The Government has announced today that it will revoke the temporary emergency notification regime in the Overseas Investment Act 2005.
The Ministers completed their mandatory review of the regime and have concluded that the effects of COVID-19 no longer justify the regime continuing. Accordingly, the temporary regime is revoked and has been replaced by a new 'call-in' regime.
What the temporary regime has meant for investors
The temporary notification regime was introduced in June 2020, in the midst of the COVID-19 pandemic and was aimed at protecting New Zealand businesses where they had become vulnerable to “below value" acquisitions as a result of COVID-19. Since then, almost every overseas acquisition involving a New Zealand target business, even tangentially, has been required to notify the Overseas Investment Office (OIO) and receive a “direction order" from the relevant Minister before proceeding.
While this is a comparatively straightforward filing (compared to a regular consent application), it still requires parties to a transaction to provide detailed information, including personal information of directors of the acquiring party. In most instances, “direction orders" have been issued within 10 working days, although some transactions have been reviewed in more detail, some taking close to the 70 working day maximum limit. The OIO has not declined any transactions under the temporary regime.
While the revocation was announced today, it is subject to a short transitional period. Accordingly, any transactions signed before 7 June 2021 will still be subject to the notification regime.
At the end of the transitional period the new 'call-in' regime will apply to those transactions not otherwise requiring consent under the ordinary thresholds.
The new 'call-in' regime
The new 'call-in' regime gives the OIO and the relevant Ministers powers to call-in for review overseas investments in “strategically important businesses" that would not otherwise require consent. Accordingly, an investment by an overseas person that is valued at less than NZ$100 million and does not involve sensitive land or fishing quota could still be called in for review by the OIO if the target is a “strategically important" New Zealand business (see below for further detail).
National security test
Transactions called in for assessment under this regime will be assessed to determine whether they give rise to national security and public order risks (the “NSPO test"). If a transaction is found to be contrary to national security or public order, the relevant Ministers may block the transaction or give direction orders subject to any conditions that the Minister thinks appropriate in the circumstances to manage any risks associated with the investment.
The types of “strategically important businesses" which can be called in for a NSPO review include a business that:
researches, develops, produces, or maintains military or dual-use technology,
is a “critical direct supplier" (see below for further detail),
is involved in ports or airports,
is involved in electricity generation, distribution, metering, or aggregation,
is involved in drinking water, wastewater, or stormwater infrastructure,
is involved in telecommunications infrastructure or services,
is a financial institution or is involved in financial market infrastructure,
is a media business with significant impact, or
develops, produces, maintains, or otherwise has access to “sensitive information", being personal, health or financial information:
For the purposes of the above, the relevant Minister has identified a number of “critical direct suppliers". The majority of critical direct suppliers are published online, however the Minister may dispense with the publication of a critical direct supplier if there are good reasons for that information not becoming public. In such cases, the critical direct supplier itself must notify an intending purchaser of its status.
Ownership thresholds for 'call-in' regime
In respect of media businesses, the 'call-in' power would only apply when an overseas investor intends to acquire a more than 25% ownership or control interest in the media business. In the case of listed issuers, the threshold is 10% or more. In any other case, the threshold is effectively 0% (i.e., any acquisition of an interest in a “strategically important business").
Is notification voluntary or mandatory?
An overseas person making an investment in a business that is subject to the 'call-in' regime may voluntarily notify the OIO of a 'call-in' transaction ahead of completion. If, following voluntary notification, the Minister grants a direction order to the investor, this protects the investment from subsequent challenge under the 'call-in' regime.
However, an acquisition of a “strategically important business" that is:
a business that researches, develops, produces, or maintains military or dual-use technology, or
a “critical direct supplier" (as defined above),
must be notified to the OIO before giving effect to the transaction. Such an acquisition cannot proceed prior to being issued a “direction order" by the Minister.
If you have any questions about the matters raised in this article please get in touch with the contacts listed or your usual Bell Gully adviser.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.