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2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
Foreign Acquisitions and Takeovers Amendment Bill 2009
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments moved on behalf of the Government
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
General outline and financial impact 1
Chapter 1 Explanation of amendments 3
Index 7
Do not remove section break.
Outline of amendments
On 20 August 2009, the Australian Government introduced the Foreign
Acquisitions and Takeovers Amendment Bill 2009 (the Bill) into the
Australian Parliament.
Since the Bill's introduction, several issues have been identified
that require further clarification, mainly relating to the expanded
definition of substantial interest. These issues have been
addressed by several minor amendments to the Bill. The amendments
are technical in nature and do not alter the policy intent of the
Bill. Specifically, the amendments:
. clarify how to determine 'substantial interest' with respect to
rights over a yet-to-be-determined number of shares or voting
power;
. clarify that the regulation-making provision includes
prescribed interests in shares for the purposes of a prescribed
provision;
. clarify that the tracing provisions incorporate the expanded
definition of substantial interests;
. clarify that the deeming provisions currently applicable to
options over shares and assets also apply to other types of
rights over shares and assets; and
. provide that the transitional provisions extend to interests in
Australian urban land captured by the compulsory notification
requirements.
Date of effect: The amendments to the Bill commence at the same
time as the Bill - that is, on 12 February 2009.
Proposal announced: The amendments to the Act were announced in
the Treasurer's press release No. 17 of 12 February 2009.
Financial impact: Nil.
Compliance cost impact: Low. The number of foreign investment
proposals that are likely to be affected by these amendments is
very small and any additional compliance costs will be largely
insignificant.
Do not remove section break.
Chapter 1
Explanation of amendments
Outline of chapter
1. The Bill improves the integrity of Australia's foreign investment
screening regime by ensuring that the Treasurer has the capacity to
examine all substantial investment proposals that could potentially
raise national interest concerns.
2. Since the Bill's introduction, several issues have been identified
that require further clarification. These mainly relate to the
expanded definition of substantial interest. The amendments
outlined below are technical in nature and are intended to clarify
these issues.
Determining substantial interests
3. The Foreign Acquisitions and Takeovers Act 1975 (the Act) relies on
interests in shares or voting power to determine whether a person
has a substantial interest in a company, which is then used in
determining whether notification is required and/or whether an
acquisition may result in control.
4. The Bill clarifies the definition of substantial interest so that
it explicitly includes rights to future shares and potential voting
power (the number of votes that could be cast if it is assumed that
a right is exercised). However, some rights in relation to shares
are such that the actual number of shares (and thus potential
voting power) cannot be actually ascertained until the time those
rights are exercised. For example, this may be the case where a
convertible note is issued in relation to shares equivalent to a
specified monetary amount. The number of shares and voting power
attached to that instrument would normally depend on the value of
the shares at the time of conversion.
5. Amendments 2 and 5 provide that all rights over shares or assets
will be treated as having been exercised at a particular point in
time (for example, at the time the agreement is entered into, at
the time of notification or at the time a decision is made under
the Act). This means that the level of potential voting power, if
it cannot presently be determined from the terms of the agreement,
is to be determined by assuming that the rights are exercisable in
all the circumstances that exist at that time. [Schedule 1, items
8 and 12, subsections 9(1B), 9(1C) and 14(3)]
Prescribed interests in shares
6. The concept of 'substantial interest' applies to the compulsory
notification provisions in sections 26 and 26A of the Act in two
ways. First, the acquirer must be substantially foreign as defined
by the 'substantial interest' test (effectively a 'foreign
person'). Second, the acquirer must be acquiring a 'substantial
interest' in an Australian corporation.
7. With respect to the first component, an entity may not be aware (or
be able to determine) that it is a person to whom the compulsory
notification provisions apply, because with the expanded notion of
'substantial interest', the entity may not know the identity of all
persons with 'potential voting power', given the characteristics of
derivative instruments and the way they may be traded off-market.
It is therefore possible that a company may not know whether it was
required to lodge a notice based upon who may hold substantial
interests in it.
8. Regulations are being drafted to the effect that rights to future
shares and potential voting power are disregarded with respect to
the first component of the compulsory notification provisions of
the Act (that is, in determining whether an entity is effectively a
'foreign person'). The proposed regulation changes are not
intended to affect the second component of the compulsory
notification provisions (that is, in determining whether the entity
is acquiring a substantial interest in an Australian corporation).
9. Paragraph 11(5)(c) provides for regulations to be made to disregard
'an interest of a prescribed kind in a share, being an interest of
such person, or of the persons included in such class of persons,
as is prescribed.' However, it is not clear whether this provision
is broad enough to capture the situation described above.
Amendment 3 clarifies that regulations can be made so that an
interest of a prescribed kind may also be disregarded in relation
to a prescribed provision of the Act. [Schedule 1, item 9A,
subsection 11(5A)]
10. This regulation making provision is consistent with the overall
design of the legislation which provides for broad coverage in the
Act but allows for specific exceptions in the regulations.
11. The relevant regulations are currently being drafted to ensure that
they commence at the same time as the Bill receives Royal Assent.
Tracing of substantial interests in corporations
12. Section 12C of the Act currently provides for substantial interests
to be traced back through the ownership of relevant entities.
Although this is intended to incorporate the expanded definition of
substantial interest, the existing wording in that section refers
to 'voting power' and 'issued shares' as well as 'substantial
interest'. Amendment 4 ensures that the tracing provisions fully
capture the expanded definition of substantial interest (that is,
not excluding 'potential voting power' and interests in 'unissued
shares'). [Schedule 1, items 9B to 9E, subparagraph 12C(b)(i) and
paragraph 12C(c)]
Notification of rights over shares or assets
13. Subsection 25(4) and section 28 provide that notifications of
acquisitions of options over shares or assets are deemed to include
the exercise of those options, ensuring that a second notice is not
required upon the exercise of those options at a later date.
However, these provisions do not currently extend to other types of
'rights'.
14. Amendments 6 and 7 extend this provision to other types of rights
over shares or assets so that there would be no additional
requirement to notify the subsequent exercise of that right.
[Schedule 1, items 15A, 22 and 23, subsection 25(4) and section 28]
Transitional provisions
15. Since the Bill applies retrospectively from 12 February 2009, it
provides transitional provisions to ensure that foreign persons
will not have committed an offence for failing to notify
acquisitions of substantial interests in Australian corporations
which would have been subject to compulsory notification under
section 26 of the Act by virtue of the Bill.
16. However, the transitional relief provisions of the current Bill
contain no such provisions for failing to notify acquisitions of
interests in Australian urban land under section 26A. Amendments 8
to 11 ensure that acquisitions of urban land during the
transitional period are also covered by the transitional
arrangements. [Schedule 2, items 1 and 2]
Consequential amendments
17. Amendment 1 is a consequential amendment related to the substantive
amendments outlined above. [Schedule 1, item 2, subsection 5(1)]
Index
Schedule 1: Amendments
|Bill reference |Paragraph |
| |number |
|Item 2, subsection 5(1) |1.17 |
|Items 8 and 12, subsections 9(1B), 9(1C) and|1.5 |
|14(3) | |
|Item 9A, subsection 11(5A) |1.9 |
|Items 9B to 9E, subparagraph 12C(b)(i) and |1.12 |
|paragraph 12C(c) | |
|Items 15A, 22 and 23, subsection 25(4) and |1.14 |
|section 28 | |
Schedule 2: Transitional provisions
|Bill reference |Paragraph |
| |number |
|Items 1 and 2 |1.16 |
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