The Australian treasurer may prohibit a foreign investment or order the investor to divest other interests if the deal is considered contrary to the national interest. The treasurer's powers and the notification and review procedures for proposed acquisitions of Australian land or businesses (subject to certain thresholds) are set out in the Foreign Acquisitions and Takeovers Act 1975 (the Act).
Tracing provisions in the Act allows the treasurer to follow the chain of ownership right through to the ultimate holding company or through a trust to its beneficiaries. Recent international corporate and finance restructuring has highlighted the implications when a trust is involved. Of note is that a domestic trustee of a discretionary trust that may potentially distribute more than 15% of its income or corpus to a foreign person is itself considered a foreign person for the purposes of the Act and may be required to notify the regulator if it proposes to acquire Australian land or an Australian business.
The Act provides for the compulsory notification of transactions where there is an acquisition of a substantial shareholding or interest by a foreign person. Due to the tracing provisions, this will include situations where an entity is interposed in the chain of ownership offshore. For example, if there is a 100% chain of ownership A(UK) B(UK) C(Bermuda) D(Netherlands) E(Australia) and an entity is interposed between B and C, that transaction will be notifiable since there is an acquisition of a substantial interest in an Australian company by a foreign person, even though it takes place offshore and does not affect the ultimate control of E.
Failure to notify a transaction or, if the transaction has been notified, proceeding with the transaction before the expiry of the relevant time period or the receipt of approval from the treasurer, is an offence punishable by a fine of up to A$250,000 ($137,000) and orders to unwind the transaction. When reviewing corporate restructuring with Australian companies, businesses or land held downstream, it pays to analyze the Australian requirements even if the restructuring does not occur in Australia.
Andrew Wheeler and Angus Davison