Selling your business overseas can be an exciting and rewarding experience, particularly given recent increases in foreign buyers seeking to purchase Australian organisations. However, it is important to remember that selling your business overseas to non-Australian purchasers can present some additional statutory obligations that must be met in order to ensure a successful transaction. These requirements are substantially outlined in the Commonwealth Foreign Acquisitions and Takeovers Act 1975 (FATA) and the subordinate Foreign Acquisitions and Takeovers Regulations Regulation 2015. The Regulations outline reporting requirements for purchases that pass certain financial thresholds, result in a foreign buyer gaining a substantial interest in an Australian organisation, result in a change of control of an Australian organisation or that may be detrimental to the national interest.
A. Who is a Foreign Buyer?
The FATA defines a foreign person as:
- an individual not ordinarily resident in Australia (note that this applies to expat Australians);
- a corporation in which a foreigner, foreign corporation or foreign government holds a substantial interest;
- a corporation in which two or more persons own an aggregate substantial interest;
- the trustee of a trust where two or more persons own an aggregate substantial interest; and
- a foreign government.
An individual has a substantial interest in an entity if they hold an interest of at least 20% in that entity. A group holds a substantial interest if their aggregate interest in the entity totals at least 40%.
B. Significant Actions
A significant action involves a foreign buyer (or group of buyers) obtaining an interest in a business or entity that would result in a change of control of that organisation. The change must also meet the threshold test under the FATA, whereby the monetary value of the action surpasses the threshold set by the Regulations. The threshold is periodically altered but is presently set at 1 094 million dollars for specified countries like China and New Zealand and 252 million for all other nationalities. More onerous thresholds apply for agribusinesses.
If the action meets the threshold test and is therefore a significant action, the Treasurer need not be informed unless the action is also a notifiable action (described below). However, the Treasurer still has powers to make orders to halt the action or make disposal orders if it is retroactively determined that the action is not in the national interest.
C. Notifiable Actions
Some significant actions also qualify as notifiable actions if they would result in the foreign person taking a substantial interest in an Australian business or entity and the action meets the threshold test. Foreign investors must inform the Treasurer whenever they propose to gain a substantial interest in an Australian entity. Importantly, notice must be given before the action is taken (in other words, before the interest is actually gained). Failure to do so can result in serious penalties. Upon being informed of the notifiable action, the Treasurer will receive advice from the Foreign Investment Review Board and may make a determination on the effect of the action on the national interest.
D. The National Interest
The Treasurer has 30 days to determine whether an action is not in the national interest. In coming to a decision, the Treasurer is advised by the Foreign Investment Review Board. If no decision is made within that time period then the action may proceed. Factors considered by the Treasurer may include national security, effect of the action on Australian-owned businesses and effect of the action on Australian tax revenue.
This summary is not a substitute for legal advice. In order to avoid divestment or disposal orders, it is important to be abreast of the full requirements outlined in FATA and the Regulations. As every case is different, the safest way to ensure selling your business overseas complies with the rules is to enlist legal advice tailored to your particular situation.
This article was authorised by Warwick Heeson.