For growing or exit focussed businesses, interest from a foreign investor often means the potential for capital injection, access to exciting overseas markets, or collaboration with new partners. Similarly, foreign purchasers present unique opportunities for those looking to sell assets in Australia. However, when dealing with foreign investors it is important to be mindful of your reporting obligations under the Foreign Acquisitions and Takeovers Act 1975 (Cth), especially in the case of sensitive defence-related transactions.  

This article will cover:

  1. What is the Foreign Acquisitions and Takeovers Act 1975 (Cth)?
  2. When are notifications required?
  3. What is the penalty for failing to make a notification?
  4. When are notifications recommended?
  5. When is an exemption available?

What is the Foreign Acquisitions and Takeovers Act 1975 (Cth)?

The Foreign Acquisitions and Takeovers Act 1975 (Cth) empowers the Treasurer to:

  1. Prohibit investment proposals which are deemed to be contrary to the national interest; and
  2. Make orders for foreign persons to divert shares, assets or interests in land where the acquisition is decided to be contrary to the national interest.

In practice, the review process is carried out by the Foreign Investment Review Board (FIRB). If the suggests that the proposed action is not contrary to national interest, a “no objection” notification will be issued. 

When are notifications required?

Prior to an investment by a foreign person, notification must be made to FIRB for notifiable actions and notifiable national security actions. In January 2021 FIRB also introduced new ongoing reporting requirements for foreign investors that have already been issued a no objection notification or exemption certificate.

A notifiable action typically occurs if:

  1. A foreign person acquires an interest of over 20% in an entity worth over the threshold value; or
  2. As part of the transaction, a foreign person acquires Australian land or enters into a lease that will exceed 5 years in duration, provided that the relevant land value threshold is met. 

The threshold value differs depending on a variety of factors, including whether the business is agricultural or of a sensitive nature. In the case of land, different threshold values apply if the land is vacant. Also, a different threshold value applies to depend on whether the foreign person is from a country which is party to an agreement or Treaty with Australia concerning foreign investment. In some cases, there is no threshold value and the act of investing in any land or entity of that nature will automatically trigger a FIRB notification

A notifiable national security action typically occurs if:

  1. A foreign person acquires a 10% or greater interest in a national security business or an entity that carries on a national security business; or
  2. A foreign person acquires any interest in national security land. National security land is typically land currently occupied by Defence and Australian Defence Force or one of the National Intelligence Community Agencies (e.g. ONI, ASIS, ASIO, ASD, ACIC, AGO, or DIO). 

The concept of “national security business” is very broad, covering a wide range of business across industries including telecommunication, critical infrastructure, energy and resources, goods and technology for military or intelligence use, and equipment used to store classified information. FIRB has prepared Guidance Notes which provide further details on the complex criteria surrounding national security businesses. 

In order to appreciate when a notification is required, it is essential to understand whether the proposed investor is a foreign person. The definition of foreign person under the Foreign Acquisitions and Takeovers Act 1975 (Cth) is very broad, generally encompassing:

  1. Individuals who are not ordinarily residents of Australia;
  2. Corporations in which foreign persons hold an aggregate interest of 20% or more;
  3. Trustees of trusts in which a foreign person or multiple foreign persons holds an aggregate substantial interest; and
  4. A foreign government. 

What is the penalty for failing to make a notification?

Failing to make a notification to FIRB can have serious consequences, including civil penalties and infringement notices. If an action is deemed to be contrary to the national interest, for up to 10 years following the action the Treasurer may “call in” the transaction for review and ultimately decide to issue disposal orders to have a transaction unwound. 

To achieve additional peace of mind, in some circumstances investors may choose to make a voluntary notification to gain some reassurance that a transaction is not considered contrary to the national interest. However, if circumstances change or the party making the notification is not completely honest, it is still possible for penalties to apply even if a “no objection” notice was originally made. 

When can a voluntary notification be made?

FIRB recommends, but does not require, that a notification is made if:

  1. A foreign person acquires an interest of over 20% in an entity worth over $275,000,000; or
  2. A foreign person purchases land or enters into a lease that will exceed 5 years in duration, provided that the relevant land value cap is met. 

When are exemptions available?

In limited circumstances, it is possible to access an exemption from notification requirements if the Treasurer is satisfied that a foreign person acquiring certain interests in Australian land, companies and/or business is not contrary to the national interest. The process for obtaining an exemption is complex and generally most advantageous when a foreign investor is looking to engage in a large volume of similar investments. 

Next steps

If you are considering conducting business with a foreign investor, please get in touch for a review of your reporting obligations. The team at Rouse Lawyers are familiar with FIRB requirements and can guide you through the reporting process.   

Disclaimer

The information contained on this website is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved.

Accordingly, the information on this site is provided with the understanding that the authors and publishers are not providing legal advice. As such, it should not be used as a substitute for consultation with professional legal advisers. Before making any decision or taking any action, you should consult with a professional lawyer from Rouse Lawyers.

Liability Limited By A Scheme Approved Under Professional Standards Legislation