Update on FIRB approval required by board

Changesto Australia’s foreign investment regulation effective immediately

• Temporary changes to the Foreign investment review framework designed to protect Australian business interests weakened by Covid-19.
• From 29 March 2020 all proposed foreign investments into Australia, subject to the Act, will require approval, regardless of value or the nature of the foreign investor.
• FIRB will extend timeframes for reviewing applications from 30 days to up to six months.
• The measures are temporary and will remain in place for the duration of the current crisis.

Context

Australia’s Foreign Investment Review Board (FIRB) isthe Commonwealth government body charged with advising the Treasurer, theTreasury Department and the Government about inbound foreign investment underthe Foreign Acquisitions and Takeovers Act 1975.1

Specifically, the FIRB examines proposed investmentsfrom foreign investors into Australian assets and advises the Treasurer aboutwhether or not those investments are in Australia’s economic and securityinterests. It also provides guidance to foreign investors and monitors thebehaviour of investors to ensure compliance with the Act.

The FIRB does not make decisions about whether or not aforeign investor can invest in Australia. The FIRB advises the Treasurer, whohas the authority to make the final decision. It is uncommon, but not unheardof, for the Treasurer to act against the advice of the FIRB.

FIRB has not traditionally looked at every potentialforeign investment. To attract the attention of FIRB any transaction had tomeet certain criteria, as set out in the Act. The most obvious is the monetarythreshold – where a transaction is above a certain amount (depending on theindustry or the country of origin), FIRB gets involved. The other main criteriais security . If it impacts on Australia’s economic or physical security, thetransaction will attract FIRB attention, no matter the dollar amount.

Covid-19Changes

The Australian government has recognised that theeconomic impacts of Covid-19 have left a number of otherwise healthy Australianbusinesses potentially vulnerable to foreign takeover, which may not be in thebest interests of those businesses, the local supply chain, the owners (privateor public), or the Australian economy.

To that end, while stressing that Australia remainsopen and welcomes foreign investment, a number of changes have been made to howthe foreign investment policy is applied by FIRB post Covid-19.

As noted in his media release of 29 March 2020,Treasurer of Australia, Josh Frydenberg, said “The Morrison Government is todayannouncing temporary changes to the foreign investment review framework thatare designed to protect Australia’s national interest as we deal with theeconomic implications arising from the spread of the coronavirus.”2

From 29 March 2020 all proposed foreign investmentsinto Australia, subject to the Act, will require approval, regardless of valueor the nature of the foreign investor. Essentially, the Treasurer hastemporarily reduced to $0 the monetary threshold for all foreign investments.

As noted on their website, this will increase the waittimes for FIRB to consider all foreign investments. FIRB will extend timeframesfor reviewing applications from 30 days to up to six months.

The technical changes above give FIRB and theAustralian Government more time to consider foreign investment applications.

The purpose of the changes is to protect Australianbusinesses that have been affected by the economic impacts of Covid-19, leavingthem vulnerable to foreign raiders. As noted in the Treasurer’s media release“These measures are necessary to safeguard the national interest as thecoronavirus outbreak puts intense pressure on the Australian economy andAustralian businesses. These are temporary measures that will remain in placefor the duration of the current crisis.”3

Conclusion

The changes to Australia’s foreign investment policycould make investing in Australia more difficult. All foreign investment willcome under more scrutiny and the process will take longer than it haspreviously.

While the government has been sincere in its assurancesthat Australia is still ‘open for business’, foreign investors shouldnevertheless plan for potential delays in having deals approved, and there is agreater chance that investments could be rejected on economic and securitygrounds.