Australia: a guide for foreign investors. 1 Investing in Australian real estate: a legal guide for overseas investors

Transcription

1 investing Australia: a guide for foreign investors 1 Investing in Australian real estate: a legal guide for overseas investors

2 Introduction 1 Structures for conducting business in Australia 2 Regulation of foreign investment 5 Regulation of public company takeovers 9 Energy & resources 12 Competition/antitrust 14 Capital raisings 18 Funds management 21 Real estate 23 Employment and labour law 25 Taxation 27 Contact details 36 2 Investing in Australian real estate: a legal guide for overseas investors

3 This guide is a general summary of the areas of law and regulation relevant to foreign investment in Australia as at August 2014 and is not legal advice. Foreign investors should seek professional advice in relation to any proposed investment in Australia. Johnson Winter & Slattery would be pleased to provide you with advice in relation to any of the matters discussed in this guide. 1 INTRODUCTION Australia has attracted a steady stream of foreign investment over many years, in particular from the United States, the United Kingdom, China, Canada and India. With its relative economic and political stability, transparent legal and regulatory system, highly skilled workforce, abundance of natural resources and close proximity to Asia-Pacific markets, Australia has much to offer foreign investors. The Australian economy proved resistant to the harshest impacts of the global financial crisis and Australia remains an attractive, low-risk destination for foreign investors. The Australian Government welcomes foreign investment and acknowledges the many benefits that foreign investment brings. Johnson Winter & Slattery is a corporate and commercial law firm that represents international and Australian clients on their most strategic, complex and demanding transactions and disputes throughout Australia. With offices in all major Australian business centres, we are well placed to meet the particular needs of multinational clients with operations in Australia. Our national team of senior practitioners has a wealth of experience in advising international clients on their investments in Australia and in successfully navigating the many areas of law and regulation that apply to such investments. This guide provides an overview for foreign investors of the key legal, regulatory and taxation issues applicable to an investment in Australia. For further information on any of the matters discussed in this guide and how we can assist you in relation to any foreign investment proposal, please contact one of our partners listed in the contacts section of this guide, or visit our website at Peter Slattery Managing Partner Australia: a guide for foreign investors 1

4 STRUCTURES FOR CONDUCTING BUSINESS IN AUSTRALIA In Australia, a person may conduct business as a sole trader, a partnership, a joint venture, a trust or a company. In addition, a foreign company that wishes to carry on business in Australia must either register as a foreign company or establish an Australian subsidiary company. These different business structures are discussed further on the following pages. 2 Investing 2 Australia: in Australian a guide real for estate: foreign a legal investors guide for overseas investors

5 SOLE TRADER An individual may operate a business as a sole trader. A sole trader will be personally liable for all obligations incurred in operating the business. PARTNERSHIPS A partnership involves two or more (but no more than 20, subject to exceptions for certain professional partnerships) individuals or companies carrying on business with a view to profit. A partnership is not a distinct legal entity and therefore the partners are jointly and severally liable for the obligations of the partnership. TRUSTS In a trust, a trustee (either an individual or a company) holds the property of the trust and carries on the business of the trust for the beneficiaries of the trust. The trustee will be responsible for the obligations of the trust, but will typically have the right to be indemnified out of the property of the trust in respect of those obligations. The most common types of trusts are fixed trusts, unit trusts and discretionary trusts. JOINT VENTURES A joint venture is an arrangement between parties (individuals or companies) to conduct business with a view to assisting each other to achieve a common goal, often for a particular project. Joint ventures can be structured either as an unincorporated joint venture or an incorporated joint venture. The main difference is that an unincorporated joint venture is not a separate legal entity whereas an incorporated joint venture, such as a company, is a separate legal entity. COMPANIES Australian companies are incorporated under the Corporations Act 2001 (Cth) (Corporations Act), which is administered by the Australian Securities & Investments Commission (ASIC). There are two types of companies in Australia proprietary companies and public companies. The following table sets out the key features of each type of company. A company is owned by its shareholders and managed by its directors. It is a separate legal entity to its shareholders and directors. The company s shareholders are generally not liable for the company s obligations. DIRECTORS SHAREHOLDERS PROPRIETARY COMPANIES At least one director who is ordinarily resident in Australia At least one shareholder, but not more than 50 non-employee shareholders PUBLIC COMPANIES At least three directors, two of whom are ordinarily residents in Australia At least one shareholder SECRETARY Optional At least one secretary who is ordinarily resident in Australia REGISTERED OFFICE IN AUSTRALIA Required Required Australia: a guide for foreign investors 3

