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Select Committee Report: Overseas Investment (Urgent Measures) Bill

Contributors:
Ben Paterson, Anna Crosbie , Catherine Marks and Fiona Ryan
Published on:
26 May 2020

The Finance and Expenditure Committee has reported back on the Overseas Investment (Urgent Measures) Amendment Bill ("Urgent Measures Bill"), which is currently working its way through the House under urgency. The link can be found here.
 
The Urgent Measures Bill fast tracks amendments to the Overseas Investment Act 2005 ("Act"), bringing forward some changes previously proposed under the Overseas Investment Amendment Bill (No 2) ("Amendment Bill No 2") – along with new measures such as a new temporary notification power that applies to transactions that do not otherwise require consent. A summary of the Urgent Measure Bill can be found here.
 
The short submission period attracted only a handful of submissions. A copy of Russell McVeagh's submission can be seen here. We supported the Government's broad objective of better achieving the right balance between screening foreign investment and encouraging foreign investment and acknowledge the concerns associated with COVID-19. Our submission focused on the areas where we considered the intended balance between protection and attracting investment might not be achieved.
 
Key amendments we advocated for and which the Committee has accepted include:

  • extending the standing consent (which is an effective exemption) for majority owned listed incorporated companies to majority owned listed unincorporated managed investment schemes;

  • clarifying that entities exempted under the standing consent (and who no longer are required to seek consent) are not then caught by the temporary notification regime;

  • clarifying that the new temporary notification regime will not have any retrospective effect (as introduced, the Bill provided that transactions entered into before the Act was in force, but which have not been given effect, could have been caught);

  • providing that some beneficial changes in the Act will retrospectively apply to transactions entered into before the Act comes into force and consent had not yet been granted. This means that the standing consent for majority owned listed entities and for changes to adjoining sensitive land will apply to existing transactions. Consent will not be required, and if an application is already made it will not have to be pursued; and

  • clarifying that originating loans do not require consent under the Act, and in relation to residential mortgage obligations, clarifying that the repurchase of the same mortgage enjoys the same exemptions.

While these amendments are welcome improvements to the Bill, the Committee did not accept some of the amendments we proposed in order to provide greater certainty for investors, including for example:

  • removing the Minister's power to apply the national interest test to any transaction as notified by the Minister, or otherwise applying that only for the period that the emergency notification regime applies;

  • introducing a general presumption that overseas investment is in the national interest similar to the position in the Australian regime (so that it is clear the onus is on the Government to establish a transaction is contrary to the national interest);

  • introducing materiality thresholds in the new investor test (to ensure that de minimis fines which have no bearing on the character of the investor are not included);

  • amending the definitions of "relevant government enterprise" and "relevant government investor" to expressly exclude superannuation funds or sovereign wealth funds, or private equity funds whose investor base is comprised to a material degree by such funds.

Next Steps and Amendment Bill No 3

The Bill is sitting at number 5 on the Order Paper for 26 May 2020. At this stage, we expect it to pass by late next week and to be in force by mid to late June 2020. 
 
The remaining provisions in the Amendment Bill (No 2) that have not been fast tracked will be moved to a new Overseas Amendment Bill (No 3) ("Amendment Bill No 3"). This Amendment Bill No 3 will go through the usual legislative process and is expected to pass within 12 months. Importantly, the Government has indicated that, during this process, consideration will be given to the changes introduced under the Urgent Measures Bill. This means that, while some of the changes have been fast tracked, they will still be scrutinised (eventually) by a Select Committee with the benefit of submissions and ongoing official advice, and further improvements may be made at a later stage.  

The amendments recommended by the Committee are further summarised in the table below:
 

Issue Recommended amendment

Definition of "overseas person"

  • Extending standing exemption for listed incorporated entities to listed (unincorporated) managed investment schemes would receive a standing consent for transactions ordinarily subject to the Act where:

    • not more than 50% of the value of the investment products in the scheme is invested on behalf of overseas persons; or

    • not more than 25% of the value of the investment products in the scheme was invested on behalf of overseas persons, each of whom hold 10% or more of the scheme's value invested.

Exemptions

  • In relation to loans from financial institutions, removing the exemptions for originating loans introduced by the Bill and clarifying that originating loans do not require consent under the Act (and therefore do not need to be exempted).

  • In relation to residential mortgage obligations, clarifying that the repurchase of the same mortgage enjoys the same exemptions

Emergency notification power

  • Requiring the Minister to assess whether the emergency power is over-capturing low risk transactions, no later than 45 days after the regime commences.

  • Clarifying that the call-in power and the emergency notification power apply only to those transactions not already requiring consent.

Strategically important businesses

  • Providing that only entities specifically referred to in regulations are strategically important businesses.

  • Requiring the Minister to notify a person once they ceased to be considered a critical direct supplier (removing that person from the application of the regime).

  • Enabling the Minister to make regulations prescribing transactions that would not be considered overseas investments in strategically important businesses' assets (and therefore excluding those transactions from the application of the call-in power). 

Transitional arrangements

  • Clarifying that transactions entered into prior to the emergency power taking effect do not need to be notified.

  • Providing that transactions that would receive standing consent under the Bill do not need to proceed to full consent.

  • Providing that persons that would receive standing consents under the Bill are not subject to the emergency notification regime or call-in power. 

Additional matters

  • Clarifying that a direction order may simply clear a transaction to proceed without conditions.

  • Providing that a statutory declaration be required only where information needed to be verified and on the request of the regulator.

  • Enabling the Minister to authorise the manner in which notifications are made under the emergency power (effectively to enable the OIO to establish an online portal for this purpose).

  • Removing the requirement for the Minister to publish direction orders.

  • Providing a standing consent for subsequent transfers or sales of loans on the secondary market.

  • In response to concerns raised by the Privacy Commissioner, clarifying the nature of information sharing between government agencies.

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the experts listed below.