OIO temporary emergency notification requirement extended

Temporary notification requirement

The New Zealand Government has announced that it is retaining the temporary emergency notification regime, which has been in force since 16 June 2020, for another 90 days.

The Ministers have completed a review of the regime and concluded that the ongoing effects of COVID-19 on the New Zealand economy justify the notification regime continuing to remain in place.

Under the emergency notification regime, overseas investors are required to notify the Government before they proceed with an investment in a New Zealand business if that investment (regardless of its dollar value):

  • results in more than a 25% ownership interest,
  • increases an existing interest in that business to, or beyond, certain thresholds (being 50%, 75% or 100%), or
  • results in the acquisition of more than 25% of the business’ assets (by value).

The purpose of this power is to prevent vulnerable New Zealand assets being subject to opportunistic foreign takeover due to the economic effects of the pandemic.

The Ministers’ next decision on whether the emergency notification regime should be retained is due by 25 May 2021. When considering whether the emergency notification regime should remain in place, the Minister must consider:

  • the economic, social, and other effects of the emergency in New Zealand,
  • any risks to New Zealand’s national interest associated with transactions by overseas persons, and
  • New Zealand’s international relations and international obligations.

New investor test and other changes

A new investor test was introduced as part of a range of other measures in the Overseas Investment (Urgent Measures) Amendment Act 2020. This new test will come into force on 22 March 2021 and has been significantly rationalised to become more bright-line and focus on material risks only. The new test sets out 12 character and capability factors and:

  • includes proven serious criminal offending and civil contraventions or formal proceedings on the same (e.g. prison for over 1 year in last 10 years, prison for 5 years or more at any time, pecuniary penalty, court fines etc), and
  • replaces business experience and acumen criterion with an objective assessment of relevant factors (e.g. director disqualifications, tax evasion, abusive tax position, outstanding tax of $5m or more).

Other significant changes which are yet to come into force include the following:

  • Leases: The OIA will only apply to leases of 10 years or more instead of 3 years (other than residential leases which stay at 3 years).
  • Benefit to NZ test: Changing the counterfactual to a simpler “before and after” test to be proportionate to the sensitivity of the land and benefits factors consolidated.

Our view

As we noted in our 2021 M&A Forecast, while the temporary emergency notification regime has not been as cumbersome as feared, it imposes time and cost constraints on a number of transactions which do not justify the additional requirements, while also imposing a burden on the OIO. We believe that the removal of the regime will allow the OIO to focus on transactions which are of genuine concern.

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