The COVID-19 crisis has caused the value of many businesses to fall, making them potentially attractive targets for overseas investors looking for a bargain.

The government has responded by making changes to the rules regulating overseas investment in New Zealand businesses and property.

The aim is to protect New Zealand businesses and property from opportunist overseas investors hoping to profit from any price reductions caused by the economic consequences of the Covid-19 restrictions. The changes also aim to support productive overseas investment by reducing the burden of the screening process.

The majority of the Overseas Investment (Urgent Measures) Amendment Act 2020 and the Overseas Investment Amendment Regulations 2020 came into force on June 16. Some of the key changes in the Amendment Act include a new Temporary Emergency Notification Regime.

A wealth of information

Overseas investors will now need to notify the Overseas Investment Office (OIO) of all overseas investments, regardless of value, resulting in:

  • More than 25% overseas ownership of a New Zealand business or its assets; or
  • An increase to an interest in an existing business holding up to or beyond 50%, 75% or up to 100%.

Property purchases, regardless of the value, will also require OIO approval:

  • Where the transaction will result in an overseas person acquiring property in New Zealand used to carry on business in New Zealand (whether by one transaction or a series of related transactions); or
  • If the value of the property amounts to more than 25% of the value of all of the seller's property before the acquisition is made, irrespective of the value of the transaction. This applies even if the land is not ‘sensitive land’.

In assessing the value of property, the most recent financial statements, accounting records of the persons or businesses, and all other circumstances that affect or may affect the value of the property, can be taken into consideration.

This does not mean a full OIO consent is required. While the new rules will catch transactions that were not previously subject to consent, the majority of purchases will not pose any risk to national interest, and for those transactions, the OIO is aiming to issue a direction order allowing the transaction to proceed within 10 working days.

A foreign investor must notify the OIO if a proposed transaction falls within the scope of the new regime by providing basic information about the transaction, such as:

  • The identity of the investor;
  • Ownership or control of the investor;
  • Any links to a foreign government;
  • The nature and size of the business being purchased, and the commercial rationale for the purchase.

The Government has announced that there will be no fee for lodging a notification under the Temporary Emergency Notification Regime, and the notification form is available on the OIO website.

In the national interest, or not?

When notification is required either under the new regulations or under the usual consent pathway, the proposed transaction will be reviewed by the relevant Minister to decide whether it is contrary to New Zealand’s national interest. The term ‘national interest’ is not defined in legislation, but the Government’s guidance on the application of the national interest test states that the Minister may consider a broad range of factors, depending on the investment.

For example, businesses operating in sensitive areas of the economy may raise more national interest concerns, while investments that enhance New Zealand’s economic prosperity are less likely to be contrary to the national interest.

Amongst other things, the Minister of Finance may consider whether the target business is in financial distress, whether the amount being paid for is at a fundamentally lower value than its pre-COVID-19 position, competition, national security, public order and international relations, alignment with New Zealand’s values and interests, and the character of the investors.

If the Minister decides that the proposed transaction is contrary to the national interest, the Minister may impose conditions, prohibit the transaction, order disposal of the investment, or recommend that the investor be put into statutory management. The Minister must publish all decisions or notifications, except in respect of transactions which proceed without any conditions imposed.

Review and re-review

The Minister must review the regime every 45 days to ensure that the classes of transaction subject to it are not broader than necessary. The Government will also review the regulations every 90 days and it will also be discontinued once the economic impacts of COVID-19 have diminished. However, it can also be reinstated in future emergency situations.

Once the Government decides that the temporary regime is no longer needed, it will be replaced by a national security and public order ‘call-in’ power, which will apply to investments that do not require consent under the Overseas Investment Act.

This will allow the Government to review investments in strategically important businesses, such as key electricity generators, telecommunications services, ports and media businesses. Following review, the Minister may impose conditions, or prohibit or require disposal of transactions if the proposed transaction may give rise to a significant risk to national security or public order.

Can I sign now?

You are still able to sign an agreement for a sale to an overseas investor before you have obtained consent under the new regulations, as long as the agreement is conditional on the purchaser obtaining consent to the transaction.

 

If you have any questions, contact us at Aspiring Law. We’re here to help.

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