6 FOREIGN COMPANIES CONDUCTING BUSINESS IN AUSTRALIA A foreign company must not conduct business in Australia unless it is registered under the Corporations Act as a foreign company (in other words, establish an Australian branch of the foreign corporation). Registering as a foreign company does not establish a separate legal entity in Australia. For these purposes, carrying on business includes anything in the course of starting or ending a business, including, among other things: having a place of business in Australia establishing or using a share transfer office or share registration office in Australia, or administering, managing or otherwise dealing with property situated in Australia. The main consequences of registering as a foreign company are that the foreign company will need to: appoint a local agent as a natural person resident in Australia upon whom notices may be served and who can be personally liable to penalties imposed on the foreign company for contraventions of the Corporations Act have a registered office in Australia, and unless exempt, annually lodge its financial information with ASIC. An alternative to registering as a foreign company is that the foreign company may incorporate an Australian company to conduct the foreign company s business in Australia. The key practical differences of this approach is that rather than having a local agent, the Australian subsidiary will, assuming that it is a proprietary company, need to have at least one director who must be ordinarily resident in Australia and, subject to limited exceptions, will need to annually lodge its own financial statements with ASIC. TAXATION IMPLICATIONS Different taxation implications arise under each of the aforementioned structures. An overview of Australian taxation laws is provided in Section 11 of this guide. 3 4 Australia: a guide for foreign investors

7 REGULATION OF FOREIGN INVESTMENT Foreign investment in Australia is regulated primarily by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and the Federal Government s Foreign Investment Policy (Policy). Responsibility for decisions under the FATA and for administering the Policy lies with the Australian Federal Treasurer who is assisted by the Foreign Investment Review Board (FIRB), a non-statutory body which reviews foreign investment proposals and makes recommendations to the Treasurer. The Treasurer has broad powers under FATA to block or make divestment orders in relation to certain foreign investment proposals where the Treasurer considers the proposal to be contrary to Australia s national interest. The Treasurer may also issue a statement of no objection in relation to a proposal (known as a FIRB approval ) where the Treasurer considers the proposal is not contrary to Australia s national interest. FIRB NOTIFICATION AND EXAMINATION REGIME The notification of certain foreign investment proposals is compulsory under FATA, and it is an offence to implement (or agree to implement) such proposals in the absence of requisite notice or receipt of a statement of no objection under FATA. Other proposals, while not compulsorily notifiable under FATA, should generally be notified to avoid the risk of the Treasurer subsequently making an adverse order. The formal notification of a foreign investment proposal to FIRB activates a 30 day review period. If the Treasurer does not decide to make an order prohibiting or imposing conditions on the proposal within that 30 day period and advise the applicant of that decision within a further 10 days, the Treasurer loses the ability to make such an order in relation to the proposal. However, the Treasurer may extend the 30 day review period by up to a further 90 days by publishing an interim order. The Policy sets out additional circumstances in which foreign investment proposals require notification to FIRB. While the Policy has no legislative force, compliance with the Policy is recommended including for the purposes of the foreign acquirer maintaining a good relationship with the Federal Government. Notifications made under the Policy are not subject to the statutory review period. TO WHOM DO FATA AND THE POLICY APPLY? FATA applies to foreign persons which include: a natural person not ordinarily resident in Australia, and a corporation or trust in which a natural person not ordinarily resident in Australia or a foreign corporation holds a 15% or greater interest (or in which two or more such natural persons or foreign corporations hold in aggregate a 40% or greater interest). Australia: a guide for foreign investors 5

8 WHAT PROPOSALS REQUIRE NOTIFICATION? Foreign investment proposals that require notification to FIRB either under FATA or the Policy are summarised in the table. INVESTMENTS BY FOREIGN GOVERNMENTS ACQUISITIONS OF INTERESTS IN AUSTRALIAN CORPORATIONS ACQUISITIONS OF INTERESTS IN FOREIGN COMPANIES ACQUISITIONS OF ASSETS OF AUSTRALIAN BUSINESSES ACQUISITIONS OF INTERESTS IN AUSTRALIAN URBAN LAND INVESTMENTS IN THE MEDIA SECTOR Direct investments by foreign governments or their related entities (including state-owned enterprises and sovereign wealth funds) irrespective of the value of the investment and including the establishment of any new businesses. Acquisitions by foreign persons of a substantial interest (being 15% of actual or potential voting power) in an Australian corporation having total assets valued at, or which the proposal values at, above A$248 million (or A$1,078 million for acquisitions by US or New Zealand non-government controlled investors not involving a prescribed sensitive sector). Acquisitions by foreign persons of a substantial interest (being 15% of actual or potential voting power) in a foreign corporation: whose Australian subsidiaries or Australian gross assets are valued at above A$248 million (or A$1,078 million for acquisitions by US or New Zealand non-government controlled investors not involving a prescribed sensitive sector), or which is valued at above A$248 million (or A$1,078 million for acquisitions by US or New Zealand nongovernment controlled investors not involving a prescribed sensitive sector) and whose Australian assets comprise 50% of more of the total assets (by value) of the foreign corporation s group. Acquisitions by foreign persons of assets (including rural land) comprising an Australian business valued at, or which the proposal values at, above A$248 million (or A$1,078 million for acquisitions by US or New Zealand non-government controlled investors not involving a prescribed sensitive sector). Subject to certain limited exceptions, acquisitions by foreign persons of interests in Australian urban land (being land situated in Australia that is not rural land), or any shares or units in companies or trust that have more than 50% of their assets in Australian urban land, regardless of the value of the acquisition. The Australian urban land provisions are complex and in certain circumstances capture interests in mining tenements as further discussed in Section 5 of this guide. The Australian urban land provisions are discussed in more detail in Section 9 of this guide. Investments by foreign persons of 5% or more in the media sector, regardless of the value of the investment. The monetary thresholds referred to in the table are current as at 1 January 2014 and are subject to annual indexation. 6 Australia: a guide for foreign investors

