The “emergency notification regime” was introduced in June 2020 by the Overseas Investment (Urgent Measures) Act (Urgent Measures Act) as a temporary measure designed to ensure that sales of businesses to overseas investors during the Covid-19 economic recovery phase (particularly “distressed” sales) are in New Zealand’s national interest.
The emergency notification regime must be reviewed every 90 days, to determine whether the circumstances justify its continuance. Since it came into force, the regime has been extended three times, and the current 90-day period expires on 25 May 2021.
The emergency notification regime requires that all share or business asset purchase transactions must be notified to the Overseas Investment Office (OIO) if an overseas person is:
The notification requirement applies regardless of the nature of the assets and the dollar value of the transaction.
A notification requires detailed information on the investor and the transaction to be provided to the OIO. Once a notification has been made, the transaction cannot proceed until the Minister has issued a Direction Order. The decision whether to issue a Direction Order will be based on whether the transaction raises any national interest concerns.
There is no fee payable to the OIO for notifications under the emergency notification regime, and the Minister will aim to make decisions on low-risk transactions within 10 working days. To date, most notifications have been assessed within this timeframe.
One of the criteria for OIO consent for almost all applications (excluding some residential land applications) is that the overseas investor (and/or the individuals with control of the overseas investor) satisfy the “investor test”. This currently includes as assessment of the relevant person’s business experience and acumen, financial commitment and character. Where the “individuals with control” are New Zealanders, they are also subject to assessment under the investor test criteria.
The Urgent Measures Act introduced provisions designed to both enhance and streamline the investor test. The commencement date of these provisions was delayed, but has now been confirmed as 22 March 2021. Under the new investor test provisions:
The Urgent Measures Act also introduced a new national interest test that is relevant for all transactions that require OIO consent. Investments in sensitive land or significant business assets (generally all investments over $100m, although investors from some jurisdictions benefit from a higher threshold) are now subject to the “national interest test” if they involve:
The OIO estimates that the national interest test would apply to approximately 20 transactions per year. Applications that are subject to the national interest test will incur an additional OIO fee, which is currently $52,000.
Once the Minister determines that there is no continued need for the current emergency notification regime (see above), it will be replaced with the more permanent “call in power”.
An investment in a strategically important business that is not subject to the OIO consent regime will be subject to the new call-in power if it involves:
The Minister can review these investments to determine whether they are likely to give rise to a significant risk to national security or public order. The Minister can then make an order permitting the transaction (with or without conditions), prohibiting the transaction, or (if it has already taken place) requiring disposal of the investment.
The intention is that both the national interest test and the call-in power are reserve powers, to be exercised rarely to mitigate material risks that cannot be managed in other ways.
The Urgent Measures Act also introduced the following changes to the overseas investment regime:
This Bill contains the balance of amendments identified in Phase II of the Government’s OIO reform that were not introduced by the Urgent Measures Act. The Phase II reforms were designed to achieve a balance between, on the one hand, streamlining the Act to cut red tape and support high-quality overseas investment and, on the other hand, strengthening the Act to provide stronger protections for farmland and the ability for the decision maker to consider broader impacts when screening investments.
The Bill has now been through the Select Committee process (which included the opportunity for and review of public submissions). The Select Committee Report, setting out its recommended changes to the Bill, was released on 4 March 2021. The Bill will now proceed to its second reading in the House.
Our post here contains a detailed summary of the amendments contained in the Amendment Bill.
The OIO has recently announced details of its fee review, and released a Consultation Document for public consultation and submission. The OIO’s preferred new fee model will involve a fee structure that replaces the single application fee with:
The review is likely to result in significant increases to some application and assessment fees. For example, the total proposed fee for complex sensitive land applications is $136,200, or $86,700 for complex significant business asset applications
Submissions on the fee review are due by 19 March 2021.
Lefever Law | Designed, Developed & Hosted by Big Boy Digital Marketing | All Rights Reserved