New Zealand recognises the importance of welcoming sustainable, productive and inclusive overseas investment. The corresponding responsibility to supervise and control this has been recognised in legislation since the early 1970s. In 2005 the Overseas Investment Act required consent from the Overseas Investment Office (OIO) for any business sale resulting in greater than 25% ownership of the business by an overseas owner over a certain monetary threshold. That monetary threshold has always been substantial so it did not affect the vast majority of vendors and purchasers. After the arrival of the Covid-19 pandemic during 2020, the New Zealand government recognised that many businesses could be vulnerable to unscrupulous overseas investors due to an increased impetus to raise capital to recover from the adverse impacts of the pandemic. It therefore saw the urgent need for greater management of the risks of overseas investment while the economic impacts of the pandemic remain.
An emergency notification regime was therefore enacted, requiring notification to the OIO regardless of value. For as long as the emergency regime remains in force, all business sales to overseas interests that meet the following criteria must be notified to the OIO:
- For sale of rights or interests in securities:
- If the sale results in the overseas interest owning more than 25% of the entity;
- If the sale results in an increase of the overseas interest’s ownership share from above 25% to either:
- Above 50%;
- Above 75%; or
- For property used in carrying on business:
- If the sale effectively amounts to a change in control of the business – i.e., results in more than 25% of the seller’s property transferring from the seller to the overseas person.
The emergency regime came into force on 16 June 2020 and will last for a maximum period of two years from that date. It only applies to transactions entered into after 15 June 2020. Every 90 days, the government must review whether the emergency regime needs to continue.
Once a transaction has been notified to the OIO, the Minister must make a direction on it. This process will generally take 10 working days. For most business sales this will not present an issue and consent will be granted. However, the OIO must be notified before the transaction can take effect.
The urgent nature of this regime and its marked departure from the norm are sure to catch out purchasers who are not aware of this regime, particularly regarding the sale of businesses. Where selling or purchasing your business it is worth considering what effect this regime may have on the transaction and heightens the importance of seeking legal advice for any business sale involving an overseas purchaser.