9 THE NATIONAL INTEREST The Treasurer assesses foreign investment proposals against a national interest test. National interest is not defined and the Treasurer must assess applications on a case-by-case basis. The Policy provides that the following factors are typically considered when assessing foreign investment proposals: the extent to which the investment affects Australia s ability to protect its strategic and security interests whether the investment may result in an investor gaining control over market pricing and production of a good or service in Australia and the impact of a proposed investment on concentration within a global industry the impact of the investment on Australian tax revenues and its consistency with other Australian Government policies including in relation to environmental impact the impact of the investment on the general economy and the community including the level of Australian participation in the enterprise post-investment and the interests of employees, creditors and other stakeholders, and the character and corporate governance practices of the investor and the extent to which it operates under adequate and transparent regulation and supervision. The Policy provides that in assessing foreign investment proposals in agriculture the following additional factors are taken into consideration: the quality and availability of Australia s agricultural resources, including water land access and use agricultural production and productivity Australia s capacity to remain a reliable supplier of agricultural production, both to the Australian community and our trading partners biodiversity, and employment and prosperity in Australia s local and regional communities. Australia: a guide for foreign investors 7

10 ACQUISITIONS BY FOREIGN GOVERNMENTS The Policy requires notification of all direct investment by foreign governments or their related entities, irrespective of value. A direct investment in this context is one having the objective of establishing lasting interest in, or a strategic long term relationship with, a target entity and which may allow a significant degree of influence in the management of the target entity. Passive investments of less than 10% generally need not be notified unless they are preparatory to a takeover bid. Related entities of foreign governments include a body politic of a foreign country and companies and entities in which foreign governments, their agencies or related entities have more than a 15% interest or which they otherwise control. Where a proposal involves a foreign government or a related entity, then, in addition to the Policy factors related to the national interest test noted above, the government will consider if the investment is commercial in nature or if the investor may be pursuing broader political or strategic objectives that may be contrary to Australia s national interest. This will involve assessing whether the investor s governance arrangements could facilitate actual or potential control by a foreign government, and the extent to which the prospective foreign investor operates at arm s length from the relevant government. US AND NEW ZEALAND INVESTORS The higher notification thresholds noted above for US and New Zealand investors were introduced under the free trade agreements that Australia has with the US and New Zealand. They apply to nationals and permanent residents of the US and New Zealand and to US enterprises and NZ enterprises, being entities constituted in the US or New Zealand and branches of other entities located and carrying on business in the US or New Zealand. Importantly, the higher thresholds do not apply to Australian-incorporated subsidiaries of US or New Zealand enterprises. The higher notifications thresholds currently applicable to US and New Zealand investors are expected to be extended to Japanese and South Korean investors under free trade agreements that Australia has recently signed with Japan and South Korea. PRESCRIBED SENSITIVE SECTORS The prescribed sensitive sectors (investments in which generally attract greater scrutiny by FIRB and to which the higher monetary thresholds for US and New Zealand investors do not apply) are the media, telecommunications, transport (including airports, ports facilities and rail infrastructure), defence and military, encryption and security technologies and communication systems, uranium and plutonium extraction and nuclear facilities operation sectors. APPROVALS UNDER OTHER LEGISLATION Certain foreign investment proposals may require approval under sector-specific legislation in addition to approval under FATA. These include acquisitions in the mining, banking, media, aviation and airport sectors. Separately, authorisation or clearance may be required from the Australian Competition and Consumer Commission (ACCC) where an acquisition may have the effect of substantially lessening competition in a market in Australia, as further discussed in Section 6 of this guide. 4 8 Australia: a guide for foreign investors

