8 May 2019
Kia ora koutou
This year has been very productive as the Overseas Investment Office has marked several milestones. Yesterday, the Government announced the start of public consultation in the second phase of review for the Overseas Investment Act.
The focus is on ensuring investments are consistent with New Zealand’s national interest, and reducing the Act’s complexity. We welcome any efficiency improvements since they will help us to focus on how to deliver responsible overseas investment.
The OIO is working with Treasury, which is the policy lead for the review, to encourage submissions. I hope you’re able to read the consultation documents here and take the time to make a submission or attend one of the three hui or other consultation meetings in May.
The Overseas Investment Office will also be attending these meetings.
We are starting to see the impact of the new overseas investment rules introduced last October, with early indications from property transfer data showing a decline in purchases of homes by overseas people.
I’m pleased that eligible applicants purchasing residential homes through the One Home to Live in pathway have received a decision in an average of two days. It’s important to me that we haven’t delayed a single residential property purchase.
We’ll have more metrics soon as we approach six months since the new rules came into force on 22 October, and I look forward to sharing these with you.
Enhanced monitoring and enforcement functions also formed part of the Overseas Investment Office response to last year’s overseas investment changes, and we are starting to see results.
On 21 March a High Court penalty decision concluded the OIO’s work on good character breaches by Agria (Singapore) PTE Ltd and Alan Lai.
Our media release gave a summary of the case, and there’s more detail later in this newsletter. Justice Gordon commented: “There is a strong need to deter breaches of the good character requirement having regard to its importance in the context of the scheme of the Act.”
I’m always happy to see news interest about the work of the OIO, particularly about the impact of overseas investment in New Zealand’s broader context. We’re always available to fact check so that accurate information is available to interested people.
Please email me about this or any feedback you have about the OIO. I look forward to hearing from you. Best wishes for a safe and relaxing Easter break.
Ngā mihi nui
Group Manager, Overseas Investment Office
Land Information New Zealand
This issue covers:
Agria penalty decision
Guidance on breach of good character conditions
First forestry approval
Update to processes: Applications with Ministers
Performance measures revised
Staying in the good books
Transactions with an artificial split
Residential Land Statement clearer
What's gross and what's net
On 21 March the High Court ordered Agria (Singapore) PTE Ltd (Agria) and Mr Alan Lai to pay civil penalties totalling $220,000 for breaching the good character conditions of Agria’s consent under which it previously held a majority interest in PGG Wrightson.
In ordering the civil penalties, Justice Gordon considered the nature and extent of the breaches to be serious, stating “… there is a strong need to deter breaches of the good character requirement having regard to its importance in the context of the scheme of the Act”.
Justice Gordon also considered that the penalty needed to ensure that large corporations take their obligations under the Act seriously.
The breaches of the overseas investment good character conditions arose from the settlement Agria Corporation and Mr Lai entered into with the United States Securities and Exchange Commission concerning alleged violations of United States securities law. The penalties imposed in New Zealand sought to reflect the seriousness of those allegations. Agria and Mr Lai were also ordered to pay $30,000 in contribution to the Overseas Investment Office’s costs.
The penalty decision followed Agria and Mr Lai entering into a settlement agreement with the Overseas Investment Office last year. That settlement agreement required Agria to sell its interest in PGG Wrightson to below 50 percent (which it has done) and to agree to penalty proceedings being filed in the High Court.
It also required Mr Lai to agree to refrain from being a director of PGG Wrightson for five years and for best endeavours to be used to have the current chair of PGG Wrightson (and director of Agria) to step down as chair later this year.
More information about the settlement with the Overseas Investment Office can be found here.
Following the penalty decision against Agria, we have published guidance on the matters we need to consider before taking court action against an investor for breach of a good character condition.
We have had several matters recently where we have had to consider whether to take enforcement action in light of alleged bad behaviour.
The guide is intended to help the public, investors and their advisors to understand the type of factors that we need to consider.
Investors must remember to disclose to us all matters that could reflect on character when applying for consent where the good character test must be satisfied. It is an offence to fail to disclose material information or to mislead us. Investors are also encouraged to raise any matter that might be relevant to consideration of a breach of a good character condition once consent has been granted - failure to notify us of issues itself can amount to a breach of conditions and early disclosure may be taken into account when considering appropriate penalties.
In February the first consent was granted under the new streamlined forestry test when Japanese-owned Oji Fibre Solutions (NZ) Ltd was approved to buy Stoneleigh Forest in Te Kuiti from Australian company PF Olsen Tisa Pty Ltd.
The new special forestry test is the fastest and most straightforward pathway for overseas investors wanting to make conventional forestry investments.
Overseas investors can apply under the new special forestry test if the land is, or will be, used exclusively (or nearly exclusively) for forestry activities. Under this test, they need to plant a new crop of trees whenever they harvest trees on the land, and they must maintain or implement any existing arrangements on the land, such as public access, biodiversity protection, Forestry Stewardship Council certification, protecting local iwi access or areas of wāhi tapu.
