House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 3 - Powers of the Treasurer in relation to acquisitions

Outline of chapter

3.1 This chapter explains the powers of the Treasurer to make orders and decisions under new Part 3 of the Act in relation to any significant action taken or proposed to be taken.

3.2 This chapter also explains the circumstances in which a foreign person must notify the Treasurer before taking a notifiable action. The concepts of significant action and notifiable action are defined by new Part 2 of the Act.

Summary of new law

3.3 The Bill enables the Treasurer to make a broad range of orders in relation to a significant action that a person is proposing to take or has already taken. Broadly, a significant action is an action to acquire specified interests in securities, assets or interests in land, or otherwise take action in relation to entities (that is, corporations and units trusts) and businesses, that have a connection to Australia. An action is generally only a significant action if it meets the applicable monetary threshold test and the action results in either a change in control involving a foreign person or the action is taken by a foreign person.

3.4 If the Treasurer is notified that a person is proposing to take a significant action, the Treasurer may:

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decide not to object to the action and give the person a no objection notification not imposing conditions;

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decide not to object to the action provided that one or more conditions are complied with and give the person a no objection notification imposing conditions; or

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decide that the person taking the action would be contrary to the national interest and make an order prohibiting the proposed significant action.

3.5 If a significant action has already been taken which is contrary to the national interest, the Treasurer may make an order, known as a disposal order, which is directed at unwinding the action. For example, the Treasurer could order a person to dispose of their shares by a specified time. This Bill also allows the Treasurer to impose legally enforceable conditions in such circumstances as an alternative to a disposal order.

3.6 A foreign person is not obliged to inform the Treasurer that they are proposing to take a significant action unless the action is also a notifiable action (this concept is explained below, but only certain significant actions are also notifiable actions). However, a foreign person may choose to notify the Treasurer before taking a significant action for the certainty offered by a no objection notification. If a foreign person is given a no objection notification in relation to the significant action, and provided the person does not take any action which is not authorised by the Act, the Treasurer is not able to make a disposal order.

3.7 A foreign person who proposes to enter an agreement to take a notifiable action must notify the Treasurer before entering the agreement. In broad terms, a notifiable action is a proposed action:

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to acquire a direct interest in an agribusiness;

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to acquire substantial interests in Australian entities; or

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to acquire an interest in Australian land.

3.8 Generally, the action is only notifiable if the entity, business or land meets the threshold test.

3.9 A foreign person must not enter into the agreement for a specified period (generally 40 days) unless the person is given a no objection notification.

3.10 Actions to acquire interests in Australian land that are specified in an exemption certificate are generally not notifiable actions. An exemption certificate is a certificate given by the Treasurer that specifies an interest, or an interest of a kind, is not a significant action or notifiable action. Existing examples of exemptions certificates under the Act are certificates for an annual program of acquisitions of Australian urban land (known as, annual program certificates) and the certificate that allows developers to sell new dwellings in a development to foreign persons.

Detailed explanation of new law

Meaning of significant action

3.11 The criteria for determining whether an action is a significant action depend on whether the action is in respect of an entity, a business or Australian land.

Meaning of significant action - entities

3.12 An action in relation to an entity (that is, a corporation or a unit trust) is a significant action if it meets four conditions. These conditions concern:

•

the kind of action;

•

whether the action meets the threshold test;

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the kind of entity; and

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except in the case of an agribusiness, whether there has or would be a change in the control of the entity. In the case of an agribusiness, the fourth condition is satisfied if the action in question is taken by a foreign person.

Kinds of action

3.13 The first condition concerns the kind of action. An action satisfies the first condition if it involves:

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an acquisition of a direct interest in an entity that is an agribusiness. The terms 'agribusiness' and 'direct interest' will be defined by the regulations;

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an acquisition of interests in securities in an entity;

•

the issuing of securities in any entity;

•

the entry into an agreement in relation to the affairs of the entity under which one or more senior officers of the entity will be under an obligation to act in accordance with the directions, instructions or wishes of a foreign person who holds a substantial interest in the entity, or an associate of such a person; or

•

the alteration of a constituent document of the entity as a result of which one or more senior officers of the entity will be under an obligation to act in accordance with the directions, instructions or wishes of a foreign person who holds a substantial interest in the entity, or an associate of such a person. 'Constituent document' of an entity means any rules or other document constituting or establishing the entity or governing its activities. In the case of a corporation, the corporation's constitution will be a constituent document. In the case of a unit trust, the trust deed will be a constituent document.

[Schedule 1, item 3, section 4]

Threshold test

3.14 The second condition is that the threshold test is met in relation to the entity. In order for the threshold test to be met, a certain value must be above a threshold prescribed by the regulations. The value tested depends on the action taken - see new section 51, which is discussed in more detail below.