11 REGULATION OF PUBLIC COMPANY TAKEOVERS Chapter 6 of the Corporations Act regulates acquisitions of shares in (as opposed to assets of) companies that are listed on the Australian Securities Exchange (ASX) and public companies that are unlisted but which have more than 50 shareholders. It also regulates acquisitions of interests in managed investment schemes (including trusts) that are listed on ASX. M&A transactions that are subject to Chapter 6 are typically referred to as regulated M&A transactions. Private treaty transactions are referred to as unregulated M&A transactions. The purpose of Chapter 6 is to ensure that the market for control of securities in such entities is efficient, competitive and informed, and that all security holders have a reasonable and equal opportunity to participate in, and are given adequate information and time to consider, proposals under which a person may acquire a substantial interest in the entity. This is achieved primarily through prohibiting acquisitions beyond a 20% threshold except where they occur through a limited number of exceptions and by requiring timely disclosure of substantial holdings to the market. THE 20% PROHIBITION Chapter 6 prohibits a person from acquiring, other than through an exception, a relevant interest in the voting securities of an ASX listed company or managed investment or an unlisted public company with more than 50 members if the acquisition would result in any person s voting power in the entity increasing: to more than 20%, or between 20% and 90%. In broad terms, a person s voting power in an entity is the aggregate of the person s and their associates relevant interests in voting securities of the entity. A person generally has a relevant interest in securities if the person is the holder of the securities or has the power to exercise or control the exercise of the right to vote or dispose of the securities. In summary, persons will be associates if one controls the other or they are under the common control of another person. They will also be associates with respect to a particular target entity if there is an arrangement or understanding between them for the purpose of controlling or influencing the entity s board or its affairs, or they are acting or proposing to act in concert in relation to the entity s affairs. EXCEPTIONS TO THE 20% PROHIBITION There are a number of exceptions to the 20% prohibition, the key ones being: off-market takeover bids schemes of arrangement market takeover bids, being unconditional cash offers made on ASX to acquire all the Target s securities offered at a specified price during a minimum period of one month acquisitions approved by the Target s securityholders who are not parties to the transaction or associates of such parties acquisitions of up to 3% of the Target s voting securities every 6 months acquisitions resulting from prorata rights issues offered equally to all securityholders, and acquisitions by an underwriter of an issue of securities made pursuant to a prospectus or other disclosure document. The structures most commonly used to effect change of control transactions in Australia are offmarket takeover bids and schemes of arrangement. These structures are discussed below. Australia: a guide for foreign investors 9

12 OFF-MARKET TAKEOVER BIDS In an off-market takeover bid, the Bidder sends to all Target securityholders a formal written offer to acquire all or a stated proportion of each securityholder s Target securities on identical terms. The consideration offered under an off-market bid may be cash, securities or a combination of both. It must be equal to, or more than, the amount or value of the highest consideration for the securities which the bidder or its associates have provided in the four months before the bid. An off-market bid may be subject to conditions which, where the Bidder is foreign, typically include a FIRB approval condition. Other typical conditions include a minimum acceptance condition which is often set at 90% to enable the Bidder to compulsorily acquire the remaining Target securities or 50% where at least majority control is required. The Bidder s offer must be accompanied by a Bidder s Statement that sets out a range of prescribed information in relation to the Bidder s offer and which must also be sent to the Target, ASX and the Australian Securities & Investments Commission (ASIC). In response, the Target must prepare and send to Target securityholders, the Bidder, ASX and ASIC a Target s Statement which must also contain prescribed information including the Target Board s recommendation in relation to the Bidder s offer and, where the Bidder s voting power in the Target is 30% or more or the Bidder and the Target have common directors, a report of an independent expert stating whether the Bidder s offer is fair and reasonable. The Corporations Act contains detailed provisions governing the procedure of takeover bids including the timeframes for announcing bids, lodging and dispatching Bidder s Statements and Target s Statements and, closing, varying and withdrawing bids. As takeover bids do not require the cooperation of the Target, they may be used to effect hostile takeovers. They may also be used to effect friendly takeovers, that is, transactions that are recommended by the Target Board. Takeover bids allow the Bidder flexibility to improve the offer terms throughout the course of bid, including to respond to rival bids. If during or at the end of the takeover bid, the Bidder and its associates have a relevant interest in 90% of the Target s securities then, subject to certain other requirements, the Bidder may compulsorily acquire the balance of the Target s securities on the terms that applied under the bid. An uncontested off-market takeover bid typically takes a minimum of three months from announcement to completion. SCHEMES OF ARRANGEMENT A scheme of arrangement (a scheme ) is a court-approved contract between the Target company and its shareholders which can be used to effect a change in control of the Target through either the transfer of all the shares in the Target to the Bidder (a transfer scheme ) or the cancellation of all the shares in the Target other than those held by the Bidder (a cancellation scheme ). A Bidder, while not a party to a scheme of arrangement, is bound to perform its obligations in connection with the scheme under a deed poll that it executes in favour of the Target shareholders. For a scheme to proceed, it must be approved both by Target shareholders at a court-ordered scheme meeting (by a majority in number of Target shareholders present and voting who between them hold at least 75% of votes cast) and the court. Once approved by Target shareholders and the court, a scheme becomes binding on all Target shareholders and is therefore an effective mechanism where a Bidder requires an all or nothing outcome. A scheme requires the cooperation of the Target company in preparing and sending to Target shareholders a Scheme Booklet that provides material information in relation to the scheme (similar to the information that would be contained in a Bidder s Statement and Target s Statement were the transaction to be effected under a takeover bid) and in seeking, at separate court hearings, that the court convenes the scheme meeting and approves the scheme. Accordingly, a scheme can generally only be used to effect a transaction that is friendly or recommended by the Target Board. While schemes involve a more formal procedure than takeover bids and their terms cannot as easily be varied as those of an off-market bid, they can offer a lower effective approval threshold to compulsory acquisition than takeover bids and provide a greater degree of transaction structuring flexibility at the outset. For example, multiple schemes can be combined as part of a single transaction to effect, say, an acquisition concurrently with a demerger or spin-out. A scheme typically takes about four months to proceed from agreement of an implementation agreement between the Bidder and the Target (setting out the terms upon which the scheme will be proposed to Target shareholders) to final approval and implementation. 10 Australia: a guide for foreign investors

