On 16 April 2020, the Australian government released the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations (‘Regulations’) together with Guidance Note 53 (‘GN53’). The Regulations codify the changes previously announced by the Australian Government regarding the lowering to $0 of the threshold for reporting foreign investment into Australia that give rise to significant actions or notifiable actions. A summary of those changes can be found in our previous blog post located here.
The Regulations, amongst other things, insert a new clause into the Foreign Acquisitions and Takeover Regulations 2015 which states that the amendments made to the thresholds only apply to ‘an action taken on or after the announcement time’ (being 10:30 AEDT on 29 March 2020 (‘Announcement Date’)). Put simply, the effect of this provision is that agreements that were entered into prior to the Announcement Date are not subject to the new threshold test and are treated as if the previously existing thresholds still apply. The Regulations also state that an agreement entered into prior to the Announcement Date does not need to be binding in nature to be exempt from the new thresholds. This concept of a non-binding agreement is explained further in GN53:
“In determining whether an agreement has been reached before the announcement, the agreement will need to be one where negotiations have been completed and the parties have arrived at a mutual understanding of all the essential elements of their bargain. Therefore, the concept of an agreement does not cover any preliminary stage in negotiations or other circumstances short of a mutual understanding of all essential elements of a bargain.”
This approach (of having reached a mutual understanding of all the essential elements of a bargain) is consistent with the test applied by the leading case law in Australian as to what amounts to a binding agreement. But what does this look like in practice?
Put simply, we’d suggest that if all you have is a non-binding term sheet, then you’re unlikely to satisfy the test. However, if prior to the Announcement Date you’ve entered into a binding agreement that is subject to certain conditions to completion, which were at the Announcement Date still yet to be satisfied, then your agreement will be exempt from the new thresholds that apply for significant and notifiable actions under the Foreign Acquisitions and Takeovers Act. This means that, subject to the application of the previously existing thresholds, you may be able to proceed to complete your agreement without needing to make a notification to FIRB.
The implications of failing to comply with the Foreign Acquisitions and Takeovers Act can be significant so if you are uncertain as to whether you need to comply in your transaction, please contact Michael Garry or Gerry Cawson for advice.