Kinds of entities

3.15 The third condition is that the entity is:

•

in relation to an acquisition of interests in shares or an issue of shares, a corporation that is a relevant entity that carries on an Australian business (a business carried on wholly or partly in Australia in anticipation of profit or gain), either alone or together with one or more other persons or the holding entity of such a corporation. In general terms, a corporation is a 'relevant entity' if it is a corporation formed in Australia; a foreign corporation that holds relevant Australian assets (that is, Australian land) or is a holding corporation of one or more Australian corporations; or a holding entity of such a foreign corporation or a unit trust;

•

for any other action in relation to a corporation, a corporation formed within Australia that carries on an Australian business, whether alone or together with one or more other persons or the holding entity (other than a foreign corporation) of such a corporation; or

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an Australian unit trust or a holding entity of an Australian unit trust. A unit trust is an 'Australian unit trust' for the purposes of this Act if:

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the trustee of the trust holds relevant Australian assets;

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the trustee of the trust carries on an Australian business;

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the central management and control of the trust is in Australia;

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one or more persons who are ordinarily resident in Australia hold more than 50 per cent of the beneficial interests in the income or property of the unit trust; or

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it is listed for quotation in an official stock exchange in Australia.

Actions results in change of control or, in the case of acquiring a direct interest in an agribusiness, the action is taken by a foreign person

3.16 The last condition, other than in the case of acquiring a direct interest in an Australian agribusiness, is that the action would or has resulted in a change in control of the entity. The term 'change in control' has the meaning given by Subdivision C of Division 4 of Part 2, which is discussed below.

3.17 An agribusiness meets the last condition if the action is or is to be taken by a foreign person. [Schedule 1, item 3, section 4; Schedule 1, item 4, section 40]

Meaning of significant action - businesses

3.18 An action in relation to a business is a significant action if it meets three conditions. These conditions concern:

•

the kind of action;

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whether the action meets the threshold test; and

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whether the action results in a change in control, or, in the case of an agribusiness, the action is taken by a foreign person.

Kinds of action

3.19 The first condition is that the action is one of the following:

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an acquisition of a direct interest in an agribusiness. The terms 'agribusiness' and 'direct interest' will be defined by the regulations;

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an acquisition of an interest in the assets of an Australian business; or

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entering into or terminating a significant agreement with an Australian business. The term 'significant agreement' with an Australian business is defined to mean an agreement relating to the leasing of, the letting on hire of, or the granting of any other right to use assets of the business or the participation by a person in the profits or management of the business.

Threshold test

3.20 The second condition is that the threshold test is met in relation to the Australian business. In order for the threshold test to be met, a certain value must be above a threshold prescribed by the regulations. The value tested depends on the action taken - see new section 51, which is discussed below.

Action results in change of control, or, in case of acquiring a direct interest in an agribusiness, the action is taken by a foreign person

3.21 Other than in the case of acquiring a direct interest in an Australian agribusiness, the third condition is that there would be or has been a change in control of the business. The term 'change in control' has the meaning given by Subdivision C of Division 4 of Part 2, which is discussed below.

3.22 In the case of an agribusiness, the third condition is that the action is or is to be taken by a foreign person. [Schedule 1, item 4, section 41]

Action taken in relation to agribusinesses

3.23 New section 42, for the avoidance of doubt, makes it explicit that actions (other than a direct interest in an Australian agribusiness) relating to an Australian entity or Australian business that is an agribusiness that meet the conditions to be a significant action, will still be significant actions where the necessary conditions for the applicable significant action are met. [Schedule 1, item 4, section 42]

Meaning of significant action - land

3.24 The acquisition of an interest in Australian land by a foreign person is a significant action if the threshold test is met in relation to the land. The threshold amount will be prescribed in regulations. [Schedule 1, item 4, section 43]

Meaning of significant action - actions prescribed by the regulations

3.25 The Bill permits regulations to be made that provide that a specified action is a significant action for the purposes of this Act [Schedule 1, item 4, section 44]. For example, it is anticipated that regulations will prescribe the following actions to be significant actions:

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the acquisition by a foreign person of an interest of at least 5 per cent in an entity or business that wholly or partly carries on an Australian media business;

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the acquisition by a foreign government investor of a direct interest in an Australian entity or Australian business; and

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the starting an Australian business by a foreign government investor.

Actions that are not significant actions

3.26 The Bill carves out several kinds of acquisitions in Australian land that would otherwise be a significant action for the purposes of this Act.

3.27 First, an acquisition is not a significant action if:

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a foreign person acquires an interest in a new dwelling that will be, is being or has been built on another interest in Australian land;

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the acquisition was from a person specified in an exemption certificate given under new section 57;

•

the development interest was specified in the certificate;

•

the specified person gave the foreign person a copy of that certificate before the foreign person acquired the interest; and

•

any conditions specified in the certificate were met.

3.28 New dwelling means a dwelling (other than commercial residential premises) that will be, is being, or has been built on residential land and has:

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either not been previously sold as a dwelling; and

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has not been previously occupied; or

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if the dwelling is contained in a development ^[3] (which, in general terms, means one or more multi storey buildings that are or were under one development approval where the number of independent self-contained dwellings (other than townhouses) that the building or buildings contain or will contain at least the number prescribed by the regulations) and the dwelling was sold by the developer of the development, has not been previously occupied for more than 12 months in total.

[Schedule 1, item 3, section 4]

3.29 The above provides for the existing certificate that allows developers holding a certificate to sell new dwellings in a development to foreign persons. The effect of the certificate is that foreign persons acquiring interests in new dwellings in developments covered by a certificate are exempt from the requirement under the Act to notify and receive a no objection notification prior to proceeding with the purchase.

3.30 Secondly, an acquisition is not an interest in Australian land if a foreign person who makes the acquisition is specified in an exemption certificate given under new sections 58 or 59; the interest is of a kind specified in the certificate; and any conditions specified in the exemption certificate were met. [Schedule 1, item 4, subsection 45(2)]

3.31 New section 58 certificates allow for a program of acquisitions of Australian urban land (this relieves the foreign person of the requirement to notify and seek a no objection notification for each individual acquisition with the period). This reflects an existing longstanding type of certificate known as annual program certificates that are given on a 12 month basis. Where a foreign person is given such a certificate, they are required to comply with the standard requirements that would apply under the Australia's Foreign Investment Policy (Policy) for the type of property that is to be purchased. For example, for vacant land acquisitions construction must begin within the required timeframe. Such certificates include a requirement to report on acquisitions made and any associated required development of vacant land purchased.

3.32 The new section 59 certificate for established dwellings allows a foreign person to bid at multiple auctions over a specified period (such as six months) while only paying one application fee. In the absence of such a certificate, foreign persons bidding at auctions would need prior foreign investment approval because bids at auction normally have to be unconditional. Only one property will be allowed to be purchased under each certificate and it will be a condition of the certificate that the foreign person notifies the Australian Taxation Office (ATO) once they have purchased a property. The highest bid that the foreign person granted the certificate can make at an auction will be limited by the application fee that they have paid (as a tiered fee structure based on the consideration of the property to be purchased is proposed for acquisitions of interests in residential land).

Meaning of notifiable action

Meaning of notifiable action - general

3.33 An action is a notifiable action if four conditions are met. These conditions concern:

•

the kind of action;

•

whether the action meets the threshold test;

•

the kind of entity; and

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the action is or is to be taken by a foreign person.

Kinds of action

3.34 The first condition is that the action is any of the following:

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the acquisition of a direct interest in an agribusiness;

•

the acquisition of a substantial interest (that is, an interest of at least 20 per cent in the entity, or, in the case of a trust, a beneficial interest in at least 20 per cent of the income or property of the trust) in a corporation formed in Australia or an Australian unit trust; or

•

the acquisition of an interest in Australian land.

Thresholds

3.35 The second condition is that the threshold test is met in relation to the entity, business or land. In order for the threshold test to be met, a certain value must be above a threshold prescribed by the regulations. The value tested depends on the action taken - see new sections 51 to 53, which are discussed below.

Kinds of entities covered

3.36 The third condition is that the action in relation to an entity is:

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an Australian corporation that carries on an Australian business, whether alone or together with one or more other persons or an Australian entity that is the holding entity of such a corporation; or

•

an Australian unit trust or an Australian corporation that is the holding entity of an Australian unit trust.

Action taken by a foreign person

3.37 An action meets the fourth condition if the action is or is to be taken by a foreign person. [Schedule 1, item 4, section 47]

Actions prescribed by the regulations to be a notifiable action

3.38 The regulations may prescribe that a specified action is a notifiable action. [Schedule 1, item 4, section 48]

Actions that are not notifiable actions

3.39 The Bill carves out several kinds of acquisitions in Australian land that would otherwise be a notifiable action for the purposes of this Act.

3.40 First, the acquisition of an interest in Australian land by a foreign person is not a notifiable action if the action would not be a significant action under new section 45.

3.41 Secondly, the acquisition of an interest in a new dwelling by a foreign person is not a notifiable action if:

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the interest (referred to in the Bill as the development interest) was acquired from a person who is specified in an exemption certificate given under new section 57;

•

the development interest was specified in the certificate and the foreign person was given a copy of the certificate before the foreign person acquired the development interest; and

•

one or more conditions specified in the certificate have not been met but the foreign person is not, at the time of the action, aware that the conditions have not been met.

3.42 This ensures that foreign persons who acquire interests in new dwellings (off-the-plan) that are part of a development from a developer do not have a notifiable action, subject to the above conditions being met. This reflects the current practice with off-the-plan developer certificates, where a developer has pre-approval to sell the new dwellings to foreign persons and the foreign person purchasing from the developer in such situations does not need to individually apply for approval (that is, the purchase by the foreign person is treated as exempt based on the certificate).

3.43 The regulations may also prescribe that other actions are not a notifiable action. [Schedule 1, item 4, section 49]

Threshold test and change in control

The threshold test for entities and businesses

3.44 The threshold value to be tested depends on the kind of action in question. The following table shows the threshold value for each kind of significant action in relation to an entity or business. [Schedule 1, item 4, section 51]

The threshold test for land

3.45 The threshold test for land distinguishes between three kinds of land - land of a kind that is prescribed by the regulations; agricultural land; and land that is neither prescribed nor agricultural land.

3.46 There will be no threshold for land that is prescribed for the purposes of new subsection 52(1). It is anticipated that residential land, vacant commercial land, mining or production tenements, and land acquired by a foreign government investor will be prescribed for the purpose of this provision.

3.47 The threshold test for agricultural land is met if the total value of all interests in agricultural land held by the foreign person and the consideration for the acquisition of the interest in the land is more than value prescribed by the regulation for the purposes of new paragraph 52(2)(b). It is anticipated that the prescribed value will be $15 million.