13 SUBSTANTIAL HOLDER DISCLOSURE While, subject to any approvals required under FATA or other legislation, a Bidder is free to acquire up to 20% of a Target s securities without launching a takeover bid or relying on another exception to the 20% prohibition, the Bidder must disclose the details of its and its associates relevant interests in the Target s securities to ASX and the Target generally within two business days of the Bidder s voting power in the Target reaching 5% and for every 1% movement in the Bidder s voting power above the 5% level. THE TAKEOVERS PANEL The primary forum for resolution of disputes in relation to takeovers during the bid period is the Takeovers Panel, a non-judicial body, with part time members appointed from the active members of Australia s takeovers and business communities. The Panel has power to declare circumstances to be unacceptable having regard to their effect on the control or potential control of an entity to which Chapter 6 applies or the acquisition by a person of a substantial interest in such an entity. In exercising this power, the Panel must have regard to the purpose of Chapter 6. Where the Panel makes such a declaration, it is empowered to make a range of orders as the Panel considers appropriate. Decisions of the Panel are subject to a merits review by a separately convened review Panel and can be subject to judicial review by the courts. ASIC ASIC regulates compliance with the Corporations Act, including the takeovers provisions in Chapter 6. It also has the power to modify and grant exemptions from compliance with particular provisions of the law which are often required in the context of takeovers. ASIC also reviews many of the documents issued by parties involved in a takeover. OTHER REGULATORS As outlined in Sections 3 and 6 of this guide, the approvals of the Treasurer and the ACCC may be required to takeover or acquire substantial interests in Australian entities in certain circumstances. Australia: a guide for foreign investors 11

14 ENERGY & RESOURCES The Australian energy and resources sector is subject to both industry and jurisdiction specific regulation. General regulatory requirements, such as those under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), can also have particular implications for energy and resources transactions and projects. The thresholds for notification and notification requirements for foreign governments as set out in Section 3 of this guide apply. In addition, there are specific provisions for mining and petroleum interests which are outlined below. FATA AND MINING TENEMENTS Acquisitions of interests in mining and petroleum tenures are treated as acquisitions of interests in Australian urban land under the FATA. For this purpose, Australian urban land is all land situated in Australia that is not rural land, that is, land used wholly and exclusively for carrying on a business of primary production (agriculture). Importantly, regardless of the value of the transaction, the acquisition of an interest in a mining or petroleum project, or of a company which owns an interest in a mining or petroleum project, may be subject to prior compulsory notification. The notification requirement arises where the acquisition involves a mining or petroleum title that grants rights to occupy Australian urban land, where the term of the title (including extensions) at the time of the acquisition, is likely to exceed five years. Whether a title provides a right to occupy Australian urban land will depend upon the legislation that governs the title and the rights that attach to the title under the legislation. FIRB considers that the rights granted by offshore petroleum exploration permits generally do not provide such a right to occupy Australian urban land. As a result, foreign investors should be aware that notification may be required for the acquisition of: an interest in an exploration or production title for minerals or petroleum an interest in an arrangement involving the sharing of profits or income from the use of, or dealings in, exploration or production titles (such as farm-ins and joint ventures), and the acquisition of shares or units in companies or trusts that have more than 50% of their assets in such titles (or other Australian urban land), regardless of the value of the interest. This notification requirement will not apply where the title is acquired through the grant of an interest by the Commonwealth or a state or territory. FATA AND EXPLORATION PROJECTS Further notification requirements under FATA may arise when exploration projects convert into producing assets. This can occur where: the Treasurer has imposed conditions on a FIRB approval which requires the notification of conversion of the interest to a producing project, and FATA and the Policy require notification. The first circumstance may arise where the acquisition of the interest in an exploration project was subject to a FIRB approval. Under the FATA, the Treasurer has the power to impose conditions on a FIRB approval if, at the time of making the decision, the Treasurer considers such conditions to be necessary in order that the proposal, if carried out, will not be contrary to the national interest. If the Treasurer is concerned that an acquisition may be contrary to the national interest if and when the project reaches production, the Treasurer may impose conditions requiring the further notifications. The conversion of an exploration project to a commercial development often involves the acquisition of ancillary interests in land. The acquisition of these interests may be subject to notification under the FATA and the Policy, allowing the Treasurer to consider the national interest in the context of the development. 12 Australia: a guide for foreign investors

