MinterEllison
February 10, 2010 - New South Wales
Proposed changes to foreign investment rules
by Michael Whalley
The Foreign Investment Review Board (Board), being the Australian government body that examines proposals for foreign investment in Australia, recently announced that the monetary thresholds set for the purposes of compulsory notification to the Board of a proposed acquisition will be revised to:
- AUD231 million, for private business investment (up from AUD219 million); and
- AUD1004 million, for US investors under the Australia-US Free Trade Agreement (up from AUD953 million).
The relevant legislation is likely to be updated in the near future to reflect this announcement.
Other changes which are proposed to the Australian foreign investment rules concern the meaning of acquiring a 'substantial interest' for the purposes of Foreign Acquisitions and Takeovers Act 1975 (Cth) (Act). The proposed changes aim to ensure that the Act applies equally to all foreign investments irrespective of the way they are structured. The amendments are expected to have retrospective effect from 12 February 2009.
The following table, extracted from the explanatory memorandum relating to the proposed new law, provides a summary of the proposed changes.
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New law
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Current law
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Substantial interest is holding at least 15 per cent of one or more of:
- voting power;
- potential voting power;
- issued shares; or
- rights to issued shares.
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Substantial interest is holding 15 per cent or more of the voting power or the issued shares in a corporation.
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Aggregate substantial interest is two or more persons holding at least 40 per cent of one or more of:
- voting power;
- potential voting power;
- issued shares; or
rights to issued shares.
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Aggregate substantial interest is two or more people holding 40 per cent or more of the voting power or the issued shares in a corporation.
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An interest in a share has been clarified so that it is clear that a right to a share includes a right to acquire a share or have a share transferred under an instrument, agreement or arrangement, whether the right is exercisable presently or in the future and whether on the fulfillment of a condition or not (such as convertible notes).
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An interest in a share includes a right to acquire a share or have a share transferred to them.
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Definition of voting power has been clarified so that it explicitly includes potential voting power. Potential voting power is the number of votes that could be cast if it is assumed that a future right is exercised.
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Voting power is the maximum number of votes that can be cast at a general meeting.
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The Treasurer also has the power to prohibit a proposed acquisition of an interest that would result in a foreign person having control of the potential voting power in a corporation if it is considered contrary to the national interest.
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The Treasurer has the power to prohibit a proposed acquisition of shares that would result in a foreign person having control of the voting power in a corporation if it is considered contrary to the national interest.
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Compulsory notification for proposals involving the acquisition of a substantial interest.
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Compulsory notification for proposals involving the acquisition of a substantial shareholding.
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Footnotes: