Levels of ownership or control of sensitive assets that require consent
If you are an overseas person, you will need to apply for consent for any investments that will result in you, directly or indirectly, exceeding the following thresholds:
- a total of more than 25% ownership or control interest in sensitive assets
- an increase of an existing more-than-25% ownership or control interest past an ownership or control limit
- an aggregated overseas ownership or control interests by related or unrelated overseas persons of more than 25%
- the ownership or control test for New Zealand-listed issuers.
Further criteria apply to investments in significant business assets and fishing quota that may affect the requirement for consent.
Note that New Zealanders investing on behalf of overseas persons (associates of overseas persons) are also subject to consent requirements.
An overseas person may already hold a more than 25% ownership or control interest. That existing interest can increase up to, but must not equal or exceed, the relevant limit without requiring consent.
Existing ownership or control interest
Limit (cannot equal or exceed)
More than 25% but less than 50%
50% or more but less than 75%
75% or more but less than 100%
Control, beneficial entitlement and voting power
Transactions that may cause an existing ownership or control interest to exceed the relevant limit include situations where:
- An overseas person (A) will have a beneficial entitlement to more of another person (B)'s securities than they already hold
- A will control the composition of a larger proportion of B's governing body, and
- A will be able to exercise more voting power at a meeting of B.
- An overseas person (O) owns 30% of the ordinary shares of a company which owns sensitive assets.
- O intends to acquire the power to appoint 50% of the directors.
- O’s control interest will be 50% which is equal to the relevant control threshold. Consent is required to this transaction.
In some cases there may some ambiguity, particularly where there are special, limited or conditional voting rights conferred by the constitution.
Aggregated ownership or control interest of unrelated overseas persons is 25% or more
A transaction by an overseas person to acquire a 25% or less ownership or control interest in sensitive assets may require consent if the transaction causes the aggregated ownership or control interest of overseas persons, including unrelated overseas persons, to exceed 25%.
Consent is also required by a person if the transaction causes a company or other person that owns or controls sensitive land to become an overseas person.
- C is a company registered in New Zealand that owns or controls sensitive land.
24% of the shares in C are owned by overseas persons. 76% of the shares in C are owned by New Zealanders.
- O, an overseas person, purchases 3% of the total shares in C from one of the New Zealand shareholders.
- After the transaction, 27% of the shares in C are owned by overseas persons.
- C becomes an overseas person.
- O requires consent to acquire the 3% shareholding in C.
Note: Different rules and ‘tipping point’ thresholds apply for certain New Zealand listed issuers and managed investment scheme.
Regulation 37 exempts certain acquisitions, asset transfers, minority or interest group buy-outs, and amalgamations from requiring consent. The regulation specifically requires that the parties to a transaction must be from a group comprising an overseas person and persons who are directly or indirectly wholly owned by the overseas person.
- Overseas Person 1 is the 100% owner of Subsidiary 1 and Subsidiary 2.
- Subsidiary 1 owns a parcel of sensitive land. Subsidiary 2 is the 100% owner of Subsidiary 3 and has a 50% share in 50% Subsidiary with Overseas Person 2
- Overseas Person 1 wishes to transfer the sensitive land to another entity.
- Overseas Person 1 can take direct ownership of the sensitive land, or have it transferred to Subsidiary 2 or Subsidiary 3 without the need for consent.
- Overseas Person 1, Subsidiary 1, Subsidiary 2 and Subsidiary 3 are all members of a group comprising Overseas Person 1 and persons who are directly or indirectly wholly owned by Overseas Person 1.
- The exemption does not permit Overseas Person 1 to transfer the land from Subsidiary 1 to 50% Subsidiary or Overseas Person 2 because they are not part of that group. Both 50% Subsidiary and Overseas Person 2 would require consent to acquire the land.
The Overseas Investment Regulations also exempt from the requirement to obtain consent in the following situations:
- Where an entity acquires property from 2 or more overseas persons and the ultimate ownership of the property remains the same. That is, the 2 or more overseas persons with a direct interest in the property before the transaction have the same proportion of the total securities of the acquiring entity after the transaction.
- Where a New Zealand registered company is buying out minority or interest group shareholders (in specific circumstances).
- Amalgamations where the overseas person has the same direct or indirect interest in or rights to the sensitive assets.
