Focus: New Bill seeks greater transparency in agricultural land acquisitions
3 December 2010
In brief: Greater investment in Australian agricultural assets by foreign investors has prompted a private members' Bill that aims for greater transparency in this area. Consultant Alan Millhouse (view CV) outlines the impacts if this Bill is passed.
- What acquisitions of Australian agricultural land will the Bill regulate?
- Australian agricultural land
- National interest criteria
- Public disclosure of acquisitions of interests in Australian agricultural land
- Prospects of enactment
How does it affect you?
- Most acquisitions of Australian agricultural land will require the Treasurer's approval under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the FATA).
- You will need to take into account the likely loss of confidentiality of information lodged in respect of any applications for the Treasurer's approval, given the new public disclosure regime proposed by the Bill.
- The new public disclosure regime will impact the timing of the making of applications for the Treasurer's approval, particularly where foreign takeovers of Australian agricultural land corporations are involved.
In recent times, the nature and extent of foreign investment in Australian agricultural land has been subjected to heightened public scrutiny. Australia, with its expansive fertile lands and sophisticated farming techniques, has become a target for investment by some of the world's largest agricultural enterprises. The global financial crisis, which has been attributed as one of the principal causes of food shortages in many countries, has been the catalyst for greater foreign investment in agricultural assets in Australia. Several Australian politicians have called for greater transparency in this context to ensure Australia's own food supplies are not jeopardised.
On 24 November 2010, Senators Nick Xenophon and Christine Milne tabled in the Australian Parliament a private members' Bill, the Foreign Acquisitions Amendment (Agricultural Land) Bill 2010. This Bill seeks to make three key changes to the FATA. If enacted, the Bill would:
- require the Treasurer's approval under the FATA for the acquisition of any interest in Australian agricultural land of more than five hectares;
- require the Treasurer to consult a statutory checklist of 'national interest' criteria before approving any such acquisition; and
- require the Treasurer to publish, on the Treasury website, details of all applications for approval of acquisitions of interests in Australian agricultural land and for the status of those applications to be updated as the applications proceed.
Under the FATA, as currently drafted, the acquisition of agricultural land by a foreign person only requires notification to, and approval by, the Treasurer if the purchase price exceeds A$231 million. The Bill proposes to replace that monetary threshold with a spatial one, such that an acquisition of an interest in agricultural land of more than five hectares would have to be notified and approved (refer to sections 21B, 21C and 26B of the Bill). Once notified, the acquisition could be blocked by the Treasurer if it were perceived to be contrary to the national interest.
This proposed legislative change aligns with the requirements of New Zealand's Overseas Investment Act 2005, which also stipulates that a foreign investor must apply for approval from the New Zealand Government in respect of an investment in New Zealand rural land that exceeds five hectares.
The Bill catches more than mere acquisitions of agricultural land. It would apply also to acquisitions of 'interests' in agricultural land. A new s12D, which mirrors s12A of the FATA, which deals with interests in Australian urban land, would require notification of proposed acquisitions of management rights, leases of more than five years, profit-sharing arrangements and acquisitions of shares in a company or units in a trust in which agricultural land accounts for more than 50 per cent of its assets. The proposed ss12D(5) and 12D(6) of the Bill provide that a foreign person shall be taken not to acquire an interest in Australian agricultural land if the person acquires the interest:
- solely to hold as security for the purposes of a moneylending agreement;
- by way of enforcement of a security held solely for the purposes of a moneylending agreement; or
- by will or by devolution by operation of law.
The proposed ss12D(7) and 12D(8) also exempt the following types of acquisitions:
- an acquisition of an interest in Australian agricultural land acquired from the Commonwealth, a State or a Territory government, a local government or a government corporation; and
- acquisitions that are declared exempt by the Regulations.
A new s13E (dealing with Australian agricultural land corporations) and s13F (dealing with agricultural land trust estates) are also proposed.
Under the Bill, 'Australian agricultural land' is defined as land situated in Australia that is used predominantly for carrying on a business of primary production. In this context, 'primary production' is ascribed the same meaning as in the Income Tax Assessment Act 1936 (Cth), which means production resulting directly from:
- the cultivation of land;
- maintenance of animals or poultry for the purposes of selling them or their bodily produce;
- fishing operations; or
- forest operations.
Under the FATA as currently drafted, there is no statutory definition of 'national interest'.