3.48 The threshold test for land is met in relation to land that has neither been prescribed for the purposes of new subsection 52(1) nor is agricultural land if the value of the interest in the land is more than the value prescribed for the purposes of new paragraph 52(3)(b). [Schedule 1, item 4, section 52]

The threshold test in relation to actions of more than one kind

3.49 If an action in relation to an entity, business or land is covered by an agreement, the action is taken to be a significant action if the threshold is met in relation to the entity, business or land even if the threshold test is not met for another action covered by the agreement.

Example 3.1

A foreign person has entered an agreement that includes a share acquisition and a land acquisition from the same vendor. While the share acquisition is not a significant action due to it not meeting the conditions to be a significant action - entities, the land acquisition does meet the conditions to be a significant action - land.

3.50 If a single action is of more than one kind, the threshold test is met in relation to the single action if the test is met in relation to any one of the kinds of action or land.

Example 3.2

Aus Co is a foreign person due to Hong Kong Co, a foreign corporation, holding 25 per cent of the issued securities in Aus Co. Aus Co is neither a foreign government investor nor an investor from an agreement country.

Aus Co is proposing to acquire 25 per cent of the issued shares in Land Estate Co, an unlisted Australian incorporated corporation. The consideration for the 25 per cent interest, which will be acquired from a number of existing Aus Co shareholders, will be $60 million.

Aus Co intends to complete the acquisition in December and in September gives the Treasurer a notice in writing using the manner approved. Aus Co also pays the required fee on the same day so the notice is taken to have been given.

The target entity, Land Estate Co, which is not a holding entity, is an Australian corporation that carries on a business in Australia, but it is not an agribusiness. It released its latest audited financial accounts in August. The balance sheet shows a reasonable value for the interests in land held by Land Estate Co. Such interests exceed 50 per cent of the value of its total assets, thus Land Estate Co is an Australian Land Corporation. Land Estate Co does not carry on an agribusiness.

Upon receipt, the proposal is assessed against significant action - entities and significant action - land.

The first and third conditions for a significant action - entities are met as Aus Co proposes to acquire a substantial interest in an Australian corporation that carries on an Australian business. However, as the consideration for the shares values Land Estate Co at $240 million (based on the $60 million consideration for the proposed 25 per cent interest), which is below the 2015 indexed monetary threshold of $252 million, the action is not a significant action - entities because the second condition is not met. As the second condition has not been met, the fourth condition has also not been considered.

However, the two conditions for significant action - land (that is, the action is for a foreign person to acquire an interest in Australian land and the threshold test is met in relation to the land) are satisfied and thus the proposal is a significant action - land.

The assessment of the significant action - land does not raise any national interest concerns so the Treasurer decides within the decision period that the Commonwealth has no objection to the action and notifies Aus Co in writing (the no objection notification) of the decision before the end of the 10 days after the decision is made.

Agribusinesses that do not meet the threshold

3.51 If an entity or business that is not an agribusiness does not meet the threshold test in relation to the entity or business the Act applies to the entity or business as if it were not an agribusiness. [Schedule 1, item 4, section 53]

Change in control

3.52 For the purposes of determining whether an action is a significant action, the Treasurer may only be satisfied that there is a change in control of an entity if the Treasurer is satisfied that the action would have, or has had, any of the following results:

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one or more foreign persons would begin, or have begun, to control the entity or business (whether alone or together with any associate of any of those persons); or

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if one or more foreign persons already control the entity or business:

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another foreign person would become, or has become, a person who controls the entity or business; or

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a person would cease, or has ceased, to be a person who controls the entity or business.

3.53 A person is considered to control an entity or business if:

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in relation to the acquisition of interests in securities in an entity or an issue of securities in an entity:

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the persons holds a substantial interest in the entity;

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or the person is one of two or more persons who hold an aggregate substantial interest in the entity; or

•

the person (whether alone or together with one or more associates) is in a position to determine the policy of an entity or business in relation to any matter.

3.54 However, a person holding a substantial interest in an entity or an aggregate substantial interest in the entity together with other persons is not considered to control the entity if the Treasurer is satisfied that, having regard to all the circumstances, the person together with any one or more associates of that person is not in a position to determine the policy of the entity.

3.55 If the Treasurer is satisfied that one or more foreign persons together with one or more associates control an entity or business, then, in relation to an action taken relating to the entity or business, a reference to a foreign person is taken, for the purposes of new Part 3, to include a reference to those associates, even if those associates are not foreign persons. [Schedule 1, item 4, section 54]

Regulations

3.56 Without limiting the regulations that could be made for new Part 2 of the Act, the Bill provides that regulations may be made that prescribe values or amounts of nil, different values or amounts for different kinds of entities, business or land, different values or amounts for different kinds of foreign persons, and different values or amounts for sensitive sectors generally or different sectors for different foreign persons.

3.57 The Bill also expressly provides that the Act does not limit subsection 33(3A) of the Acts Interpretation Act 1901. In general terms, subsection 33(3A) of the Acts Interpretation Act provides that where an Act confers a power to make an instrument of a legislative or administrative character with respect to particular matters, the power is to be interpreted as including a power to make such an instrument with respect to only some of those matters or with respect to a particular class or particular classes of those matters and to make different provision with respect to different matters or different classes of matters. [Schedule 1, item 4, section 55]

Exemption certificates

Exemption certificates for new dwellings

3.58 A person may apply for an exemption certificate if the person or any other person proposes to acquire or has acquired an interest in Australian land and the person or other person proposes to dispose to a foreign person new dwellings that will be, are being or have been constructed on that interest. The exemption is limited to new dwellings because it is the Commonwealth's policy that foreign investment in residential land should increase Australia's housing stock.

