foreign investment

Significant reform on the horizon for Australia’s foreign investment review framework

25 June 2020

The Government has announced proposed changes to the foreign investment review framework to take effect 1 January 2021 following the temporary measures imposed in March 2020.

Some key aspects of the reform will include:

  • enhanced national security review of sensitive acquisitions;
  • amendments to streamline investment in non-sensitive areas; and
  • extra powers and resources to ensure foreign investors comply with the terms of their approval.

Earlier this year the Commonwealth Government announced that from 10:30 pm, 29 March 2020, the monetary thresholds for substantial interests attracting the obligation to obtain Foreign Investment Review Board (FIRB) approval have been reduced to $0 (temporary measures).

You can read more about the announcement of the temporary measures in our previous article here.

More recently, on 5 June 2020 the Treasurer announced a comprehensive reform package to strengthen the existing framework in light of foreign investment developments in comparable countries. This announcement does not immediately affect the temporary measures that are currently in place.

The Government’s previous announcement imposed temporary measures to protect Australia’s national interest in the wake of COVID-19, and fears the economic downturn caused by the pandemic would lead to opportunistic takeovers of struggling businesses. The newly proposed reforms will be a more permanent and substantial amendment to the foreign investment review framework to enable Government review of other countries’ investment in Australian assets to ensure they are not contrary to the national interest.

The reform package foreshadows many changes to the Foreign Acquisitions and Takeovers Act 1975 (Cth). Three noteworthy aspects of the proposed reforms are:

  • the introduction of the national security test;
  • streamlined investment for Foreign Government Investors; and
  • increased enforcement, compliance measures and penalties.

National Security Test

The Government will introduce a new national security test for investments that raise national security concerns and which fall below existing monetary thresholds. Investments subject to the new national security test will be assessed in relation to factors that give rise to national security concerns. National security concerns may include espionage, sabotage, intellectual property theft, violence or interference. These factors may be relevant for the Treasurer when considering whether a proposed investment gives rise to national security concerns.

For clarity, the existing national interest test will remain unchanged including the factors that typically underpin the assessment process such as the character of the investor, competition, impact on the economy and community, national security and other Government policies (including tax).

In order to avoid overlap between the two tests, wherever the broader national interest test applies, only that test will be used in an assessment. This is because national security is already a relevant factor that the Government considers as part of the national interest test.

The new national security test will enable the Government to review any acquisition of a direct interest by a foreign person on national security grounds, regardless of the value of the investment. If satisfied that the investment would be contrary to Australia’s national security, the Treasurer will have the power to mitigate national security concerns by imposing conditions or, if necessary, prohibit the proposed investment. Enhanced national security protections will be given effect through the following measures.

  • Mandatory pre-investment notification when acquiring 10% interest or a position of control in a sensitive national security business (or where a business owned by a foreign person expands to include sensitive national security business activities);
  • Time-limited power to ‘call in’ investments (that were not required to notify under the new national security test or existing national interest test) to be screened and evaluated against the national interest test;
  • Voluntary notification prior to the investment will provide some certainty and limited protection against the Treasurer’s ‘call in’ power
  • Time-limited investor specific exemption certificates will be available which provide greater certainty and protection for suitably screened investors; and
  • A last resort review power will enable the Government to reassess approved investments and impose conditions or divestment where subsequent national security risks emerge.

Streamlined investment process for non-sensitive acquisitions by Foreign Government Investors

The classification of Foreign Government Investors (FGI) will remain under the proposed reforms. However, the Government will no longer treat certain entities as Foreign Government Investors under the broader national interest test where the Foreign Government Investors have no influence or control over the investment or operational decisions of the entity or any of its underlying assets. These entities will still be considered as foreign persons for the purpose of foreign investment screening.

This is a welcome development in the context of institutional investment funds, which would otherwise require screening simply because Foreign Government Investors invest large sums of money into such institutional investment funds.

Under the proposed reforms, the threshold for classification as a Foreign Government Investor will no longer be triggered if an investment fund has more than 40% foreign Government ownership in aggregate (without influence or control) but less than 20% from any single foreign Government.

By contrast, an investment fund which has a single Foreign Government Investor with at least 20% ownership (without influence or control) will still be deemed a Foreign Government Investor. However, they will be able to apply for a broad exemption certificate.

An investment fund will generally be entitled to an exemption certificate if it is proven that no Foreign Government Investor has, or could be perceived to have, influence or control over the investment or operational decisions of the entity or any of its underlying assets.

Enforcement, compliance and penalties

The Government will have increased monitoring and investigative powers, including access to premises with consent or by warrant to gather information. This measure will improve regulators’ capability to monitor investor compliance and/or investigate potential non-compliance.

Maximum criminal and civil penalties will be significantly increased:

  • 10 years imprisonment for individuals;
  • $525 million in relation to non-residential investment;
  • $31.5 million for a corporation in relation to all types of investment;
  • $3.15 million for an individual in relation to all types of investment; and
  • 25% of purchase value or market value (whichever is higher) in relation to residential investment.

Furthermore, the infringement notice regime will be upgraded with the maximum penalty five times greater and will be applicable to breaches associated with all investments.


Investors should be mindful that under the new national security test, even small scale investments and start-ups may require FIRB approval.

For further details about the proposed foreign investment reforms, refer to the Government’s comprehensive booklet for greater insights into the full breadth of reforms here.

The Government will release exposure draft legislation in July ahead of a six week consultation period. We will aim to highlight the practical implications once it has been released and further details are known.

Please contact our Corporate and Commercial team if you would like advice about the forthcoming changes to the foreign investment review framework. Rigby Cooke Lawyers are experienced in navigating the Australian foreign investment framework and international commercial dealings.

Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.

Liability limited by a scheme approved under Professional Standards Legislation.

©2020 Rigby Cooke Lawyers