However, s21C of the Bill proposes the insertion of new statutory national interest criteria to which the Treasurer must have regard when determining whether the acquisition of an interest in Australian agricultural land is contrary to the national interest for the purposes of the proposed s21B. Those new national interest criteria are:
- national security issues, including Australia's ability to protect its strategic and security interests;
- any impact on competition and global industry or market outcomes;
- any impact on Australian tax revenues;
- any impact on the Australian economy or the community, including:
- whether the acquisition will, or is likely to, benefit Australia (or any part of it or group of Australians);
- whether the acquisition will, or is likely to, result in:
- the creation of new job opportunities in Australia or the retention of existing jobs in Australia that would, or might otherwise, be lost; or
- the introduction into Australia of new technology or business skills; or
- increased export receipts for Australia exporters; or
- added market competition, greater efficiency or productivity, or enhanced domestic services, in Australia; or
- the introduction into Australia of additional investment for development purposes; or
- increased processing in Australia of Australia's primary products;
- whether Australia's economic interests are adequately safeguarded and promoted, including looking at issues of aggregation and vertical integration;
- any relevant mitigating factors, such as whether an Australian head office will be established or Australian directors appointed to an entity seeking to invest;
- the character of the investor, including:
- whether the foreign person has business experience and acumen relevant to the acquisition;
- whether the foreign person has demonstrated financial commitment to the acquisition; and
- whether the foreign person is of good character.
It remains to be seen whether this statutory criteria will be embraced in any amending legislation, especially as the courts have consistently recognised that it would not be desirable, even if it were possible, to lay down an exhaustive definition of what is in the national interest.
If enacted, the proposed s21D of the Bill will oblige the Treasurer to publish on the Treasury website, within seven days of receiving an application for approval of a proposed acquisition of an interest in Australian agricultural land, details of the agreement to which that notice relates, including the following:
- details identifying the person intending to enter into the agreement, and the country of residence or place of business of the person;
- the amount of the investment proposed under the agreement;
- the sector of the agricultural industry to which the interest in agricultural land relates;
- any other details prescribed by the regulations.
The Treasurer would then be obliged to update the Treasury website weekly, with details of the progress of each application.
Coincidentally, on the day before the Bill was introduced into Parliament, the Australian Government announced a multi-agency research project to gather information about the extent of foreign ownership in the agricultural sector.
Various minor consequential amendments to other sections of the FATA are also proposed by the Bill.
Private members' Bills have, in the past, rarely been passed by the Australian Parliament. However, the prospects of the Bill being enacted cannot be discounted, especially given the delicate composition of the current Parliament.
If the Bill is enacted, possible consequences of which account will need to be taken include:
- successive Australian governments have long recognised that much of the information that the Treasurer/Foreign Investment Review Board (the FIRB) will need in order to assess the Treasurer's attitude to a particular proposal will be sensitive and confidential. The Australian Government has therefore publicly undertaken, from time to time, to respect the confidential nature of such information and to deny access to such information without prior permission of the person who first gave the information to the FIRB, unless otherwise ordered by a court of competent jurisdiction. Even then, the Australian Government has indicated that it will, in the ordinary course, pursue the defence of its policy through the courts. The government's willingness in this regard has foreshadowed its intention to claim crown privilege or public interest immunity where possible.
Where a foreign company wishes to acquire shares in an Australian company in circumstances that necessitate a formal takeover offer under the Corporations Act 2001 (Cth), the foreign investor will usually seek FIRB approval for the proposal prior to the finalisation and issue of the takeover offer. The Australian Government recognises that the information provided to the FIRB in these circumstances is also commercially sensitive and has the potential to affect the share price of both the foreign company and the Australian target.
However, if the target company is an agricultural land corporation, potential bidders may be forced to delay making applications for the Treasurer's approval under the FATA and will need to take into account the likely loss of confidentiality, given the new public disclosure regime proposed by s21D of the Bill; and
- the introduction of statutory national interest criteria for agricultural land acquisitions may lead to a call for similar statutory national interest criteria to govern other types of acquisitions. If new national interest criteria are introduced into the FATA, one would expect that review of the Treasurer's decisions under the Administrative Decisions (Judicial Review Act) 1977 (Cth) or the Administrative Appeals Tribunal Act 1975 (Cth) would still be denied. However, even if that were still to be the case, there would still be some scope for review of those decisions on common law grounds.
- Alan MillhouseConsultant,
Ph: +61 7 3334 3149
- Chelsey DrakePartner,
Ph: +61 7 3334 3202
- Guy AlexanderPartner,
Ph: +61 2 9230 4874
- Jon WebsterPartner,
Ph: +61 3 9613 8832
- Tim LesterPartner, Sector Leader, Japan,
Ph: +61 8 9488 3841