Introduction to the series
The Overseas Investment Amendment Bill (No 2) (Bill) was introduced on 20 March 2020 and sets out the proposed Phase II amendments to the Overseas Investment Act (Act). In this 4-part series, we discuss the changes introduced by the Bill.
As indicated by Treasury in November last year, the Bill introduces a new national interest test and call-in power to better manage risks to New Zealand from overseas investment and bring our regime in line with comparable jurisdictions. These new powers are balanced by a range of liberalising amendments intended to attract overseas investment. In particular, the Bill simplifies the consenting requirements and excludes lower-risk investments from the regime (removing an estimated 14% of applications from screening). While the current drafting of the national interest test and call-in power may create some unnecessary uncertainty, overall, the Bill represents a significant improvement to the status quo.
The timeframe for passing this Bill before a September election was always tight. Given current circumstances, unless prioritised, there is a risk that it will not pass before Parliament rises on 6 August 2020. We understand that a decision on whether to prioritise the Bill is imminent. We note that the need for the national interest test could be viewed as more acute given the possible economic distress of current New Zealand owners in key sectors may lead to interest from well-capitalised offshore acquirers. A later election date is also a possibility, which would increase the likelihood of passage of the Bill in this Parliamentary term. In either event, the Bill should have a first reading soon after Parliament returns and be referred to the Select Committee with a reporting back date set. You can read more about the Parliamentary timetable in the wake of COVID-19 in our update here.
The first update in our series outlines the new national interest and call-in powers.
This alert considers the ways in which the Bill excludes from the scope of the Act what Treasury has referred to as "low-risk" investments. Changes proposed by the Bill include excluding majority New Zealand owned and widely held NZX listed companies from the definition of "overseas person" under the Act; further limiting the extent to which incremental securities transactions in NZX listed entities require consent under the Act; and removing from the definition of "sensitive land" certain categories of adjoining land and leasehold interests under 10 years.
Article 3: Simplifying the existing tests
This alert will address the significant changes to the existing "benefits test" and "investor test" required to be met by applicants under the Act. Changes proposed by the Bill include simplifying the "benefit factors"; removing the differential requirement for benefits in relation to non-urban land over 5 hectares to be "substantive and identifiable" (although the current Ministerial direction for "farm land" applying a stricter test is embedded) and, importantly, introducing a new counterfactual test for "sensitive land" applications. The Bill also replaces the problematic "good character" aspect of the investor test with a clear bright line test that focuses only on serious proven matters and allegations of serious matters where proceedings have actually been commenced. Further, repeat investors will be able to rely on a previous assessment against the "investor test" where its acquisition and governance structure has not changed, and obtain pre-clearance from the OIO of an acquisition and governance structure prior to transacting.
In this article, we cover amendments intended to streamline the consent process and strengthen or clarify the OIO's enforcement powers. These include amending farm land advertising rules, addressing processes associated with Crown acquisitions of special land, introducing statutory timeframes for processing applications, increasing penalty caps for breaches, and introducing flexibility into the OIO's enforcement powers
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