In news welcomed by overseas businesses looking to expand into New Zealand, the Government has announced that the temporary emergency notification regime for overseas investment is now removed and replaced with a new, more targeted National Security and Public Order (NSPO) regime.
Removal of temporary notification regime
For the last 12 months, the temporary notification regime has required overseas purchasers of businesses or assets to undergo a formal notification and call-in process to seek a direction order from the Minister to enable the acquisition to proceed. This was implemented in response to the economic uncertainty arising from the Covid-19 pandemic and applied even if the businesses were low value and included industries not impacted by the pandemic.
The new regime focuses on a narrower range of overseas investment transactions that pose significant national security or public order risks.
If your transaction is entered after 7 June 2021 then the new regime will apply. If your transaction was entered into prior to that date, and still due to complete, then you are likely still covered by the temporary notification regime and notification may still be required.
What does this mean for overseas investors/acquirers?
If you are an overseas person (which includes entities that are over 25% owned by an overseas person or entity), then the usual overseas investment rules apply (with some further modifications referred below). This means that overseas persons acquiring a business or assets worth over $100 million (or any applicable increased threshold) or acquiring an interest in sensitive land or residential land, will still need to go through the usual overseas investment consenting pathways.
In addition however, an acquisition may also be required to be notified to the regulator if the target business is “strategically important” under the new NSPO regime.
- A notification must be made if the target business researches, develops, produces or maintains military or dual use technology, or is a critical direct supplier to the NZ Defence Force, the Government Security Bureau or the NZ Security Intelligence Services. Critical direct suppliers may be published (see here) or unpublished (due to confidentiality).
- If the target business is otherwise “strategically important”, such as being involved in airports, ports, water, electricity, telecommunications, financial institutions or media businesses with significant impact (among others), then an acquirer can elect to make a voluntary notification.
You might decide to make a voluntary notification under the second limb above, as if the transaction is notified and cleared, you will obtain a “safe harbour” from further intervention regarding the transaction. If you do not notify voluntarily, and it is found that the acquisition does pose a significant risk to New Zealand’s national security and public order, the Government may later intervene and could block the transaction, impose conditions or order asset disposal.
The NSPO regime generally applies to the acquisition of any level of interest in a strategically important business, as there is no dollar or percentage interest threshold before it applies (with listed or media businesses being the only exception to this).
Once a transaction is notified, the Overseas Investment Office states that it will complete the initial assessment within 15 working days, after which it will issue a direction order allowing the transaction to proceed (either with or without conditions), or advise the applicant that the transaction will be subject to a full assessment.
While no doubt we will learn more how these definitions apply as the regime gets underway, we expect that this narrower focus will enable business transactions that do not pose a risk to New Zealand to flow through more efficiently.
Other changes to the legislation
For those investments that do require a consent under Overseas Investment legislation, further reforms are continuing to be implemented, that in many cases, should facilitate the consent process. Our commercial property team has summarised the most recent changes here.
If you or your business is more than 25% overseas owned and you are looking at a business or land acquisition in New Zealand, then it will be important to get specialist legal advice in this area to ensure you are meeting the new obligations under this evolving legislation.
Please feel free to get in touch to discuss how it may affect you.
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