We recently attended a webinar by the Overseas Investment Office (OIO) on 20 July 2020. The purpose was to discuss some reforms to the rules and in particular the new “Urgent Measures Act”.
The purpose of the new changes are to support the Government as part of its business response to COVID by encouraging growth through investment. So there are some simplifications made to the normal OIO process– while also ensuring there are rules in place in relation to sensitive land and other categories of assets.
Before we get into detail it is worth noting that the guides on investing in New Zealand at the OIO website are quite helpful, for example, this one on which transactions need consent.
There are four key changes:
1. Temporary Emergency Notification Requirements;
2. New national interest assessment;
3. Simplified screening; and
4. Stronger enforcement powers.
In this article we will set out the key points for each of them.
1. Temporary Emergency Notification Requirements
Notification is required in relation to ownership/control there are (no monetary thresholds) and will be needed for increases above 25%, ownership beyond 50%, 75% or to 100%. They said that this is a deliberately broad approach they said. This is a temporary regime which will only apply for a limited time.
Who needs to notify? This should be done by any person who has more than 25% overseas ownership, are non-citizens and non-residents, and have more than 25% control of a board, as well as those who are associates.
What needs to be notified? Purchase of more than 25% of a business, increases in key thresholds (above) and purchase of more than 25% of the property of an NZ business (including land interests that would not be sensitive).
When to notify? 16 June is when legislation came into force, so only for those deals after that.
What do you not need to notify? If you already have consent, or if you need consent under another criteria.
Examples of when notice is needed:
• Direct: An overseas entity buying all shares of an NZ company – needs to be notified, even if a shell company.
• Indirect: Overseas person buying an Australian company that has an NZ entity – need to notify (ie even though already overseas owned).
• Notification of property: If a company is being bought that has property, then you need to notify. If a lease to an overseas person, then it depends if that is more than 25% of the value of the NZ companies property at the NZ Company.
There is no cost to notify and there is a form online. There is a much higher level of information needed than normal. It will take around 35-40 minutes to fill in the form. The type of information required includes type of transaction, if there is a target entity, the investor themselves etc.
Once submitted, they will assess if more details are needed or if the transaction can be approved. Generally this takes around 10 days (if the transaction can proceed). A few applications may be allowed to proceed subject to conditions. A few applications may be denied or need more information.
If more information is required, then you will need to allow a total of 40 working days and the aim is to resolve all within 70 working days.
If a transaction is not notified, there can be serious implications. The highest penalty would be civil penalties of up to $10million.
2. National interest assessment
The OIO emphasised that they want investments to proceed. So the question they ask is going to be: “Is the transaction is contrary to the national interest?” This test will be applied:
• If further assessment is needed;
• If it is a strategically important business; and
• If the Minister of Finance wants to ask more questions about an application.
The OIO will look broadly at factors such as competition, social impacts, character of the investor, national security, public order, international relations, alignment with NZ values and interests as well as broader policy settings. The factors are very broad. As an example, they would look more closely at military technology investments than other investments.
An application could have conditions added to manage risks, or it could be prohibited or it could just proceed without conditions.
3. Simplified Screening
This simplified screening includes that low risk transactions that do not need consent eg small increases in shareholding. There are also automatic standing consents for eg listed entities that are not more than 50% owned overseas, land adjoining sensitive land, managed investment schemes and some debt transactions.
As an example, if an overseas person is buying land next to sensitive land, that may qualify for the automatic standing consent. Also, some loans and debt can qualify for automatic consent.
4. Enforcement powers
These are increased, such as adding enforceable undertakings as a possibility as well as maximum penalties including (changing from $300,000 to $500,000). For a company, it could range from $300k to $10 million. The reason for this is that breaches are serious and so the penalty reflects that.
Overall it appears that the intention is to allow easier investment in New Zealand. However, as you can see from the detail in this short update it is worth speaking with advisors about the particular context as there are likely to be additional points to consider to ensure you qualify for the simpler regime.
For more information the OIO website has a lot of detail. For example, the above is discussed here https://www.linz.govt.nz/overseas-investment/changes-overseas-investment-act.
Please note that this is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact us on 03 348 8480 or by email to Steven Moe – firstname.lastname@example.org or Kris Morrison – email@example.com