15 SECTOR SPECIFIC INVESTMENT APPROVALS Investments in energy and resources projects may also be subject to approval requirements under sector specific legislation. For example, acquisitions of certain interests in petroleum titles are subject to approval and registration requirements under Commonwealth, state and territory mining and petroleum legislation. In considering whether to approve such acquisitions, the relevant government departments may consider the technical and financial standing of the acquiring party. Registration fees on acquisitions are also payable in some jurisdictions, or alternatively stamp duty may be payable under state or territory legislation (which is not uniform) in each case determined as a percentage of the consideration for the acquisition. Stamp duty, taxation structures and particular taxes such as the Petroleum Resource Rent Tax (PRRT) should be carefully considered prior to any transaction. Please refer to more detailed comments in Section 11 of this guide. Similarly, certain dealings involving interests in mining or petroleum tenements do not have legal effect until they have been registered under the applicable state or territory legislation. Where an investment involves the transfer of regulatory approvals to a new entity, further approvals may also be required. For example, acquisitions in the electricity sector may require approvals for the transfer of licences such as generating licences. Environmental approvals may also be subject to transfer requirements. ONGOING PROJECT APPROVALS Energy and resources projects often involve ongoing regulatory approvals and licensing requirements. The regulatory requirements for a project will depend on its nature and location, but may include: environmental approvals and clearances works approvals land access requirements, including compensation to landholders Native title and Aboriginal heritage requirements licences for operations, and approval and registration of agreements relating to the project. NATIVE TITLE Native title is particularly significant for energy and resources projects. Broadly, Native title refers to the rights which Aboriginal people may hold in relation to land or waters. These rights may extend from rights to enter project land for hunting or gathering to rights to establish camps and potentially rights to exclude or limit access to companies seeking or holding mining or petroleum interests. A system for addressing native title is established under the Native Title Act 1993 (Cth). In many situations, it will be necessary to negotiate agreements with Aboriginal peoples under which compensation is payable. Australia: a guide for foreign investors 13

16 COMPETITION/ ANTITRUST Any acquisition by a foreign investor of Australian assets or shares in an Australian body corporate is subject to the provisions of the Competition and Consumer Act 2010 (Cth) (CCA). Section 50 of the CCA prohibits any acquisition of shares or assets that would have the effect, or be likely to have the effect, of substantially lessening competition in a market in Australia. The CCA is administered by the Australian Competition and Consumer Commission (ACCC), an independent statutory body with broad investigative powers. Unlike many other jurisdictions with merger control laws, there is no mandatory pre-merger notification requirement in Australia. That is, there are no statutory turnover or market share bright line thresholds which determine whether or not seeking clearance for a proposed merger from the ACCC is required. However, if the ACCC considers that a proposed acquisition would be likely to have the effect of substantially lessening competition in a market (and the parties have not obtained clearance for the acquisition from the ACCC), the ACCC may seek an injunction from the court to prevent the parties from completing the acquisition. Moreover, if parties complete an acquisition without ACCC approval and the ACCC holds the view that the acquisition would be likely to have the effect of substantially lessening competition in a market, the ACCC has the power to seek penalties and divestiture orders from a court. Given the risk of ACCC-initiated court proceedings, there is a well-developed practice of seeking informal clearance from the ACCC for proposed mergers that may raise competition concerns in Australia. In its Merger Guidelines (2008), the ACCC encourages parties to notify it of a proposed merger well in advance of completion where: the products of the merger parties are either substitutes or complements, and the merged entity will have a post-merger market share of greater than 20% in the relevant market/s. PROCESSES FOR OBTAINING APPROVAL OF A PROPOSED MERGER There are three processes for obtaining approval of a proposed merger informal clearance, formal clearance and authorisation. INFORMAL CLEARANCE Process, Timeline and Fees While parties generally approach the ACCC to seek informal clearance, the ACCC may also commence an informal review of its own accord where it becomes aware of a proposed merger and considers that the merger may raise competition concerns in Australia. Where an informal clearance process is commenced, parties provide information to the ACCC about the proposed merger and its likely effects on competition in the relevant markets. Confidentiality is maintained by the ACCC in respect of any information provided to it that is genuinely of a commercially sensitive nature and marked as such. The informal clearance process has three broad categories of assessment: 14 Australia: a guide for foreign investors

