Contributed by: Ben Paterson and Lance Jones
Published on: March 31, 2022
Following the implementation of the New Zealand – Australia Closer Economic Relations Investment Protocol, certain Australian non-government investors have had the benefit of a materially higher threshold than other overseas investors for Overseas Investment Office (OIO) "significant business assets" consents.
The usual consent threshold in the Overseas Investment Act 2005 (Act) for overseas investments in "significant business assets" is NZ$100 million. However, for "Australian non-government investors" (Australian citizens and Australian incorporated entities with substantive business operations in Australia, i.e., excluding SPVs) and "Australian government investors", the threshold is calculated and adjusted each year according to a formula set out in the Overseas Investment Regulations 2005 (Regulations) that is based on movement in the GDP price deflator index and referable to a 2012 base value.
The New Zealand Government has now announced that the adjusted thresholds for Australian investors, which will apply from 1 January 2022 to 31 December 2022, are:
The higher threshold for Australian non-government investors may provide Australian bidders with an advantage in competitive transactions where the Australian bidder can rely on it to avoid the conditionality and associated timetable implications of being required to obtain OIO consent but other bidders cannot. However, the definition of "Australian non-government investor" in the Act and Regulations is complex.
Some transaction structures, including where there are foreign government owned or controlled entities in the upstream ownership structure and/or newly incorporated entities are used to make the investment for tax, financing or other structuring reasons, can prevent the Australian investor from being able to rely on the higher threshold.
Therefore, while the higher threshold for "Australian non-government investors" is, in theory, helpful to aid investments out of Australia (as our closest trading partner), in practice it is seldom used due to its technical requirements. It is recommended that specialist New Zealand legal advice is obtained before seeking to rely on the higher threshold.
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