Cabinet has announced today that the
new “investor test”, introduced as part of a range
of measures in the Overseas Investment (Urgent Measures) Amendment Act 2020
(the Amendment Act), will come into
effect 22 March 2021.
The changes are
designed to create clarity for overseas investors who require Overseas
Investment Office (OIO) consent and minimise their compliance costs.
The OIO will now assess investors against 12 prescribed character and
capability factors, rather than a broad, and somewhat ill-defined, set of
criteria under current processes. This is a welcome move given the burdensome
and unwieldy approach that investors currently experience. However, there are a
few aspects of the new regime that could still cause investors some unnecessary
Current investor test – assessing “good
The current investor test is
comprised of four key investor criteria: business experience and acumen; demonstrated
financial commitment; good character; and absence of ineligibility under the
Immigration Act. The OIO cannot grant consent unless the applicant has met each
of these four criteria.
The OIO applies its good character criteria to the key individual investor or key
personnel within the acquirer’s corporate group or fund structure who may have
control or decision-making roles in relation to the investment. Together with
any offences and contraventions of the law, the current test requires these
individuals to disclose “any other matter that reflects adversely” on the individual’s
fitness to have the particular overseas investment. This can include wholly
unfounded allegations disclosed through internet searches (using OIO-specified
search strings) and the need to explain any “hits” on the ICIJ “Wikileaks”
The current open ended regime often
results in the OIO and investors spending a significant amount of time identifying
and considering irrelevant matters and unsubstantiated allegations. This
results in disproportionate compliance
costs, particularly in large, corporate transactions.
The new regime aims to address these issues through limiting how
character is judged to 12 prescribed criteria, rather than requiring explanation
of spurious allegations or law suits disclosed through internet searches. It
also removes the ‘business experience and acumen’ and financial commitment
criteria, which were of little practical benefit to the consent process.
New investor test – “character and
The purpose of the new investor test
is to determine whether investors are “unsuitable” to own or control any
sensitive New Zealand assets, by assessing whether they are likely to pose
risks to New Zealand, based on 12 factors relating to their character and
character factors include convictions resulting in imprisonment, corporate
fines both in New Zealand and overseas, and being ineligible to come to New
capability factors include prohibitions on being a director, promotor, or manager
of a company, penalties for tax avoidance or evasion, and unpaid tax of NZ$5
million or more.
Investors “pass” the new test when none of the 12 factors are established
or, if a factor is met, the decision-maker is satisfied that this does not make
an investor “unsuitable” to own or control a sensitive New Zealand asset.
When will the new test take effect?
The new investor test will apply where the overseas investor:
a consent application before the test comes into force and has not entered a
transaction to buy the asset concerned, or
a consent application after the test comes into force.
The new investor test will apply to the same consent pathways as the
current test (i.e., all consent pathways, with some exceptions for residential
land). However, individuals who are not overseas persons do not need to meet
the new investor test (a welcome change from the current situation where New
Zealand directors of overseas entities must still go through the good character
A welcome development with some
We welcome these developments which
we expect will make the OIO consent process faster and easier for investors. However,
there are some outstanding issues with the new investor test, which we have
previously highlighted in our submissions
on the Overseas Investment (Urgent Measures) Amendment Bill:
The new investor test still retains a degree of
subjectivity, because the test does not define what “unsuitable” means or how
it will be assessed if an investor “fails” one of the 12 factors.
There is no monetary threshold for fines or civil
pecuniary penalties causing an investor to “fail” those factors. Fines and
civil pecuniary penalties can vary greatly in quantum and can occur as a result
of strict liability offences (i.e., without intention).
The developments have clarified how the new
investor test will apply to historical breaches by a New Zealand company that
subsequently becomes an overseas person (we argue that these should be ignored).
However, despite these issues, the new investor test provides much needed clarity
for overseas investors about the types of behaviour the New Zealand Government
considers to indicate potential risks to New Zealand from overseas investments.
To that end, we expect investors will find the OIO process to be less of a “pinch
point” when undertaking acquisitions in New Zealand.
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.