Amendments to the Overseas Investment Act (Act) (often referred to as the Phase 2 reforms) have been in the pipeline for some time. A Bill encompassing these reforms, which seek in part to ‘cut the red tape’ under the Act, was introduced to Parliament earlier this year.
However, as a result of the very different economic outlook created by COVID-19, the Government has brought forward some of these changes and incorporated them into the Overseas Investment (Urgent Measures) Amendment Act (Urgent Measures Act). The Urgent Measures Act received royal Assent yesterday and will come into force on 16 June 2020. The rest of the Phase 2 reforms will proceed on the ordinary legislative track.
The Government considers that these urgent amendments are a necessary tool to respond to the heightened national security and economic risks posed by foreign investment for the period of the COVID-19 pandemic. The key changes made by the Urgent Measures Act include a compulsory temporary emergency notification requirement, a ‘national interest’ test and a call-in power which we discuss below.
Compulsory Temporary Emergency Notification
The new compulsory notification requirement will apply to many transactions that are not ordinarily captured, regardless of the dollar value of a transaction. The regime requires overseas investors to notify the Overseas Investment Office (OIO) before making an investment where the transaction (which is not already subject to the Act) results in the overseas investor:
- acquiring a 25% or more interest in a business;
- increasing an existing interest in a business to, or (as the case requires) beyond, 50%, 75% or 100%; or
- acquiring 25% or more of a business’ assets (including goodwill and other intangible assets).
This regime will require the overseas investor to lodge a short document with the OIO setting out the key details of the proposed transaction. The OIO then has 10 working days of notification to respond with confirmation that the investment can proceed or that it intends to carry out a more detailed review that considers whether the investment is contrary to New Zealand’s ‘national interest’. If a more detailed review is required, the Government has up to two further 30 working day periods at its disposal to assess the investment.
Failure to notify the OIO could lead to the transaction being unwound.
National Interest Test
Once notified, the OIO is required to determine whether the transaction gives rise to, or is likely to give rise to, risks associated with national security, public order or New Zealand’s ‘national interest’ generally. What constitutes ‘national interest’ will be at the OIO’s discretion and the OIO can apply the test on a case-by-case basis. The test’s premise is that investment is in New Zealand’s national interest. Ultimately, the OIO has the power to impose conditions on, or block, the transaction.
The implementation of this test is similar to what Governments around the world, including Australia, Spain and Germany have also put in place.
Call In Power & Other Amendments
The compulsory notification regime is temporary and will be reviewed to ensure that it is not overly broad. It will be removed once COVID-19 and its associated economic effects are no longer having a significant impact on New Zealand.
Once the compulsory notification regimes expires, a backstop tool has been introduced which can be used by the OIO to manage significant risks to New Zealand’s national security or public order (i.e. transactions involving strategically important industries and high-risk critical national infrastructure which may not ordinarily be screened by the OIO).
The Urgent Measures Act implements several other reasonably technical amendments which also need to be considered conjunction with the Act, the other upcoming Phase 2 reforms, OIO guidance and individual circumstances. Please contact our Overseas Investment Team if you have any questions or require advice about how these changes may affect you.
Contact the team: