Reforms to Australia's foreign investment laws now finalised 2 min read
Clients may recall that there was a proposal to revoke the moneylending exemption in the case of security over a 'national security business' (and related assets).
The concept of a national security business is a broad one and extends to many infrastructure assets commonly financed on a secured basis in loan syndication markets. The change would have meant that foreign lenders would have needed to apply to the Foreign Investment Review Board for approval or exemption before undertaking routine loan participations.
Allens prepared a submission for the Asia Pacific Loan Market Association opposing this change, and pointing out the severe disruption to debt capital markets that would result. We subsequently engaged directly with Treasury concerning the impact of the change and ways of mitigating its impact. In particular, we suggested that the Government need not be concerned at 'ordinary course of business' loan securities, and the enforcement of those securities by customary means such as the appointment of receivers and managers.
Those submissions have been accepted and reflected in the final version of the amendments to the Foreign Acquisitions and Takeovers Regulations. Substantial changes to the proposal to revoke the moneylending exemption in the case of security over national security businesses mean that, in large part, the moneylending exemption will continue to apply. The only exception would be where an interest in a national security business is acquired on enforcement by means other than receivership – eg in the exceptionally rare case where a mortgagee forecloses on the mortgaged property (ie acquires it directly).
Treasury's view is that where a mortgagee enforces its security by going into possession of the mortgaged property, this would also fall outside the exemption in the case of a national security business. But again this is quite rare, and the customary security enforcement method of appointing receivers and managers will continue to be exempt.
For an in-depth review of the FIRB reforms, see our Insight: Major FIRB reforms to commence on 1 January 2021.