Foreign Investment Review Board (FIRB) – Response to COVID-19
The COVID-19 pandemic has had a profound effect on all our lives recently. It has had far reaching impact across the world, and Australia is no exception. Our daily activities, the way we work and communicate with each other have abruptly changed. It is a time to adapt to rapidly changing circumstances.
That seems to be what the Commonwealth Government has also done in relation to foreign investment. The Treasurer of Australia, The Hon Josh Frydenberg MP, announced on 29 March 2020 temporary changes to the foreign investment review framework, designed to protect Australia’s national interest.
Effective from 10.30pm AEDT on Sunday, 29 March 2020, threshold amounts which determine whether Foreign Investment Review Board (FIRB) approval is required for particular investments by foreign persons have all been reduced to $0.
This means that where there were previously investment thresholds below which FIRB approval was not required (for example, investments into developed commercial property or business acquisitions below $275 million generally did not require FIRB approval), those thresholds are now $0 and the investments will require FIRB approval.
FIRB has noted on its website that the Guidance Notes will be updated to reflect the temporary threshold reduction to $0 but the details are not known yet.
The Treasurer stated in his announcement that this is not an investment freeze. He pointed out that Australia is still open for business. By temporarily reducing the foreign investment thresholds, the Australian Government will have oversight over all proposed foreign investments during this time.
Extending timeframe for review
The volume for FIRB applications will increase significantly as a result of this announcement.
Accordingly, FIRB has announced that the timeframe to review applications may now be up to 6 months, which is a significant increase from the existing 30 days. FIRB will be working with existing and new applicants to extend the timeframe.
FIRB is also advertising for additional case officers in order to deal with the anticipated increase in workload.
It should be noted that applications which support Australian businesses and Australian jobs will be prioritised.
It is unclear at this early stage as to extent of the changes from a practical perspective.
For example, there are a number of exemptions in the Foreign Acquisitions and Takeovers Regulations 2015 (Cth), under which FIRB approval is not required for specific acquisitions by foreign investors. At this stage, it is not known whether all of those exemptions will continue to apply.
The announcement does not deal with the fees that will be charged for FIRB applications. Prior to the announcement, FIRB fees were primarily charged based on what is proposed to be acquired and the value of the acquisition. As FIRB applications will now need to be made even where the value is below the previous threshold, it is unclear what fees FIRB will charge for such applications.
What does this mean for foreign investors?
The announcement effectively changes how we need to look at FIRB issues for foreign investors.
Many more acquisitions by foreign investors will now require FIRB approval. Foreign investors should therefore assume that FIRB approval is required as a starting point.
With the significant increase in the timeframe for review, there is likely to be a major impact on new transactions. There may also be delays in dealing with existing FIRB applications, as there are already provisions in the Foreign Acquisitions and Takeovers Act 1975 (Cth) to extend the review period by agreement.
In these uncertain times, adding another hurdle may cause foreign investors to reconsider or delay their investments.
How long will the temporary measures last?
There is no end-date set for this temporary measure. The announcement states that the measures will remain in place for the duration of the current crisis.
Hopefully, this will only be a short-term measure and we will move out of these uncertain times soon.
Withdrawal of applications and refund of FIRB fees
In a possibly related development on 23 March 2020, FIRB announced that if applicants withdraw their applications because of delays to, or deferrals of, investment decisions arising from COVID-19 measures, then FIRB will consider refunding their FIRB fees.
Maddocks has produced guides on legal issues raised by the coronavirus which may be of interest, and we encourage you to share these with colleagues who may also find them useful.
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