How recent developments in Australian Foreign Investment Law impact cross-border transactions
2020 saw major shifts in Australia's foreign investment (FIRB) regime, with the introduction of a temporary $0 threshold for all foreign investment in response to COVID-19, followed by the most comprehensive set of reforms to the FIRB regime in over 20 years.
Allens has published in-depth commentary on these reforms, which came into effect at the beginning of 2021. Consistent with global trends, these changes have focused on national security. The principal challenge for foreign investors will be to manage deal risk and timing in the face of a complex and evolving regulatory regime.
Effective 1 January 2021, the monetary screening thresholds which previously applied for foreign investments have been reinstated (with the exception of “notifiable national security actions” – see below).
National security business
There is now a new mandatory FIRB approval requirement for 'notifiable national security actions', which have a $0 threshold. Transactions which trigger a 'notifiable national security action' are (i) starting a 'national security business', (ii) acquiring a direct interest in a 'national security business' or (iii) acquiring an interest in 'national security land'. A national security business is generally one which is involved in or connected with a 'critical infrastructure asset', telecommunications, defence or a national intelligence community (of either Australia or a foreign country), or their supply chains.
Critical infrastructure is defined by reference to the Security of Critical Infrastructure Act 2018 (currently critical assets in electricity, gas, water and ports). However, the Australian government has proposed that the legislation be amended to expand critical infrastructure to include critical assets in 11 additional sectors, including communications, data storage and processing, higher education and research, healthcare and medical.
Call-in and last resort powers
The Treasurer has a new 'call-in power' to review a broad range of transactions which were not previously notified to FIRB on a voluntary basis. Following such a review, the Treasurer can make orders (such as prohibition or divestment orders) where they are satisfied that the action would be - or that the result of it is - contrary to national security. The risk of the call-in power being exercised can be removed by voluntarily applying for FIRB approval. The Treasurer also has a 'last resort power' to make divestment orders and unilaterally impose a new condition (or vary existing conditions) after FIRB approval has been granted.
In effect, the introduction of the call-in power will significantly expand the pre-existing voluntary notification regime for significant actions. FIRB has issued guidance for 20 sectors indicating circumstances where voluntary filing is recommended. A number of these sectors are key areas for financial investors, such as health, education, data centres, transport and logistics. In healthcare, for example, a voluntary FIRB filing is encouraged for foreign persons proposing to invest in a hospital, general and specialist practice, diagnostic and treatment facility (e.g. radiology and oncology) or pathology provider that would result in the foreign person holding sensitive personal information relating to greater than 100,000 individuals.
Higher FIRB fees
The fee regime for filing FIRB application has been overhauled, with fees becoming, on average, higher. In general, fees will be higher for deals where the consideration is greater than A$150m. Here is a snapshot of fees for various deal sizes. As you can see, for deals at the A$500m level, the FIRB filing fee has more than quadrupled.
(to acquire substantial interest > 20%)
|Fees prior to 1 Jan 2021||Fees post 1 Jan 2021|
Uncertain decision-making timeframes
The previous FIRB guidance indicating that applications can take up to 6 months to process has been removed. Nevertheless, we are still experiencing 2-4 months on average for decisions, with no certainty on timeframes. We expect this to persist for the time being as FIRB continues to work through its current backlog of applications and whilst current resources are being allocated to implementing the new FIRB regime.
Formal guidance on data conditions
Conditions relating to the treatment of data have become commonplace for transactions involving sensitive data. There is now FIRB guidance indicating that conditions may require restrictions on access to specified data, restrictions on the location of data storage, cybersecurity arrangements, reporting requirements in the event of a data breach and requirements for data security policies and procedures that extend beyond the requirements of general Australian law.