Changes to overseas investment rules post COVID-19 - Emergency Notification Regime

Thursday 28 May, 2020

Businesses hoping for foreign investment to help them survive after the COVID-19 lockdown need to be aware of the proposed changes to the Overseas Investment Act. The Government is making urgent changes to the Act to ensure that overseas investment in sensitive New Zealand businesses is in New Zealand’s ‘best interests’, while those businesses are vulnerable due to the COVID-19 related downturn. This mirrors action taken by many overseas governments, including Australia, France, and Germany. 

The Overseas Investment (Urgent Measures) Bill creates a temporary requirement to notify the Government of all overseas investments that:

• Are not already subject to screening or consent requirements; and
• Grant an overseas person ownership or control of more than 25% of a New Zealand business; or
• Increase the amount of existing overseas ownership or control in a New Zealand business to more than 50%, more than 75% or to 100%; or
• Result in the acquisition of more than 25% of the property (including goodwill and intangible assets) of a New Zealand business.

Any investment that falls within one of these categories must be notified to the Overseas Investment Office. The Government can review the investment to consider whether it is contrary, or poses a risk, to the ‘national interest’ or to public order. This applies regardless of the dollar value of the transaction, and regardless of whether there is sensitive land involved.  If the Government decides that there is a risk, it can impose conditions on, or block, the investment. The Government expects to approve most transactions within 10 working days of notification and doesn’t expect to block a large number of transactions.   

The concept of national interest is not defined in the Bill.  Treasury has advised that “national interest” will include matters which are relevant to national security interests, and also core economic, environmental and cultural interests.

The Government is also taking this opportunity to fast-track aspects of the Overseas Investment Bill introduced earlier this year, including introducing permanent powers for Ministers to review and impose conditions on, or decline, overseas investments needing consent, if the investment is contrary to the national interest.  The government will also be able to review investments in strategically important businesses to assess whether those investments pose a significant risk to national security or public order.

After the Amendment Act is passed, the Government intends to make regulations detailing what business are strategically important, but it has indicated that it will include airports and significant ports, and water and telecommunications infrastructure.  This permanent oversight power will replace the emergency notification regime once the effects of the COVID-19 on the economy have reduced enough that the emergency notification regime is no longer necessary. 

The Bill requires the Minister to assess, within 45 days of the passing of the Amendment, the rules to ensure that the classes of transactions which are subject to the emergency notification regime are not broader than reasonably necessary.  There is power to reduce the scope of the regime if necessary. 

The Select Committee report on the Overseas Investment (Urgent Measures) Bill was published on 25 May and the Government expects to pass the Bill by mid-June. If you or potential investors in your business need help navigating the new Overseas Investment regime, Campbell Stewart and our Overseas Investment team, can help.