The PeriOIOdical – May 2017

11 May 2017

Nau mai haere mai

Welcome to the second issue of the PeriOIOdical for 2017.

Inside you’ll find updates from our applications, enforcement and policy teams, but first a few points from me.

Our new application templates are being well used and are really helping us assess applications. Many of you are finding them helpful too. We’ve made some tweaks (see Template Update) and welcome your further feedback.

Our enforcement team have triaged 59 allegations of possible breaches of the Act since December – these notifications come from a variety of sources including our Report a Breach website button, and from our monitoring work. There’s more detail below about our use of late filing penalties and clarification around how we approach retrospective applications – please read!

Our policy people are reviewing S37 of the Act (the section which requires us as a regulator to maintain a list of other ‘sensitive’ land). We are making one change immediately – further detail below. They have also been working with the Treasury on a new directive letter, which we expect soon, and developing a set of further exemptions for ministers to consider. Some of you have provided valuable input into this work – thanks for that.

We have recently recruited a number of high quality people to join us in the applications teams – these people largely replace some recent departures. The new recruits will augment the strong legal base of the office, with more economics and Chinese language skills – and naturally, will take some time to get up to speed. This may compromise our timeliness in the short term, but I’m very confident that within a few months, our delivery will improve further. We will keep you informed about specific applications on an individual basis.

Looking ahead, we have three priorities for further strengthening the work of the Office: completing our review of Section 37, reviewing the way we approach conditioning of consents, and further strengthening stakeholder communications. We will seek your input and feedback as we develop this work – and appreciate the contribution some of you have already made.

This is my last edition of the PerOIOdical as I leave LINZ at the end of June. Lisa Barrett, our new Deputy Chief Executive, Policy and Overseas Investment, begins at LINZ in July. A fantastic appointment! I have thoroughly enjoyed my time with the great team at the OIO, and have particularly valued meeting and working with many of you in the last year.

Ka kite ano
Lesley Haines
Acting Deputy Chief Executive OIO

This issue covers:

Applications

Enforcement

Did you know…

People

Applications

Preparing applications to the OIO

Most applications for consent are now coming in on the new templates released in February and there has been a real improvement in the quality of applications as a result.

This includes a marked improvement in the completeness of information about ownership and control in particular, which is making it easier for us to identify the entities and individuals who are behind an investment.

We’re finding that applications using the templates are more focused on providing clear information about the investor’s intentions and the potential benefits for New Zealand. They also better identify the points of difference between the applicant’s investment and what would likely occur without the investment.

If you aren’t already using the new templates, we strongly encourage you to use them – it will make the application process much smoother for you and your clients.

Read more about preparing applications to the OIO

OIO condition dates and requests for urgency

We’ve recently received applications where insufficient time was allowed for us to assess the application. The assessment process is smoother for all parties when applicants ensure:

  • any relevant commercial agreements allow enough time for us to assess the application; and
  • the application is lodged in a timely manner.

Fairness is important to us. We only grant requests for urgency where there is good reason: prioritising one application means another is deprioritised and they may also have commercial deadlines. Applicants with good reason for requesting urgency should:

  • confirm the application was submitted promptly after the need for consent was identified;
  • keep us updated on commercial deadlines that relate to the investment (tell us immediately if the timeframes change); and
  • acknowledge that we may shorten the usual timeframe for responding to information requests and may deprioritise the application if these timeframes are not met.

If you have an application that requires urgency: talk to us before submitting an application for consent.

Template Update

The Appendix – Ownership Details template has been updated and a new version is on our website. The update changes the instructions to clarify the information we would like included in this appendix.

We recommend that all new applications be started on a new template taken directly from our website to ensure you have the latest version.

Check out the new Appendix – Ownership Details template

Sponsorship of community projects and donations

The consequential benefits factor allows for sponsorship of community projects (including charitable donations) resulting from an investment to be a benefit to New Zealand. We don’t seek or encourage sponsorship or donations and will normally give them low importance in our assessment. We are currently updating the guidance on our website to clarify this.

Section 37

Section 37 of the Overseas Investment Act requires the OIO to compile, keep and publish a list of reserves, public parks and other sensitive areas of land that require consent under the Act. Subsequent ministerial directive letters have clarified that the land included in the list should not be smaller than 0.4 hectares.

We have begun work reviewing and updating the Section 37 list and will be implementing changes in two stages:

  • Stage 1: amend the existing list to implement the 0.4 hectare threshold; and
  • Stage 2: a wider review of the classes of land included in the list.

Stage 1 will be implemented from 11 May 2017. We’ll provide an update on progress for stage 2 in the next PeriOIOdical.

The 0.4 hectare threshold will mean approximately one application a year will not need consent.

The updated list implementing the 0.4 hectare threshold is available on our website.

View the Section 37 list, adjusted for the 0.4 hectare threshold.

How to calculate the area of a multi story building

We have updated our guidance on how the area of multi-story buildings is calculated when determining whether they are sensitive land or not.

The area of the land is determined by the total footprint of the area being bought or leased. In cases where the footprint of one floor extends beyond another, the extended footprint of the areas needs to be identified. The footprint of any leased or owned common areas (including tenancies in common and body corporate common areas) should also be included. Don’t include licenced areas or other areas in which the investor will have no interest.