3.59 The term 'new dwelling' is defined to mean:

•

a residential dwelling on residential land that has not been previously sold and has either not been previously occupied; or

•

if the dwelling is part of a development and the person who sold the dwelling is the developer of the development, the dwelling has not been previously occupied in total for more than 12 months.

3.60 The Treasurer may give an exemption certificate if the Treasurer is satisfied that the disposal of new dwellings to foreign persons is not contrary to the national interest.

3.61 If the Treasurer gives such a certificate it must state the person to whom the certificate relates and the interest to which the certificate applies. [Schedule 1, item 3, section 4; Schedule 1, item 4, section 57]

3.62 This reflects the existing certificate that allows developers holding a certificate to sell new dwellings in a development to foreign persons. The effect of the certificate is that foreign persons acquiring interests in new dwellings in developments covered by a certificate are exempt from the requirement under the Act to notify and receive a no objection notification prior to proceeding with the purchase.

Exemption certificates for foreign persons

3.63 A foreign person who proposes to acquire one or more kinds of interest in Australian land may apply for an exemption certificate. This provision may be used to reduce the regulatory burden on developers who would otherwise have to make separate applications in relation to each residential and commercial development they propose to make within a 12 month period. Provided the Treasurer is satisfied that the proposed developments are not contrary to the national interest the Treasurer could grant a single certificate. This reflects an existing longstanding type of certificate known as annual program certificates.

3.64 Where a foreign person is given such a certificate, they are required to comply with the standard requirements that would apply under the Policy for the type of property that is to be purchased. Such certificates are currently issued under paragraph 3(h) of the Regulations.

3.65 If the Treasurer grants a certificate it must specify the person to whom the certificate relates and the kinds of interests in Australian land to which the certificate relates. [Schedule 1, item 4, section 58]

Exemption certificates for established dwellings

3.66 A foreign person may apply for an exemption certificate if the foreign person or any other foreign person proposes to acquire an interest in an established dwelling. 'Established dwelling' means any dwelling that is not a new dwelling. [Schedule 1, item 3, section 4]

3.67 The Treasurer may give such a certificate if the Treasurer is satisfied that an acquisition of that kind by that foreign person is not contrary to the national interest. If the Treasurer gives such a certificate the certificate must specify the person to whom the certificate is to apply and the kinds of interests in Australian land to which the certificate relates. [Schedule 1, item 4, section 59]

3.68 This certificate allows a foreign person to bid at multiple auctions over a specified period (such as six months) while only paying one application fee. In the absence of such a certificate, foreign persons bidding at auctions would need a no objection notification for each auction that they intend on bidding at because bids at auction normally have to be unconditional, whereas under the Act, it is an offence to fail to notify before an acquisition becomes unconditional.

3.69 Only one property will be allowed to be purchased under each certificate and it will be a condition of the certificate that the foreign person reports back to the ATO once they have purchased a property. The highest bid that the foreign person granted the certificate can make at an auction will be limited by the application fee that they have paid (as a tiered fee structure based on the consideration of the property to be purchased is proposed for acquisitions of interests in residential land).

Other matters specified by an exemption certificate

3.70 An exemption certificate may specify one or more conditions; a period during which the certificate is in force; and any other matter. An exemption certificate may deal with more than one interest or kind of interest in Australia. [Schedule 1, item 4, section 60]

Time limit for making decisions on exemption certificates

3.71 If a person applies for an exemption certificate the Treasurer must make a decision about whether to grant the application before the end of the period prescribed in the regulations or, if the person requests the Treasurer to extend the period, the period as extended.

3.72 If the Treasurer grants the application the exemption certificate must be given to the person before the end of 10 days after the decision is made.

3.73 If the Treasurer does not make a decision about an application for an exemption certificate within the period referred to above the Treasurer is taken to have granted the application without conditions. [Schedule 1, item 4, section 61]

Variation or revocation of exemption certificates

3.74 The Treasurer may vary or revoke an exemption certificate if the Treasurer is satisfied that the variation or revocation is not contrary to the national interest. The Treasurer may exercise this power on the Treasurer's own initiative or at the request of the affected person. [Schedule 1, item 4, section 62]

Regulations may provide for additional kinds of exemption certificates

3.75 Regulations may be made which provide for additional kinds of exemption certificates. [Schedule 1, item 4, section 63]

Entities whose securities are stapled and entities operating on a unified basis

3.76 In general terms, an entity whose securities are stapled to the securities of another entity and an entity that operates on a unified basis with another entity are to be treated as entities of the same kind for the purposes of the Bill in certain circumstances. As a result, an action taken in relation to those entities may be a significant action or a notifiable action for the purposes of this Act.

