Recent reforms to the Foreign Acquisitions and Takeovers Act 1975 (Cth) introduced new provisions that deem foreign government investors of the same country to be 'associates' of each other. These provisions have created practical difficulties for foreign government investors who risk unintentionally breaching the Act because they are unaware of the existence and extent of holdings of other foreign government investors from the same country. Revisions to Guidance Note 23 released by the Foreign Investment Review Board have sought to address these practical issues. Partner Wendy Rae and Associate Nicholas Kefalianos review the key changes to the Guidance Note.
The Foreign Acquisitions and Takeovers Act 1975 (Cth) (the FATA) applies to certain investments in Australia by foreign persons, which includes foreign government investors. A specific regime applies to foreign government investors which, among other things, necessitates the compulsory notification to the Foreign Investment Review Board (FIRB) (being the relevant advisory body to the Treasurer) of an acquisition by a foreign government of a 'direct interest' in an Australian entity or Australian business. The interests of the foreign government investor and its associates are aggregated for the purposes of ascertaining whether a direct interest has been acquired.
Recent reforms to the FATA introduced new deeming provisions, which provide that foreign government investors of the same country are considered 'associates' of each other. This is based on the assumption that all foreign government investors in a given country act in concert with each other. Practical difficulties have arisen for foreign government investors who, in reality, may be unaware of the existence of another foreign government investor who has acquired, or is proposing to acquire, interests in the same target entity (especially given that information regarding the holdings of other foreign government investors may not be readily available). In light of the serious consequences arising from a contravention of the FATA, FIRB has recognised the need to clarify its approach to the operation of the relevant associate provisions.
FIRB has revised Guidance Note 23 to confirm that the Government will not impose fines or pursue penalties or offences for breaches of the FATA where 'it is not reasonable for a foreign government investor to know that one or more other foreign government investors from the same country already hold, or are concurrently acquiring, interests in the target entity'. The following examples are provided by FIRB of instances where it would not be reasonable for a foreign government investor to know that other foreign government investors from the same country already hold or are concurrently acquiring interests in the Australian entity or Australian business. They are where:
- public regulatory disclosures in relation to the target entity do not disclose any such holdings and the foreign government investor is not privy to information on such holdings; or
- the holding in the target entity is disclosed, but it is not on its face identifiable as being held by another foreign government investor, and the foreign government investor is not privy to information that would identify the holding as being held by another foreign government investor.
The revisions to Guidance Note 23 are a welcome start to addressing the issues that have arisen. However, given the serious consequences of breaching the FATA, we consider that the concessions made in the Guidance Note need to be addressed by way of legislative amendment.
If you would like to talk to an expert about these changes, please contact one of the partners listed below.