Australia's foreign investment regime applies very broadly and captures many transactions. As businesses consider how to respond to the demands of the current COVID-19 economic environment, they may be required to go through the Foreign Investment Review Board (FIRB) screening regime. Capital raisings, capital injections within a corporate group, refinancing from non-traditional lenders and internal reorganisations – as well as acquisitions of companies, businesses and real estate and other transactions – can all be caught by the FIRB regime.
So what are the challenges for businesses and the potential for regulatory relief at the moment? Our views on how the broader economic crisis may impact upon the FIRB regime – and the political appetite to allow foreign investment across different industries – will be shared in a later alert.
Timing for FIRB
A transaction subject to the FIRB regime must go through an application process that is typically at least 30 days and – even before the current delays – often much longer. The relevant transaction cannot proceed after an application has been made until FIRB clearance has been obtained.
As government agencies transition to work from home arrangements, there will inevitably be significant delays as announced by FIRB this week. Given the decision-maker is ultimately the Treasurer of Australia, there are also understandable constraints on decision-maker availability.
With a four week delay now standard for non-urgent applications already in the system, investors with pending applications will need to carefully consider their circumstances to see if an urgency request can be successfully made.
Urgency factors such as imminent insolvency, imminent job losses or where urgent capital is needed to assist with COVID-19 related technologies and supplies will have a greater chance of success in the current environment.
Our team is working with a number of clients and their other advisors on appropriate engagement strategies to navigate the process for urgent transactions – both those already pending before the FIRB, as well as upcoming transactions.
Lengthy approval timeframes, and potential ongoing delays, can stymie commercial negotiations, or mean that businesses are left without sufficient cashflow to continue their operations for an uncertain period of time. Clients need to manage those risks by exploring structural solutions that can alleviate those blockages to investment, or cashflow concerns for business, that a lengthy approval period delay would otherwise cause.
Fee relief due to COVID-19 pandemic
Where transactions are no longer proceeding or are deferred due to the COVID-19 pandemic, FIRB have implemented a program for the refund of application fees. Clear submissions will need to be made demonstrating the impact of COVID-19 on investment decisions. Our team can assist investors in accessing this relief.
Further regulatory relief?
Our team is working directly, and with industry bodies, to explore options for regulatory relief that make sense in the current environment. The aim is to assist investors in being able to quickly deploy available capital across the economy as and when the opportunities arise.
However, unless and until there is some form of regulatory relief that applies, businesses and investors may still need to adhere to the FIRB process.
Where they do need to go through the FIRB process in the current climate, a well-formulated engagement strategy and compelling business need will be necessary more than ever to obtain a timely outcome.
Please contact our foreign investment & trade team if you have any queries or would like some assistance.