3.77 Two entities are taken to be of the same kind if:

•

the securities in an entity are stapled to the securities in one or more other entities; or

•

an entity has entered an agreement with one or more other entities resulting in the entities being under a legal obligation to operate on a unified basis (for example, entities in a dual listed company arrangement); and

•

a person takes an action in relation to an entity whose securities are stapled or any entity that is under a legal obligation to operate on a unified basis (which is referred to in the Bill as the target); and

•

the target is not an Australian entity, an entity carrying on an Australian business or the holding entity of such an entity; and

•

the securities of the target are stapled to an entity that is an Australian entity, an entity carrying on an Australian business or the holding entity of such an entity or the target is under a legal obligation to operate on a unified basis with an Australian entity, an entity carrying on an Australian business or the holding entity of such an entity (the related entity).

[Schedule 1, item 4, section 65]

Powers of the Treasurer

Orders prohibiting proposed significant actions

3.78 The Treasurer may make an order which prohibits a significant action which is proposed to be taken if the Treasurer is satisfied that taking the significant action would be contrary to the national interest. The kind of significant action proposed determines the conduct that the Treasurer can prohibit.

Example 3.3

If a foreign person is proposing to acquire interests in shares in a corporation and it is a significant action - entities which would be contrary to the national interest, the Treasurer could make an order prohibiting the whole or a part of the proposed acquisition.

3.79 If the Treasurer makes an order prohibiting a proposed significant action the Treasurer may also make certain additional orders. For example, if a foreign person proposes to acquire an interest in Australian land, the Treasurer may make an order directing a specified foreign person not to acquire any interests in the land or other thing concerned, or to acquire any such interests only to a specified extent. [Schedule 1, item 4, section 67]

3.80 A person may commit an offence or contravene a civil penalty provision if they engage in conduct that contravenes an order which prohibits a proposed significant action. [Schedule 1, item 4, sections 86 and 93]

Interim orders

3.81 It may sometimes not be possible for the Treasurer to decide whether to make an order prohibiting a proposed significant action within the statutory time limit (which is 30 days after the day that a person notifies the Treasurer that the person is proposing to take a significant action unless the person agrees otherwise - see new section 77). To ensure there is adequate time the Treasurer may make an order of the kind the Treasurer could make under new section 67 of the Act, the Treasurer may make an interim order. An interim order cannot be made for a period of more than 90 days and the additional period specified in the order commences once the order is published in the Commonwealth of Australia Gazette (Gazette) [Schedule 1, item 4, section 68].This reflects the existing interim order practice under section 22 of the existing Act. An interim order may only be made once in relation to a significant action.

Disposal orders

3.82 If the Treasurer is satisfied that a significant action has been taken and the result is contrary to the national interest, the Treasurer may make an order that requires the person to dispose of the interest. The precise scope of the Treasurer's power to make such an order depends on the kind of significant action taken. For example, if the person acquired shares in a corporation, the Treasurer may make an order directing that the person who acquired the interest in the shares to dispose of those interests within a specified period to any one or more persons approved in writing by the Treasurer. [Schedule 1, item 4, section 69]

3.83 A person may commit an offence if they fail to comply with a disposal order [Schedule 1, item 4, section 86]. The Treasurer could also apply for an order from a court which requires the person to comply with the disposal order [Schedule 1, item 4, section 132].

3.84 This reflects existing practice under the Act.

Limitation on making disposal orders

3.85 The Treasurer is generally not permitted to make a disposal order in relation to an action that is specified in a no objection notification imposing conditions or a no objection notification unless:

•

the person is convicted of the offence of engaging in conduct that contravenes a condition of a no objection notification imposing conditions (see new section 87) or an order is made under section 19B of the Crimes Act 1914 (which allows a court to discharge a person without proceeding to conviction even though the court was satisfied that the charge was proved) in respect of such an offence; or

•

a civil penalty order is made against the person under the Regulatory Powers (Standard Provisions) Act 2014 (Regulatory Powers Act) in relation to a contravention of new sections 93 (contravening the conditions in a no objection notification), 96 (contravening conditions in a no objection notification relating to residential land) or 97 (contravening the condition in a no objection notification that the person notify the Treasurer when the person acquires or disposes of an interest in residential land) relating to a condition included in the notification.

[Schedule 1, item 4, section 70]

Variation and revocation of orders

3.86 The Treasurer may vary or revoke an order prohibiting a proposed significant action, an interim order or a disposal order at any time if the Treasurer is satisfied that the variation or revocation is not contrary to the national interest. In the case of a variation, the person must either consent to the variation or the Treasurer must be satisfied that the person will not be disadvantaged by the variation. [Schedule 1, item 4, section 71]

Publication and commencement of orders

3.87 Any prohibition order, interim order, disposal order or variation or revocation of such an order must be in writing, signed by the Treasurer, and published in the Gazette within 10 days after the order is made.

3.88 An order generally commences on the day the order is published except in the case of an additional order or a disposal order, in which case the order commences on the day specified in the order, which must be at least 30 days after the order is published in the Gazette. [Schedule 1, item 4, section 72]

3.89 This reflects existing practice under the Act.

Actions of more than one kind

3.90 If a single action is covered by more than one provision, the Treasurer may make any of the orders under new Subdivision A of Division 2 that he or she could make in relation to the single action. For example, if a notifiable action was both a significant action - entities and a significant action - land, the Treasurer may make orders that can be made in either case. [Schedule 1, item 4, section 73]

No objection notification imposing conditions

3.91 The Treasurer may decide that the Commonwealth has no objection to a proposed significant action if one or more conditions are imposed, being a condition or conditions which the Treasurer is satisfied is necessary to ensure the action, if taken, will not be contrary to the national interest.

