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Foreign Investment in Australia - Amendments to Rules |
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By Stephen Clugston
Solicitor
PLN Lawyers
Sydney, Australia
Phone: +61 2 9267 7344
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In our last article on proposed changes to the foreign investment review process, we discussed potential amendments to the Foreign Acquisitions and Takeovers Act 1975 (FATA) as proposed by the original Foreign Acquisitions and Takeovers Amendment Bill 2009 (Bill). The Bill has since been amended (Revised Bill) to clarify the scope of the compulsory notification requirements prescribed by the FATA.
Amendments to the Bill
The Bill broadened the compulsory notification requirements of a foreign investor seeking to acquire a ‘substantial interest’ (15%) or ‘aggregate substantial interest’ (40%) in an Australian corporation. Specifically, the Bill expanded the notion of ‘substantial interest’ to include those circumstances where ‘potential voting power’ and ‘rights to interests in shares’ arose.
The compulsory notification requirement therefore depends on two components being satisfied. First, the investor must be substantially foreign as defined by the ‘substantial interest’ test. Second, the investor must be acquiring a ‘substantial interest’ in a corporation.
As drafted however, the Bill extended the concepts of ‘potential voting power’ and ‘rights to interests in shares’ to the first component i.e. the determination of foreign investor status. In some cases an entity will not be able to determine whether it satisfies the first component as it may not be able to identify all persons with ‘potential voting power’ (particularly in the context of derivative trading).
Accordingly, the Revised Bill amends the FATA to enable Government to disregard the expanded concepts of interest in shares (‘potential voting power’ and ‘rights to interests in shares’) when determining whether an entity is a foreign person.
Summary of key amendments to the FATA
Substantial Interest
The meaning of ‘substantial interest‘(and accordingly ‘aggregate substantial interest) under FATA as amended now includes:
- ‘potential voting power’ - includes any voting power in a corporation that might come to exist in the future and if so, might be cast at a general meeting of the corporation; and
- ‘rights that, if exercised, might result in the holding of an interest in issued shares’ – all rights under an instrument, agreement or arrangement, whether the right is exercisable presently or in the future and whether on the fulfilment of a condition or not.
Compulsory notification
In light of the recent changes to the FATA, a foreign investor must notify the Treasurer:
- when the foreign investor holds a substantial interest or aggregate substantial interest in an Australian corporation; and
- if the foreign investor already holds substantial interest or aggregate substantial interest in an Australian corporation, when the foreign investor increases its substantial interest or aggregate substantial interest.
This article has been prepared for the general information of clients and contacts of PLN Lawyers Sydney and the affiliated firms of the Pacific Legal Network. While it deals with and comments on the law in specific areas it is not intended nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.
PLN News February 2010
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