27 May 2021

OIO changes will address flaws, but could have gone further, law firm says

4:19 pm on 27 May 2021

Changes to overseas investment rules will benefit many investors looking to buy sensitive assets, but have missed opportunities to do better, according to a law firm.

Landscape with forest and grazing sheep, North Island, New Zealand

Sales of farm land will be required to be advertised in New Zealand first, under new rules. Photo: 123RF

The temporary investment rules brought in at the start of the Covid-19 pandemic to protect fire sales of key assets expire in early June.

A new law will bring in permanent protection for strategically important businesses, such as military technology, critical national infrastructure, and sensitive land.

Law firm Chapman Tripp said the changes would fix some of the flaws in the current system, but could have delivered some useful and still needed improvements.

"The proposed fee structure released in February shows fees for some complex consent applications more than doubling or trebling from current levels," the firm said in a report.

Among the changes was a simplification of the benefits test assessment, which would allow investors to be approved ahead of an application for a specific transaction.

"It gives investors confidence that they can, perhaps, bid at an auction or engage in a competitive sales process, knowing that all they have to do is convince the OIO (Overseas Investment Office) of the business case and not any uncertainty about whether they are a suitable investor," Chapman Tripp partner Tessa Baker said.

"For example, we'll see statutory time frames come in which I think will be most welcomed by investors to know that they've got a timeline for getting a consent."

It also provided allowed foreign investors in sensitive assets, to make minor increases in shareholdings without triggering a consent requirement.

The new Act also requires all investments in farmland be advertised in New Zealand before any agreement to sell to an overseas person, compared with the current rule which required a purchase to be advertised after it had been completed.

"The rules apply to corporate transactions that may involve farm land and could prove to have a significant impact on the timing for entry into such transactions," the law firm said.

Chapman Tripp said further reforms would be desirable, but expected it would be several years before there was a political appetite to consider further significant reforms.

The reforms take effect in 5 July, with various requirements phased in over the next 12 months.

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