A trust, other than a New Zealand-listed managed investment scheme, is an overseas person if:
- more than 25% of its governing body are overseas persons, or
- an overseas person or persons have a beneficial interest in or entitlement to more than 25% of its’ trust property, or
- more than 25% of the persons having the right to amend or control the amendment of its’ trust deed are overseas persons, or
- more than 25% of the persons having the right to control the composition of its’ governing body are overseas persons.
A unit trust (other than a New Zealand listed managed investment scheme) is an overseas person if:
- the manager or trustee, or both, are overseas persons, or
- an overseas person or persons have a beneficial interest in or entitlement to more than 25% of A’s trust property.
Discretionary trust beneficiaries
The Act treats a trust as a person rather than a relationship between trustee and beneficiary. The Act recognises 3 separate classes of person, each member of which might be an overseas person independently of each other. These are:
- the trust itself
- the trustees, and
- the beneficiaries.
Under a discretionary trust, potential beneficiaries have no interest in the trust property until the trustees' discretion has been exercised in their favour. Until then, the beneficiaries simply have a right to be considered1 . Accordingly, a beneficiary could not be said to 'have an entitlement to more than 25% of the trust property'.
In principle, where the following applies, a discretionary trust will not be considered an overseas person:
- where 25% or less of the trustees are overseas persons
- where 25% or less of the persons having the power to appoint, or control the appointment of, the trustees, or amend the provisions of any instrument establishing the trust, are overseas persons, and
- where overseas persons and New Zealanders are discretionary beneficiaries.
However, if at any stage all discretionary beneficiaries are overseas persons, then we would consider that the trust has become an overseas person. This is because it would then be certain that overseas persons have an entitlement to the trust fund, as any discretion could only be exercised by the trustees among a class of overseas persons. The same reasoning would apply where the rule in Saunders v Vautier applies – this is the rule that permits all discretionary beneficiaries, being of full age and mental capacity, to combine together and demand the transfer of the trust property to them.
Note that where the trustee of a trust is controlled or influenced by an overseas person then the trustee may be an associate of that overseas person. The obligation to have consent applies equally to associates as to overseas persons.
Transfer to beneficiaries
The exemption in regulation 40(1)(c) allows a trust to transfer property to an overseas person beneficiary of the trust so long as the trust's ownership had previously been consented to and the transfer is not contrary to any conditions of that consent.
Transfer of property that a trust did not require consent to acquire, but the beneficiary now does, is not exempted. For example:
- land that has become sensitive since being acquired by the trust, and
- shares in a company whose assets have grown to exceed $100m since being acquired by the trust.
Change of trustees
Regulation 40(1)(a) exempts the replacement of a trustee with an overseas person trustee, or the addition of an overseas person trustee, in limited circumstances. Specifically, the trust must not become an overseas person because of the change.
In practice, this means that either:
- the total number of overseas person trustees must remain 25% or less, or
- the trust must have already been an overseas person.
In every other circumstance, the change will require consent.
A limited partnership is an overseas person if:
- it is an overseas limited partnership within the meaning set out in section 4 of the Limited Partnerships Act 2008, or
- the general partner is an overseas person, or
- more than 25% of the persons having the right to control the composition of the governing body of the limited partnership are overseas persons, or
- more than 25% of the partnership interests of the partners of the limited partnership are held by overseas persons, or
- an overseas person or persons have the right to exercise or control the exercise of more than 25% of the voting power at a meeting of the partners.
Managed investment schemes
A managed investment scheme is an overseas person if:
- it is a New Zealand listed issuer, and
- 50% or more of the value of the managed investment products is invested on behalf of overseas persons (the ownership test), or
- more than 25% of the managed investment products that entitle holders to vote are beneficially owned by or on behalf of overseas persons, who each beneficially own 10% or more of those products, alone or together with their associates (the control test), or
- it is not a New Zealand-listed issuer, and
- the manager or the trustee is an overseas person, or
- more than 25% of the value of the investment products in the managed investment scheme is invested on behalf of overseas persons.
More than 25% ownership or control interest – Overseas Investment Act 2005, s6(4)
The Overseas Investment Regulations 2005 exempt certain situations relevant to ownership and control, such as: