business transactions over a minimum threshold of $100 million (or higher threshold as set for investors from certain countries), and for investments in sensitive land and fishing quota.
Should you believe you or your company may be affected by any of these measures or would like to discuss this further, the team at Lane Neave will be happy to assist.
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