In response to COVID-19, the Government has implemented changes to the Overseas Investment Act for the purpose of which is to offer a degree of protection to the business sector in general from opportunistic foreign investment. The Overseas Investment (Urgent Measures) Amendment Act 2020 (Urgent Measures Act) has now received Royal Asset and many of the changes came into force on 16 June 2020.
The Urgent Measures Act makes it compulsory for overseas investors to notify the Overseas Investment Office (OIO) of any investment not normally subject to screening under the Act, in circumstances where the transaction results in the overseas investor:
- acquiring 25% or more interest in a business
- increasing an interest in a business to, or beyond 50%, 75% or 100%; or
- acquiring 25% or more of a business' assets (including goodwill and other intangible assets).
The notification requirements apply to all transactions, regardless of the dollar value.
Once notified, the Minister is required to determine whether the transaction gives rise to or is likely to give rise to risks associated with national security, public order of New Zealand's national interest generally.
The Minister has 40 working days from the date of notification to decide whether to impose conditions on or block the transaction. It is likely that most notifications will be processed in a shorter timeframe however there is the ability to extend the timeframe of the Minister's approval by a further 30 working days. We therefore recommend that any agreement which is entered into is conditional on the passing of the screening test without any conditions or any such conditions being satisfied by the overseas investor.
The following low risk transactions will not require notification under the new notification requirements:
- Investments in land which will no longer be sensitive if Schedule 1 of the Overseas Investment Amendment Bill (No 3) was in force. This largely refers to land which is sensitive because it has sensitive land adjourning to it.
- Transactions entered into by New Zealand listed management investment schemes if:
- 50% or less of the value of the managed investment products are invested on behalf of overseas persons; and
- 25% or less of the managed investment products in the managed investment scheme that grant voting rights are beneficially owned by or on behalf of an overseas person, each who own beneficially 10% or more of those products.
- Transfers of securities that are solely debts relating to an interest or right to be paid money.
As this legislation was put in place urgently, it will be reviewed by the Minister on 31 July 2020 to determine whether it is capturing too many low-risk transactions or is discouraging beneficial investment over and above what was intended.
This power will continue to be reviewed every 90 days with the intention that the legislation will only remain in force for as long as is necessary to protect vulnerable New Zealand business under pressure due to COVID-19.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.