3.92 The Treasurer may also decide that the Commonwealth has no objection to a significant action that has been taken if one or more conditions are imposed, being a condition or conditions that the Treasurer is satisfied are necessary to ensure that the action is not contrary to the national interest.

3.93 A no objection notification that is subject to conditions must be given no later than the end of 10 days after the decision is made.

3.94 The Treasurer may revoke a condition at any time if the Treasurer is satisfied that to do so is not contrary to the national interest. The Treasurer may also vary a notification at any time by imposing a new condition or varying an existing condition if the Treasurer is satisfied that to do so is not contrary to the national interest and the person either consents to the new condition or the variation, or the Treasurer is satisfied that the new condition or variation does not disadvantage the person. The Treasurer may decide to vary a notification on the Treasurer's own initiative or in response to a written application made by the person.

3.95 If the Treasurer gives a person a no objection notification in relation to more than one significant action and the Treasurer is satisfied that the actions would result in a change in control of the entity or business, but not all the actions are taken, the person may give the Treasurer a later notice relating to a later action that is proposed to be taken in relation to the entity or business. If the person does give the Treasurer a later notice the Treasurer may determine that there has been a change in control of the entity or business as a result of the later action. [Schedule 1, item 4, section 74]

Example 3.4

The foreign person Singapore Co (who is not a foreign government investor) receives a no objection notification imposing conditions in relation to its proposed significant action - entities to acquire 60 per cent of the Australian corporation, Parts Co. In this case, the action would have to result in a change in control to be a significant action. All conditions for it being a significant action were met and the Treasurer considered that significant action would be contrary to the national interest if conditions were not imposed. Thus, Singapore Co received a no objection notification imposing conditions.

Subsequently, Singapore Co did not fully implement the proposed significant action. It only acquired a 25 per cent interest in the shares of Parts Co.

Two years after the original no objection notification imposing conditions, Singapore Co gives another notice of notifiable action in relation to Parts Co as it proposed to make a full takeover. At the time of its notice, Singapore Co has no nominees on the board of Parts Co (whereas under its earlier proposal it had indicated that it would seek a majority on the Board once it acquired a simple majority stake of greater than 50 per cent of the shares of Parts Co). There are some other large shareholders in Parts Co (their stakes had been expected to significantly decrease as Singapore Co moved to 60 per cent).

In light of the circumstances that have eventuated as Singapore Co did not fully implement its earlier significant action, the Treasurer is able to consider if the latest notifiable action would meet the conditions to be a significant action, including the requirement for the action to result in a change in control.

The Treasurer is satisfied that the notifiable action is a significant action and that the action would be contrary to the national interest if conditions were not imposed. Thus, Singapore Co received a no objection notification imposing conditions.

3.96 If a person who is given a no objection notification imposing conditions in relation to significant action engages in conduct that contravenes a condition in a no objection notification imposing conditions the person may commit an offence or be liable to a civil penalty. [Schedule 1, item 4, sections 87 and 93]

No objection notification not imposing conditions

3.97 If the Treasurer receives a notice that a person proposes to take a significant action and the Treasurer is satisfied that the proposed action would be a significant action within the meaning of the Act, the Treasurer may decide that the Commonwealth has no objection to the action. The Treasurer must then give a no objection notification of the decision to the person, which must be given before the end of 10 days after the decision is made.

3.98 A no objection notification in relation to an action taken in relation to an entity or business does not prevent the Treasurer from determining later whether there has been a change in control of the entity or business. [Schedule 1, item 4, section 75]

Content of notification

3.99 A no objection notification must specify the one or more significant actions to which the notification relates; the one or more foreign persons to which the notification relates; and a requirement that the significant actions to which the notification relates be taken before the end of the specified period.

3.100 A no objection notification may identify a foreign person by specifying a foreign person that is not yet incorporated or a trustee of a trust that is not yet established and specifying the way in which the foreign person is to be incorporated or the trust is to be established. This reflects that depending on the nature of what is to be acquired, business practice is often to establish a special purpose vehicle for the acquisition.

Example 3.5

A foreign person is participating in a tender to purchase a large shopping centre. The shopping centre seller has made it a requirement that all bids are unconditional, so to participate in the tender the foreign person needs to give a notice of notifiable action to avoid otherwise committing an offence under the Act.

As the foreign person does not know if it will be successful in the tender, it does not want to bear the cost of incorporating a new wholly owned subsidiary to make the acquisition prior to having the Treasurer consider the significant action and knowing the outcome of the tender.

The Treasurer being able to include a yet to be incorporated subsidiary in the no objection notification caters to the business reality. Should the Treasurer consider the place of incorporation relevant to if the acquisition could be contrary to the national interest, the Treasurer is able to limit this to a particular jurisdiction such as Australia.

