Temporary Changes to Australia’s FIRB Regime
Prior to the outbreak of COVID-19, proposed foreign investments into Australia only required approval by the Foreign Investment Review Board (FIRB) when the value of the transaction was above certain thresholds. Now, all transactions no matter their value, require approval by the FIRB. The government’s reasoning behind introducing the temporary changes is that many normally viable Australian businesses would be sold to foreign interests without government oversight in light of the pandemic, potentially presenting risks to the national interest.
The Changes
Previously, the FIRB did not review transactions that totalled under AUD $1 billion for countries with a Free Trade Agreement with Australia, or AUD $275 million for countries without a Free Trade Agreement with Australia. That threshold is now at AUD $0 and the statutory review period has increased from 30 days to up to 6 months. Parties entering into transactions can expect significant delays however the government will look to prioritise urgent applications for investments that protect and support Australian businesses and jobs.
Opportunities for Australian Investors
These changes will no doubt reduce the number of foreign acquisitions or at the very least, delay potential deals from progressing. This gives Australian investors a significant advantage in any contested transactions as Australian investors are not required to seek approval from the FIRB.
Exemptions
Certain persons and acquisitions are exempt from the Foreign Acquisitions and Takeovers Amendment Act 2015 and the current AUD $0 thresholds. Most exemptions are specific and must fulfil a strict set of requirements. Foreign investments in financial sector companies is one such exclusion, provided the acquisition is not by a foreign government investor. Certain residential real estate purchases, acquisitions by funds and schemes and mining, production and exploration undertakings will all be exempt provided they meet certain criteria. A full list of exemptions can be found in sections 26 to 48 of the Act.
Permanent Proposals
If passed by Federal Parliament, from 1 January 2021 there will be a permanent threshold of AUD $0 for all foreign investments in sensitive national security businesses and the current COVID-19 temporary threshold will revert to pre-March 2020 levels. Under the proposed laws, where there are national security concerns the Treasurer will have the power to impose new conditions, and block or unwind any transactions as they see fit. The Treasurer’s new direct powers will also coincide with the Federal government having more powers to enforce compliance with FIRB approval conditions, which also includes increased monitoring and investigative powers.
There will be a significant increase to penalties for breaches of the Foreign Acquisitions and Takeovers Act. Previously companies could be fined up to $787 500 and individuals $157 000 however now those penalties will increase to $31.5 million and $3.15 million.
Find Out More
At Groves & Partners, we have experience navigating Australia’s FIRB rules and regulatory challenges. Our expert team specialise in international transactions and together with specialist M&A lawyers can guide you through the entire process. Call +61 2 7208 7970 or email info@groves.com.au today for a free consultation.