Foreign acquisition and takeovers reforms: further details of new national security test released

By Conrad Smith

The Federal Government has released the second tranche of its proposed reform package for the Foreign Acquisition and Takeovers Act 1975 (Cth) (FATA) and Foreign Acquisitions and Takeovers Regulation 2015 (Cth).

This second tranche, under the proposed Foreign Investment Reform (Protecting Australia’s National Security) Regulations 2020 (Cth) (Proposed Regulations), was released on 18 September 2020. It deals with much of the detail required to support the changes to Australia’s foreign investment regulatory regime proposed by the Foreign Investment Reform (Protecting Australia’s National Security) Bill 2020 (Cth) (Bill).

The Bill, released for discussion on 31 July 2020, primarily served to introduce a new national security test which, if implemented, will:

  • enable the Treasurer to impose conditions or block any investment by a foreign person on national security grounds regardless of the value of investment;
  • require mandatory notification of any proposed investment by a foreign person in a sensitive national security business;
  • require mandatory notification where a business or entity owned by a foreign person starts to carry on the activities of a sensitive national security business;
  • allow any investment that would not ordinarily require notification to be ‘called in’ for screening on national security grounds;
  • allow investors to voluntarily notify to receive investor certainty from ‘call in’ for a particular investment or apply for an investor‑specific exemption certificate; and
  • allow the Treasurer to impose conditions, vary existing conditions, or, as a last resort, require the divestment of any realised investment that was approved under the FATA where national security risks emerge.

The key elements of the Proposed Regulations focus on following areas:

National security

The national security reforms, proposed in the first tranche of draft legislative amendments released on 31 July 2020, will establish a new national security test which will:

  • require mandatory notification of ‘notifiable national security actions’. These are actions to take a direct investment in a sensitive ‘national security business’, starting such a business and an investment in ‘national security land’; and
  • allow certain actions – ‘reviewable national security actions’ – which are broadly actions not already captured under the Act to be ‘called in’ for screening on national security grounds.

The Proposed Regulations support these reforms by establishing two new exemption certificates which cover these types of actions enabling a foreign person to apply for an up-front approval for a program of investments that would otherwise be notifiable national security actions or reviewable national security actions without the need to seek separate approvals.

As part of the national security reforms, the Treasurer will also have the ability to review, or ‘call-in’, an action that is a reviewable national security action or a significant action that has not been notified. The Proposed Regulations impose a time limit of 10 years on the availability of the Treasurer’s ‘call-in’ power, and so the Treasurer will not be able to later ‘call-in’ the action for review after this time even if a national security risk later emerges.

Streamline less sensitive investment

The current definition of ‘foreign government investor’ under Foreign Acquisitions and Takeovers Regulation 2015 (Cth) is broad and extends to some private institutional investors that manage foreign government funds, and as a result these private investment funds are subject to a zero dollar screening threshold for most investments.

The Proposed Regulations seek to amend the definition of ‘foreign government investor’ so that private investment funds in which no foreign government has or could be perceived to have influence or control over investment or operational decisions, or any of their underlying assets, will, from 1 January 2021 be treated as a private foreign investor and able to access the higher monetary thresholds enjoyed by such investors.

Monetary thresholds to determine if an action is a significant or notifiable action

As part of the Government’s response to the Coronavirus, the monetary thresholds that determined whether a proposed investment would amount to a notifiable action or a significant action were lowered to zero dollars. This has meant that since April 2020 significantly more foreign investment into Australia needed to be notified to FIRB before it could proceed.

The Proposed Regulations will reinstate the pre-COVID monetary thresholds from 1 January 2021 at levels the thresholds would have otherwise been at had the COVID response measures not been implemented.

Integrity, technical and other amendments

The Proposed Regulations, if implemented, will also make a number of amendments to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) to:

  • narrow the scope of the moneylending exemption where foreign money lenders obtain an interest in a national security business or national security land under a moneylending agreement;
  • exclude from being a significant or notifiable action an interest in land acquired by a private investor as a result of obtaining a right in an exploration tenement unless the land is ‘national security land’;
  • update the definition of ‘Australian media business’ to also capture the operation of an electronic service that delivers, or allows access to, content that is similar to a newspaper or radio or television broadcast;
  • remove the exemption for investments that are transferred by will to a foreign person so that a person may require approval from the Treasurer;
  • capture acquisitions of interests in national security land or the assets of a national security business acquired from a Commonwealth, state or territory government or local government body;

Hall & Wilcox has a FIRB app which has been designed to help foreign investors, investees and advisors determine whether Foreign Investment Review Board approval is required before a proposed transaction or acquisition is implemented.

The app is updated whenever the FIRB rules and requirements change (including during COVID-19).


Conrad Smith

Conrad is a corporate & commercial lawyer with experience in mergers & acquisitions, restructures, succession, and insolvency.

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