3.101 It is envisaged that if a no objection notification identified a foreign person that is not yet incorporated, the notification will specify that the corporation must be a wholly owned subsidiary of the person who applied for the no objection notification. The notification may also limit where the subsidiary can be incorporated or the trust may be established. Moreover, if the foreign person is ultimately not incorporated or the trust is not established, in the way specified in the notification, the notification will be taken not to specify the foreign person. [Schedule 1, item 4, section 76]

Example 3.6

The no objection notification specified a foreign person that was yet to be incorporated and that the foreign person was to be incorporated in Australia (consistent with what was requested in the notice given of a notifiable action). However, the significant action was taken by Foreign Co, a foreign person that was neither specified in the no objection notification, nor newly incorporated in Australia.

In this case, Foreign Co who took the significant action does not get the benefit of the no objection notification. As the significant action was also a notifiable action, Foreign Co prima facie has failed to notify a notifiable action and may have committed an offence or exposed itself to civil penalties. The Treasurer's powers in relation to the significant action taken would also likely be available should the Treasurer consider the significant action taken to have been contrary to the national interest.

Time limit on making orders and decisions

3.102 If a person notifies the Treasurer that a significant action is proposed to be taken the Treasurer can only make a prohibition order or give a no objection notification imposing conditions during the 'decision period' provided the person has not taken the action by the end of the decision period.

3.103 The decision period is usually 30 days after the day the Treasurer was notified that a significant action is proposed to be taken, unless, before the end of that period, the person requests in writing that the Treasurer extend the period. However, if a person is given a notice under new section 133 (which requires the person to give information or produce documents), the decision period does not include any day in the period beginning on the day the notice is given and ending on the day the person gives the information or produces the document in accordance with the notice.

3.104 If the Treasurer makes an interim order in relation to the significant action, the Treasurer is not able to make a prohibition order or a disposal order, or give a no objection notification (imposing or not imposing conditions) in relation to the action if, by the time the interim order ends, the person has not taken the action by the end of the period. [Schedule 1, item 4, section 77]

Anti-avoidance

3.105 The Treasurer may exercise the anti-avoidance powers in new subsection 78(2) (anti-avoidance powers) if:

•

one or more persons enter into, begin to carry out, or carry out a scheme (a term which is broadly defined by new section 4);

•

the Treasurer is satisfied that any of the persons who entered into, began to carry out or carried out all or any part of the scheme did so for the sole or dominant purpose of avoiding the application of any provision in this Act; and

•

all or part of scheme has achieved, or would have achieved were it not for the anti-avoidance powers, the purpose of the scheme.

3.106 This provision establishes an objective test, which means that the Treasurer may infer the purpose of the participant or participants from their conduct.

3.107 If the pre-conditions for the exercise of the anti-avoidance powers are satisfied, the Treasurer may make any order or decision under new Division 2 of Part 3 of the Act that the Treasurer would have been able to make if all or part of the scheme had not achieved that purpose. However, the Treasurer cannot make an order prohibiting a person from doing anything the person has already done before the order is made.

3.108 This provision substantially re-enacts section 38A of the existing Act. [Schedule 1, item 4, section 78]

Persons involved in avoidance taken to be associates

3.109 New section 79 allows the Treasurer to declare persons involved in avoidance to be taken to be associates if the Treasurer has made an order under section 78 (anti-avoidance) in relation to more than one person and is satisfied that not making an order under the subsection 79(2) is contrary to the national interest. Such an order may take some or all of such persons to be associates of each other for the purposes of this Act, or for specified purposes. The order must specify the duration that it is in force and has effect according to its terms. To assist the reader the Bill explicitly provides that an order made under this provision is not a legislative instrument. Such an order would have an administrative, and not a legislative, character. [Schedule 1, item 4, section 79]

Compulsory notice of notifiable actions and limitation on taking significant actions after notice given

3.110 A foreign person who proposes to enter an agreement to take a notifiable action must give notice to the Treasurer before entering the agreement [Schedule 1, item 4, section 81]. A foreign person who gives a notice to the Treasurer stating that a significant action (including a significant action that is a notifiable action) is proposed to be taken must not take that action until the earliest of the following:

•

10 days after the 'decision period' (that is, 30 days after the day the Treasurer receives a notice from the person about the proposed significant action which is a notifiable action unless the person requests in writing that the Treasurer extends the period);

•

if an interim order is made - the day specified in the order; and

•

the day a no objection notification is given to the person. [Schedule 1, item 4, section 82]

Reviewability of decisions

3.111 The Act does not currently provide for any decision to be reviewed on its merits and all decisions are excluded from the operation of the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) by Schedule 1 to that Act. However, judicial review is available under section 39B of the Judiciary Act 1903.

3.112 Like the existing Act, the Bill does not provide for merits review of any decision and decisions remain excluded from review under the ADJR Act, although judicial review remains available under the Judiciary Act.

3.113 The Bill does not provide for the review of decisions on their merits because the decisions under the Act involve complex questions of government policy that can have broad ranging implications for persons other than those immediately affected by the decision. For example, when making a decision under the Act it may be proper for the Treasurer to take into account a broad range of factors, including national security, competition, Australian Government policies (including tax), impacts on the economy and the community, and character of the foreign investor. It is therefore not appropriate for decisions that have such a high political content to be subject to merits review. The provision of merits review might also result in applicants being less willing to provide sensitive information which is relevant to the decision if they believe there is a risk that such information may be disclosed during such proceedings.