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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