COVID-19 | Changes to foreign investment framework

6 April 2020
Breanna Davies, Partner, Sydney Clare Miller, Partner, Melbourne
What has happened?

On Sunday, 29 March 2020, amid fears that the coronavirus associated downturn will result in foreign entities preying upon distressed Australian businesses, the Treasurer announced that the threshold amounts which apply in determining whether particular foreign investments are subject to Australia’s foreign investment framework are now $0.

Does this affect my deals and transactions?

If a party to a deal or transaction you are involved in, is a ‘foreign person’, then the answer may well be yes.

The definition of foreign person is broader than you may realise. It includes any individual who is not ‘ordinarily resident’ in Australia. This can even include Australian citizens. It also includes any corporation or the trustee of any trust in which:

  • an individual who is not ordinarily resident in Australia (and their associates) hold a substantial interest (20%); or
  • two or more individuals who are not ordinarily resident in Australia (and their associates) hold an aggregate substantial interest (40%).

In respect of the trustees of discretionary trusts, if an individual who is not ordinarily resident in Australia is a potential beneficiary, then the trustee is foreign, regardless of what may occur in terms of distributions in practice.

Finally, it is important to understand that a foreign company upstream of an acquirer can cause that acquirer to be considered foreign through a tracing exercise.

What are the implications?
  • As of 29 March 2020, all foreign investments subject to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (Act) will have monetary screening thresholds reduced to $0 (regardless of target or acquirer). This means that parties to a lot of smaller transactions that were previously not required to apply under Australia’s foreign investment framework will now have to notify the Foreign Investment Review Board (FIRB) of the proposed transaction.
  • The statutory deadline for FIRB review will be extended from 30 days to 6 months. This will affect completion periods / sunset dates in transaction documents where the acquisition is conditional on FIRB approval. David Irvine, Chair of FIRB, has said that efforts will be made to accommodate commercial deadlines, however this may prove quite difficult. It is also expressed that this review will be done on a case-by-case basis.
  • FIRB charges a fee depending on the value of the transaction, which will be something that many contemplated transactions previously outside of the scope of Australia’s foreign investment regime had not had to account for. By way of example, a $15 million transaction now requiring FIRB approval would result in an application fee payable to FIRB in the amount of $26,200.
  • FIRB has stated it will be particularly mindful of the impact to Australian jobs as part of the national interest test.
  • The changes do not affect the meaning of notifiable action or significant action under the Act (i.e. no approval required for an acquisition of less than 20% of the shares in a company, unless it has a lower threshold (e.g. media business)).
  • Many clients may now want to consider applying for an exemption certificate which, to put it simply, is a blanket exemption from needing to seek FIRB approval in respect of multiple acquisitions for a set time period and up to a certain cumulative value. Not needing to have a FIRB condition precedent in a contract when so many competing bidders now have to will place clients at a significant competitive advantage, and will also result in a cost saving in terms of FIRB application fees over the course of multiple transactions.
  • Existing exemption certificates will remain on foot and actions taken within their scope will generally not be notifiable. However, where a party to a deal or transaction you are involved in holds an existing exemption certificate, please be mindful that this may be varied or revoked by the Treasurer in circumstances where the Treasurer is “satisfied that the variation or revocation is not contrary to the national interest.” This is not a new risk, it has always been a potential outcome when holding an exemption certificate.
  • The change to threshold does not apply to agreements (including conditional agreements) entered into prior to 29 March 2020, even if completion of the acquisition has not yet occurred.
  • We are monitoring the FIRB website and will update when more guidance is available.


For details of all our COVID-19 tips and updates, visit the Gadens COVID-19 Hub.


Authored by:

Breanna Davies, Special Counsel
John Darmanin, Senior Associate
James Birnie, Associate
Roberta Tabakova, Lawyer

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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