Where the decision-maker on an application is the Ministers, we provide them with a report which contains our assessment of the application and our provisional view as to whether the application meets the criteria for consent. Ministers, as the decision maker, will consider the application together with the OIO’s assessment when making their decision.
To enable effective decision-making by Ministers and maintain the conduct of public affairs, applicants may not be informed of our provisional view.
Additionally, we may also consult on conditions with applicants where a decision is finely balanced to allow the Ministers, as decision maker, the ability to come to a decision. Applicants therefore should not infer the OIO’s provisional view from the fact that we consult on conditions.
The performance measures for the OIO have been revised to reflect the differing complexity between the application pathways and provide more transparency to investors. New measures are now in place for the new application pathways. The working day timeframes refer to the period from acceptance of the application by the OIO, to the day an assessment is provided to decision makers. It excludes any working days where the OIO is waiting for information from the applicant or is consulting with third parties.
The measures for the new application pathways are:
Applications for consent for a house to live in – 90 percent decided within 10 working days (excludes non-individual or complex applications).
The 10 working day timeframe for consent for a house to live in for individuals aligns with other process timeframes when purchasing a residential property, such as requesting a LIM report, and recognises this is the most straightforward of the new application pathways.
Other applications for consent - 90 percent decided within 50 working days (includes Forestry, New Build, Non-Residential, consents for a house to live in where there is sensitive land and / or the applicant is a non-individual, and exemptions; but excludes standing consents).
Measures for our traditional application pathways have changed to:
Significant Business Assets consent applications - 75 percent decided within 40 working days (excludes retrospective applications).
Sensitive Land consent applications - 75 percent decided within 65 working days (includes applications under the benefit and permanent residency pathways; excludes retrospective applications).
Changes to measures for the monitoring, intelligence and enforcement functions are in development and will be applied for the 2019/20 year.
Several repeat investors have run internal compliance training and programmes to ensure their staff are aware of the requirements of the overseas investment rules. We applaud these initiatives and are keen to hear from you about education material that you would find useful.
Unfortunately, we are also aware of instances where advisors have sought to obfuscate their client’s behaviour or position and this usually does not do their clients any favours in the long run. Please talk to us if you are concerned you or your clients have breached the Act or conditions of consent.
The OIO has recently looked at instances where people have, we would say, artificially split a transaction into two parts to first come below the ownership requirements of the Act (such as the 25 percent shareholding threshold) before seeking approval for the remainder of the transaction. In reality, there is only one transaction.
We will look very carefully at transactions that appear to have been artificially split to allow what is labelled as an initial stage of a transaction so that it appears to meet the ownership or control requirements of the Act. We will examine the detail and context of both tranches to ensure there are two genuine stages of a transaction or a genuine commercial reason for the split.
We will also carefully examine any arrangement that gives an overseas investor negative control, such as a right of veto, which appears to be greater than what their ownership interest might suggest.
For example, we consider a person may have a greater than 25 percent control of a company (even if they only own 24.9 percent of the shares) if the constitution requires all key decisions of that company to be passed by 75.1 percent of the shareholders, and includes an express requirement that the particular shareholder must be part of that 75.1 percent majority.
We’ve recently published a technical commentary about how we assess the proportional nature of the benefit assessment when considering applications.
In February, the Residential Land Statement was republished with some minor improvements to make it easier to understand that Part 1b is for the use of anyone who is not an individual, including trusts.
Part 1b has been retitled “Non-individual (including company, trust, other entity) and the term “entity” has been changed to “non-individual” in other sections of the statement. The second tick box sentence in this section has been reordered so “trust” is first and “enduring power of attorney” is second.
Two questions in Part 1a have been clarified to make the distinction that eligible Australian and Singaporean permanent residents buying residential land only do not require consent, however, if the land is residential and otherwise sensitive, consent is required.
The OIO’s public statistics include net figures and gross figures – and they’ve been pulled into news media stories recently. We’d like to explain the difference:
Net investment dollars mean the total dollar value invested in New Zealand and captures new transfers of assets from New Zealand ownership to overseas ownership. If an overseas investor pays a New Zealand vendor $100 million for their asset, the net investment is $100 million. If an overseas investor pays an overseas vendor $100 million for their asset, the net investment is $0 to New Zealand.
Gross value of consideration is the total amount including GST (if any) to be paid for assets, or the value of those assets. This includes amounts paid by New Zealanders (for example, by a New Zealand-Australian joint venture) and will not reflect the net change in ownership of New Zealand assets.
Net hectares are the total land area transferred into foreign ownership. If a New Zealander sells 10 hectares to someone from overseas, the whole 10 hectares is shown. If the seller is a company that is 50 percent New Zealand owned and 50 percent foreign owned, only five of the 10 hectares is counted. Five hectares represents the “net” change in foreign ownership of New Zealand land.
Gross hectares are the total land area proposed to be acquired under the consents granted, and includes land sold by one overseas person to another overseas person. If an overseas person acquires 10 hectares from another overseas person, the full 10 hectares is shown, and if a company that is 50 per cent New Zealand owned and 50 percent overseas owned acquires 10 hectares, the full 10 hectares is shown.
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