New Zealand’s Government has greatly simplified New Zealand’s foreign investment regime with the passing of the Overseas Investment Amendment Act (No 3) (the No.3 Act). The No.3 Act received Royal Assent on 24 May 2021. Many of its provisions come into force on 5 July 2021, though some may take up to a year to come into force.
The changes are largely positive for investors, with more streamlined processes for the main types of consent applications. We set out the key changes below.
Streamlining the national interest test
The national interest test, introduced last year, applies to investments by “non-NZ government investors”; that is, foreign governments, persons acting under the control of foreign governments, and enterprises in which foreign governments have certain ownership or control interests.
The No.3 Act streamlines the test by:
- increasing the national interest ownership threshold for foreign government investors from 10% to 25% and only aggregating for the purposes of the 25% threshold where government investors are from the same country, and
- providing a pathway for certain passive foreign government investors to be exempt, with the criteria for such exemptions to be set by regulations (which have not yet been released).
This is a welcome change as the current, broad rules catch many transactions unnecessarily in the national interest test (including almost any investment by private equity investors given the prevalence of sovereign wealth funds and government-controlled superannuation schemes in their funds).
Investor test flexibility for repeat investors
Overseas investors must currently meet the Overseas Investment Office’s (OIO) investor test each time they apply for consent (including through a detailed background check of relevant entities and individuals).
The No. 3 Act will allow repeat investors to become ‘pre-verified’, making consecutive applications for consent much more efficient. This will also create material advantages for repeat investors participating in competitive bid processes. However, a key point that is yet to be determined is how this affects investments where a special purpose vehicle is incorporated for the purposes of a transaction (which, by its nature, cannot be pre-verified). Again, this is a key issue for private equity investors.
Simplifying the benefits test
Overseas persons who seek to acquire “sensitive land” in New Zealand must currently satisfy the relevant Ministers that the investment will, or is likely to, benefit New Zealand.
Currently, to assess the benefits of an investment, Ministers compare the likely future state of New Zealand with the proposed investment, versus without the investment. This can require investors to demonstrate benefits over and above what a hypothetical, well-funded New Zealander would have done with the land. The No.3 Act removes this comparison, and instead requires the Minister to compare the state of New Zealand before, and after the investment, which will generally be an easier threshold to satisfy.
The No.3 Act also streamlines the process by scrapping 18 of the current 21 rigid benefit categories and replacing them with three new broader benefit categories, allowing the OIO and Ministers to take a more flexible approach to assessing benefits.
These particular amendments are not likely to come into force for many months (with a deadline of 12 months for the new benefits assessment to come into effect).
Temporary (COVID-19) Notification Regime Revoked
Finally, overseas investors will breathe a sigh of relief at the announced revocation of the temporary, COVID-19 related emergency notification regime. Since 16 June 2020, overseas investors have needed to notify the OIO of most acquisitions of New Zealand business assets or shares (directly or indirectly), irrespective of the value of the transaction. The OIO and ministers have then assessed whether the transaction is contrary to New Zealand’s national interest.
The Government announced on May 25th 2021 that the temporary regime will be revoked subject to a transitional period. Accordingly, if a deal is signed before 7 June 2021, a notification will still be required. If it is signed after that date, the new national interest call-in regime will apply (which only captures “strategically important businesses”).
This post was authored by Glenn Shewan and Penny Pasley of Bell Gully, a Baker McKenzie partner firm.