To be sensitive, the area being acquired (ie: the footprint established above) must include land listed in Table 1 of Part 1 of Schedule 1 of the Act or adjoin land in Table 2, and exceed the relevant area threshold.

Handy hints when preparing your application

The following hints will help when you are completing an application for consent:

  • Take the opportunity to have a pre-application meeting with us – you can discuss the proposed investment, and we’ll have the opportunity to highlight any issues that may need to be addressed in the application. We find applications discussed with us before being submitted are more likely to be accepted for assessment.
  • Make sure you read and follow the guidance and instructions on the templates – we check all applications as part of our initial Quality Assurance review to make sure these have been followed. We have had to return some applications because they don’t include information clearly requested in the templates.
  • We no longer require a paper copy of the application. You only need to send an electronic copy – but please follow the Electronic Filing Requirements listed on the application templates.

Enforcement

Information about enforcement on our website

In February we talked about the work the OIO Enforcement Team has done to identify key strategic priorities and develop criteria to guide the enforcement activity we undertake. To make sure investors and potential investors have all the information they need to understand the consequences of breaking the rules, we’ve further updated our policies and webpages with the following:

  • Late filing penalties: prompt and accurate provision of information is key to our ability to detect and take action on breaches of the rules, and to effectively monitor whether investors have met conditions imposed on consents. We can, and will, impose an administrative penalty when a person fails to provide us with the information we need.

Read about how the OIO takes enforcement action

  • Retrospective consent penalties: investors who discover they have broken the rules sometimes come to us to ask for retrospective consent. We have clarified our approach to considering these applications and to the factors we will consider when setting the penalty to be applied before a retrospective consent is given.

Read the information about retrospective consent

  • Enforcement action taken: we will shortly be adding a page on the website that outlines the enforcement action we have taken since 2015. This page will be regularly updated.

Ongoing Good Character requirements – keeping us informed

You may have seen recent coverage about US wine fund manager, Charles Banks who pleaded guilty to a charge of fraud in the United States. Mr Banks is the majority shareholder of Terroir Capital LLC, which manages the Terroir Winery Fund.

Terroir Winery Fund reported the character issue to us and is co-operating with our inquiries. Consent holders need to raise any character issues with us at the earliest opportunity.

Read the OIO news item

Did you know ...

The Overseas Investment Act isn’t a tick box exercise

A small number of applications – about 2 a year – are formally declined. This is the tip of the iceberg with a number of applications dropping out along the way.

The low number of declines is the result of:

  • applicants seeking professional advice and engaging with the OIO before submitting an application for consent. Overseas people don’t normally submit applications, and incur the associated costs, if they’re unlikely to meet the test.
  • the OIO’s pre-acceptance Quality Assurance review which results in around 25 per cent of applications being rejected at the outset, with 20 per cent of these rejected applications never being resubmitted.
  • the OIO advising applicants if we intend to decline (or recommend Ministers decline) their application. We issued proposals to decline on 15 applications in 2016.
  • applicants withdrawing their application rather than have it declined. Four applications were withdrawn after the application received a proposal to decline, compared to 9 approved, 1 declined and 1 still in progress.

This shows why the rigour of the assessment process is not reflected in the application declined figures.

Gross figures exaggerate the extent of foreign ownership

The OIO publishes both gross and net figures as part of our monthly statistical release. The gross figure often over-states the amount of land moving into foreign ownership.

Gross hectares are the total land area proposed to be acquired in consents the OIO has granted. It includes land that is proposed to be acquired by New Zealand interests as well as overseas interests (for example, under a New Zealand/Australian joint venture).

Net hectares are the net change in foreign ownership of New Zealand land. For example, if a New Zealander sells 10 hectares to someone from overseas, the whole 10 hectares is shown. If the seller was a company that was 50% New Zealand owned and 50% foreign owned then only five hectares would be counted.

Two recent decisions led to a significant exaggeration of the gross amount of land included in the 2016 calendar year. These were the result of a company’s internal restructure (cases 201610079 and 201610081). While no sensitive land actually changed hands they added 303,767.26 hectares (151,883.63 ha twice) to the gross figure. The restructure had no effect on net hectares.

People

Samantha Naidoo, Applications Manager has recently left the OIO. Sam played an important role in supporting the OIO through difficult times. She did some great work with many of our stakeholders; and made changes in the way we assess applications which we have built on with our new processes. We wish you all the best for the future Sam!

Jenna Reid has accepted the permanent role of Applications Manager in the team. Jenna will be well known to many of you. We are currently recruiting the second applications manager role.

Here is our current organisation structure:

Lesley Haines is Deputy Chief Executive Policy and Overseas Investment (Acting). Lisa Barrett will take up this position from July. The DCE Policy and Overseas Investment is supported by four managers:

  • Jenna Reid: Manager Applications
  • Andrew Morris: Manager Applications (Acting)
  • Kirsty Millard: Manager Enforcement
  • Katy Cook: Manager OIO Operational Policy (Acting).