17 COMPETITION/ANTITRUST 1. Pre-assessment Based on the parties information and other information it has available, the ACCC can decide to clear a proposed merger without conducting any public market inquiries if the risk of a substantial lessening of competition is low. The typical duration of a preassessment is two weeks, but it can take longer. The ACCC s preparedness to pre-assess a proposed merger will depend on, in particular, the ACCC s familiarity with the relevant industry and the adequacy of the information provided by the parties. Even where a merger is considered unlikely to raise competition issues in Australia, it may be prudent to request an informal clearance by way of pre-assessment for other commercial or strategic reasons, such as a foreign investment review by the FIRB, an in-depth review by other competition regulators (in particular, the EU Commission or the US Department of Justice), or where parties are likely to have ACCC dealings in the future. 2. Confidential assessment At the request of the parties, the ACCC can conduct a confidential assessment of a proposed merger that has not yet been publicly announced and cannot be preassessed. A confidential assessment will normally take between 2-4 weeks, but it can take longer in more complex cases. The ACCC s views about the competitive effects of a confidential transaction will be heavily qualified. The most likely outcomes are that the ACCC will advise the parties that it is not in a position to determine whether the proposed acquisition raises competition concerns or that it is concerned that the proposed acquisition may (or is likely to) raise competition concerns. In both cases, a public review of the proposed merger will be required for the ACCC to form a conclusive view about the proposed merger s competitive effects. 3. Public assessment Where a proposed merger is in the public domain and cannot be preassessed, the ACCC will conduct public market enquiries to test the parties information and to obtain the views of market participants regarding the proposed merger s competitive effects. There are no fixed time periods for a public review process but the initial review typically takes six twelve weeks (after the pre-assessment stage) and concludes with the ACCC deciding whether to grant informal clearance or to enter into a second phase review by publishing a Statement of Issues paper on its website. The Statement of Issues is not a final decision but identifies the ACCC s competition concerns in respect of the transaction and seeks further information from the parties and the public on those issues. The second phase review typically takes another six twelve weeks, but may take longer in complex matters or where merger remedies are required to allay the ACCC s competition concerns. Prior to accepting an undertaking, the ACCC will usually conduct further market enquiries to test the effectiveness of the remedies offered by the parties. The informal review process concludes with the ACCC making a final determination whether or not to clear the proposed merger. The ACCC publicly announces its decision and publishes a summary of the reasons for its decision, the Public Competition Assessment, on its website. Australia: a guide for foreign investors 15

18 While parties are not prohibited by law from completing a proposed merger while the ACCC considers the informal clearance application, it is usual practice to await the ACCC s informal clearance decision. The ACCC may request that parties give a court-enforceable undertaking not to complete the proposed merger until the ACCC has concluded its review. The ACCC has broad powers that it can use to obtain information (including board papers and internal reports) from the parties (or other persons) if it believes that it has not received adequate information about the competitive effects of a proposed merger. It can also interrogate executives and employees for the same purpose. Although informal clearance by the ACCC does not provide statutory protection from proceedings and does not prevent third parties from challenging a merger in court, such challenges are very rare and unlikely as a matter of practice. Accordingly, the informal clearance process provides parties with significant comfort that an acquisition can proceed without competition law challenge. There is no appeal available against a decision by the ACCC to oppose a proposed merger but a party (including a third person) may seek a declaration from the Federal Court that the proposed merger does not contravene section 50 of the CCA. Alternatively, the parties may choose to complete a transaction and compel the ACCC to institute injunction proceedings. There is no fee for an informal clearance application. The Substantive Test Substantial Lessening of Competition In determining whether or not to grant informal clearance for a merger, the ACCC must be satisfied that the transaction would not have the effect, or be likely to have the effect, of substantially lessening competition in a market in Australia. This test is a forward looking test which compares the state of competition in the relevant market(s) with the proposed merger and without the proposed merger (the with and without test). The ACCC will consider the following matters in making its assessment of the competitive effects of a merger: the actual and potential level of import competition the height of barriers to entry to the market the level of market concentration the degree of countervailing power whether the acquirer would be able to significantly and sustainably increase prices or profit margins, post-acquisition the extent to which substitutes are, or are likely to be, available in the market the dynamic market characteristics (e.g. growth, innovation and product differentiation) whether the merger would remove a vigorous and effective competitor, and the nature and extent of vertical integration in the market. FORMAL CLEARANCE Process, Timeline and Fees The formal merger review process was introduced in January 2007 but, as at the date of publication, the ACCC has not received an application for formal clearance. Under the formal clearance process, parties are required to provide detailed information to the ACCC. The process is a public process and the ACCC will publish on its website any document provided to it, including clearance applications and third party submissions (subject to redactions of genuinely confidential information). The ACCC has 40 business days in which to undertake a formal review of a transaction. This period can be extended by 20 business days if the matter is complex or due to other special circumstances. If the ACCC has competition concerns, it may issue a Statement of Concerns within 25 business days of receiving an application (or within 55 business days where the review period has been extended). Formal clearance from the ACCC provides statutory immunity from legal action under section 50 of the CCA. If the ACCC does not clear the transaction, the applicant may apply to the Australian Competition Tribunal (Tribunal) for a review of that decision on the papers. The fee for a formal clearance application is A$25,000. The Substantive Test Substantial Lessening of Competition The substantive competition test under the formal review process is effectively the same as the informal review process described above. 16 Australia: a guide for foreign investors

