Key points
- Government proposals will extend Australia’s foreign investment legislation to a broader range of securities.
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The Treasurer, Wayne Swan, has foreshadowed important amendments to the Foreign Acquisitions and Takeovers Act 1975 (Cth). In a release made on 12 February 2009 (the same day as the Rio/Chinalco proposal was announced), the Treasurer said:
In light of the growing use of more complex investment structures, the Government intends to clarify the operation of the foreign investment screening regime.
The Government will amend the Act to ensure that it applies equally to all foreign investments irrespective of the way they are structured.
In particular, the amendments will ensure that any investment, including through instruments such as convertible notes, will be treated as equity for the purposes of the Act.
It is our intention to introduce the amendment into Parliament as soon as practical and will be effective from today.
It is important to note that this announcement clarifies the operation of the Act, but does not pre-empt any final decision on any current or future investment proposal.
This proposal will effect a major change to the legislation which has, for a long time, enabled investments to be made using securities which confer an economic interest in Australian companies, but which do not require FIRB approval as the securities are not ‘shares’, even though they may be convertible into shares. A typical example would be convertible notes or debentures, which confer a right to distributions which may match the dividends payable on shares in the company, but which do not enable the holder to exercise any voting rights prior to conversion. Their conversion would be subject to the holder obtaining any FIRB approvals at the time.
Depending on the final drafting of the amendments, the proposal will therefore change the focus of the law from looking at control to looking at economic interests. It will be interesting to see how far reaching this proposal is once the proposed legislation is released, including whether it may affect current investments.
More information
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