Bills Digest no. 29 2009–10
Foreign Acquisitions and Takeovers Amendment Bill 2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Foreign Acquisitions and Takeovers
Amendment Bill 2009
Date introduced: 20 August 2009
House: House of Representatives
Portfolio: Treasury
Commencement: Schedule 1 on 12 February
2009; sections 1–3 and Schedule 2 on Royal Assent.
Links: The relevant
links to the Bill, Explanatory Memorandum and second reading speech
can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills
have been passed they can be found at ComLaw, which is at http://www.comlaw.gov.au/.
The purpose of the Foreign Acquisitions and Takeovers
Amendment Bill 2009 (the Bill) is to amend the Foreign Acquisitions
and Takeovers Act 1975 (the Act) to take account of increasing use
of emerging complex financing arrangements that could potentially result
in influence over, or control of, Australian companies, either now or
in the future. Such arrangements, not envisaged when the Act was drafted,
include convertible bonds or notes that convert (or give the option to
convert) debt finance to equity finance.
The Bill specifically relates to foreign investments involving Australian
companies or assets, which could potentially result in influence or control
thereof.[1]
The current screening regime embodied in the Act, is based around the
notion of control of an Australian company or assets. In order for the
current screening regime to be triggered (requiring mandatory notification
of the proposed transaction to the Treasurer), the following criteria
must be met:
- the potential investor must be a foreign person, and
- the acquisition target must exceed the relevant monetary thresholds;
- a proposed acquisition of shares representing a substantial interest
or aggregate substantial interest in the corporation;
- a proposed acquisition of assets resulting in control of the business,
or
- any other type of proposed arrangement that results in voting power
being transferred to the potential investor.[2]
Under the Act, the use of instruments such as convertible notes, where
debt finance converts into equity at a later date, may be covered by the
existing provisions of the Act. However, the amendments proposed in the
current Bill aim to remove uncertainty by clarifying definitions of ‘substantial
interest’ and ‘aggregate substantial interest’ and introducing a definition
of ‘potential voting power’.
Essentially, the intention of the Bill is to extend coverage of the Act
to the exercise of rights to acquire shares or voting power in the future,
so that such arrangements could immediately trigger the existing screening
regime and the Treasurer’s powers to block or place conditions upon any
such proposed arrangement.
The proposed amendments to the Act contained in this Bill were announced
in a press release from the Treasurer, Wayne Swan MP on 12 February 2009.[3]
It is noted that the Senate Standing Committee on the Scrutiny of Bills
reviewed the Bill and made no comment.[4]
At the time of writing, the Bill has not been referred to any other committee
for consideration.
At the time of writing, there has been no significant interest group
or media commentary
This Bill does not seek to appropriate any Commonwealth funds and so
there is no direct financial impact.[5]
Schedule 1— Amendments to the Act
Item 7 proposes to amend section
5(4), which currently provides that:
a reference to entering into an arrangement is a reference
to entering into any formal or informal scheme, arrangement or understanding,
whether expressly or by implication, and, without limiting the generality
of the following, includes a reference to:
(a) entering into an agreement, other than a money
lending agreement;
(b) creating a trust, whether express or implied;
and
(c) entering into a transaction.
The amendment adds new paragraph 5(4)(d) to explicitly extend
the meaning of ‘entering into an arrangement’ so that it can include an
arrangement to acquire an asset or share.
Item 8 proposes to amend subsection 9(1) and add new
subsection 9(1A). Under section 18 of the Act, having in mind
the adverse impact on the national interest, the Treasurer may make an
order prohibiting the proposed acquisition or all or any of the proposed
acquisitions, or the proposed issue of shares, as the case may be. However,
this order first requires the Treasurer to be satisfied that a foreign
person(s) has or will acquire a controlling interest in an Australian
corporation. Under section 9(1) of the Act, the concept of ‘control’
is satisfied if:
- a person holds a ‘substantial interest’ – having either control over
at least 15 per cent of the corporation’s voting power or holding at
least 15 per cent of its issued shares; or
- in the case of two or more persons, they together hold an ‘aggregate
substantial interest’ – having either control over at least 40 per cent
of the corporation’s voting power or holding at least 40 per cent of
its issued shares;
provided that such interest or interests enable them to ‘determine
the policy of the corporation’.[6]
Both of the concepts of ‘substantial interest’ and ‘aggregate
substantial interest’ are defined in the legislation by a reference to
specified percentages of voting power. The amendment proposed to subsections
9(1) and 9(1A) expand these definitions to include potential
voting power and interests, while using the existing percentages of voting
power under the Act.
Item 9 proposes to amend section 11 by clarifying that the current
definition of ‘interest in a share’ under subsection 11(2) includes
a right under an instrument, agreement or arrangement, whether rights
are exercisable presently or in the future, and whether on the fulfilment
of a condition or not. The amendment is designed to ensure that all possible
financing arrangements, which give rise to a component of control or influence,
are captured and are therefore capable of being kept in check so as to
achieve the purposes of the Act. However, the amendment is not designed
to capture bona fide money-lending arrangements, where these do not involve
the option to acquire shares or voting rights.[7]
Both items 8 and 9 will trigger an obligation for foreign
investors to notify the Treasurer (pursuant to proposed section 26)
where there is the prospect that the kinds of arrangements used will in
the future, create influence over, or control of, an Australian company
which is subject to the Act: subsections 9(1) and 11(2).[8]
Item 12 proposes to amend section 14. For the purposes
of the Act, control of a company is assessed by reference to the number
of shares or voting power. However, the proportion of shares is not always
equivalent to the voting power. The amendment proposed therefore addresses
possible ambiguity in the definition of ‘voting power’ in section 14,
by clarifying that ‘voting power’ also refers to potential voting power.
Items 14 and 15 propose to amend paragraphs 20(5)(a)
and 21(5)(a) by clarifying that in relation to an Australian
corporation or business being controlled by foreign persons, the ability
to determine the policy of a corporation applies in relation to any matter.
Thus potentially a person would not have to be in a position to determine
all aspects of the corporation’s policy in order to be considered
to have a controlling interest.
Items 16–19 propose to amend section 26, which provides for mandatory
notification of acquisitions of ‘substantial holdings’. The amendments
proposed by these items replace all references to ‘shares’ and ‘shareholding’
with references to ‘substantial interest’, so as to ensure that all other
financing arrangements are captured.
Schedule 2— Transitional Provisions
Schedule 1 commences retrospectively on 12 February 2009,
the date of the Treasurer’s announcement about the measures contained
in the Bill. However, under item 1, no offence is committed
in respect of a failure to notify the Treasurer (of a proposed investment
of the type covered by the amendments) where the relevant investment arrangement
is entered into during the ‘transition period’ – that is, between 12 February
2009 and the commencement of the Schedule 2 (which is the date of Royal
Assent).
However, the above protection is limited. Once schedule 2 commences,
foreign investors will have only 30 days from that date to notify the
Treasurer that they entered into a transaction of the type covered by
these amendments during the transitional period. Failure to do so within
the 30 days will be an offence and, in the case of a natural person, attract
a maximum penalty of 500 penalty units ($55 000), or imprisonment of 2
years, or both. A corporation would face a maximum penalty of 2500 penalty
units ($275 000).
Scott Kompo-Harms and Juli Tomaras
15 September 2009
Bills Digest Service
Parliamentary Library
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