19 AUTHORISATION Process, Timeline and Fees This process enables parties to apply to the Tribunal directly for an authorisation of a proposed acquisition which raises competition concerns. It was introduced in this form in January The Tribunal is required to issue its decision within three months of receiving an application, but the time limit can be extended by up to a further three months in complex matters. The authorisation process is a public process. An authorisation provides the applicant with statutory immunity from the application of section 50 of the CCA. There is no merits review for authorisation decisions made by the Tribunal. The fee for an authorisation application is A$25,000. The Tribunal authorisation process was not utilised until late As at the date of this publication, there have been two applications for authorisation. The Substantive Test Public Benefit The Tribunal may not grant authorisation unless it is positively satisfied that the acquisition would result or would be likely to result in such a benefit to the public that the acquisition should be allowed to take place, i.e. the public benefit of the merger must outweigh the public detriment resulting from it (in particular, the anti-competitive effects). OTHER COMPETITION LAWS In addition to the merger control rules, the CCA contains prohibitions relating to cartel conduct (potentially carrying both criminal and civil penalties), misuse of market power, resale price maintenance, exclusive dealing and other anticompetitive agreements and arrangements. Australia: a guide for foreign investors 17

20 CAPITAL RAISINGS This Section overviews the legal and regulatory framework that applies to equity and debt capital raisings in Australia as well as listings on the Australian Securities Exchange (ASX). EQUITY CAPITAL RAISINGS REGULATORY FRAMEWORK Fundraising activity within Australia is regulated by the Corporations Act which provides the following fundraising regimes: Chapter 6D of the Corporations Act which applies to corporate securities (for example, shares, options and debentures), and Part 7.9 of the Corporations Act which applies to financial products other than securities (for example, units in a trust, partnership interests and derivatives). The Corporations Act applies to all securities and financial products offered within Australia, regardless of whether or not the securities and financial products are issued by an Australian or a foreign issuer. DISCLOSURE REQUIREMENTS Offers of securities for issue or sale must be made under a prospectus, profile statement or offer information statement (OIS) lodged with ASIC. A prospectus must be used for any initial public offering (IPO) undertaken by a body and must disclose all information that investors would reasonably require to make an informed assessment of the rights and liabilities attached to the securities offered and the financial position, performance and prospects of the body. A profile statement can only be given to investors instead of a prospectus in certain limited circumstances determined by ASIC and is rarely used in practice. An OIS can be used instead of a prospectus for an offer of securities if the amount raised from the issue is A$10 million or less, but cannot be used for an IPO. Offers of financial products, other than securities, must be made under a product disclosure statement (PDS) lodged with ASIC that has similar disclosure requirements to a prospectus, although differing in a number of respects. The liability regime applying to a PDS also differs from the regime applying to a prospectus. EXCEPTIONS TO DISCLOSURE An offer of securities or financial products does not require disclosure if the offer is excluded under the Corporations Act or if disclosure relief is granted by ASIC. Offers that do not require disclosure include offers to: up to 20 investors to raise up to A$2 million in a 12 month period (the 20/12 rule ) sophisticated investors, including where the investor: - invests more than A$500,000 in the securities, or - provides an accountant s certificate stating that their gross income for each of the last two financial years has been at least A$250,000 or that they have net assets of at least A$2.5 million professional investors (for example, an investor who controls at least A$10 million or a person who holds an Australian financial services licence authorising them to advise on securities) related parties or persons associated with the company, and investors for no consideration. In addition, some limited exemptions from disclosure exist for security issues in specific circumstances, including in the context of certain employee share schemes and share purchase plans that follow placements undertaken in compliance with disclosure requirements. 18 Australia: a guide for foreign investors