As flagged in June this year, Federal Parliament has passed a comprehensive package of reforms to Australia’s foreign investment review framework and Foreign Acquisitions and Takeovers Act 1975 (FATA), due to come into effect on 1 January 2021.

The commencement of the reforms will coincide with the reinstatement of pre-COVID-19 financial thresholds for foreign investment transactions subject to the Act. However, mandatory screening of investments in ‘sensitive national security businesses’ will continue at the current $0 monetary threshold.

Key changes include:

  • a new national security test asking all foreign investors, regardless of value of investment, to seek approval to operate or acquire a direct interest in a ‘sensitive national security business’ or an interest in ‘national security land’.
  • a time-restricted ‘call-in’ power enabling the Treasurer to review investments that would not ordinarily require notification where they raise national security risks.
  • a ‘last resort’ power providing the Treasurer with the ability to reassess previously approved foreign investments where new national security risks emerge.
  • stronger monitoring and investigation powers, the expansion of infringement notices and harsher civil and criminal penalties
  • measures to streamline approval and create investor certainty for passive investors and investments into non-sensitive businesses, as already discussed in our previous alert here.

As part of the suite of reforms, Parliament also passed the Australia’s Foreign Relations (State and Territory Arrangements) Act 2020, allowing the Federal Government veto powers on State, Territory, departmental and university agreements with foreign governments. Under the legislation, States, Territories and universities will need to declare pre-existing agreements with foreign governments, and notify the Federal Government of any planned agreements. This will have an effect on foreign agreements already underway, including the Victorian Government’s agreement with China for the Belt and Road Initiative.

We welcome these changes – particularly the reinstatement of the monetary thresholds, as the current regime has had a detrimental effect on the ability to transact and close mid-market deals given the uncertainty on completion timing that results from the FIRB process. Our latest Dealtracker highlighted that whilst we have experienced a reduction in cross border transactions in the first half of 2020, there remains considerable foreign interest in M&A in Australia. Further to this, given the beneficial position Australia finds itself in when considering the minimal COVID-19 restrictions and the resulting expected economic rebound, there is a real opportunity that overseas investors will overweight Australian assets in their global acquisition strategies to take advantage of our expected outperformance globally.

Those in the process of submitting applications to the FIRB application portal should note that the portal will be completely taken offline from 11.55pm (AEDT) on 31 December 2020 until the opening of business on 5 January 2021, in order to accommodate the new changes.

While are unsure of how the changes will apply in practical circumstances, Treasury will shortly publish public guidance materials on the Foreign Investment Review Board website.