Learn about the key changes made to exemptions from the requirement for consent.

The Overseas Investment Amendment Regulations (No 2) 2020 (Amendment Regulations) came into force on 27 July 2020. They made three key changes to exemptions from the requirement for consent under the Act:

(a)    Extending and clarifying the exemption for permitted security arrangements to include significant business assets and single contract arrangements.
(b)    Exempting certain FMA regulated retirement schemes from the definition of overseas persons
(c)    Expanding the existing shareholder creep exemption and extending it in part to non-consent holders

Exemptions for permitted security arrangements

Regulation 42 provides exemptions from the requirement for consent for transactions that result in an overseas person acquiring property under a permitted security arrangement (PSA).  The scope of this exemption has been made broader as follows:

Requirement for consent
It has been extended to include significant business assets in addition to the previously covered sensitive land and fishing quota.

Single or multiple arrangements
It now includes single contract PSAs as well as PSAs that are bundled or part of a portfolio.

Certain retirement schemes not overseas persons

Schemes already exempt from consent

Regulation 44 already exempts Financial Markets Authority registered KiwiSaver or superannuation schemes, workplace savings schemes, and approved Schedule 3 schemes from the consent requirement where:
•    an overseas person scheme supervisor or manager is acquiring sensitive assets; and
•    they are investing scheme assets for the benefit members who are at least 75% New Zealand citizens or persons ordinarily resident in New Zealand.

Exempt from definition of overseas person

However, investments by those schemes sometimes led to the company they invested in becoming an overseas person. This meant that the company might need consent to make further investments, even though these scheme that invested in it did not need consent.
Regulation 63 now exempts the same schemes from being “overseas persons”.  This means that the companies being invested in by schemes won’t become overseas persons as a result of the scheme’s investment.

Shareholding creep changes

There is greater flexibility for consent holders and non-consent holders to increase ownership or control interests without needing consent under regulations 38 and 38A.

Exemptions for shareholding creep by consent holder

Regulation 38 provides two exemptions from the requirement for consent, where an overseas person (A) previously granted consent to acquire securities (or rights or interests in securities) (initial consented securities) in another person (B).

If A relies on an exemption in this regulation, the conditions of A’s consent continue in effect as if the further securities (described below) were covered by the consent.

Exemption 1: <5% rule

Consent is not required for a transaction that has the effect of A acquiring further securities or rights or interests in securities in B (further securities) if the following are true:

Same class:
The initial consented securities and further securities are the same class.

Within 5 years
The transaction(s) complete(s) within 5 years of the date of A’s consent.

Total holdings less than 5%: 
On completion, the total number of securities A holds is less than the initial consented securities plus 5% after subtracting all other same class securities acquired in reliance on an exemption which A (or its associates) hold.

Example:

An overseas person (Q) is granted consent in May 2020 to acquire 50% of the ordinary shares of a company (P).  P has 200,000 ordinary shares on issue.  Q is permitted to acquire up to 4,999 further securities without consent, being less than 5% of the initially consented securities.  Q does not hold any other securities in P.

Note: Q’s exemption is proportionate to Q’s initially consented securities. Here, that is less than 2.5%. Q cannot use this exemption to creep a total of less than 5% of P’s issued shares.

Exemption 2: <10% rule

Consent isn’t required for an overseas person (A) to acquire additional securities in a person (B) if:

Same class:
The initial consented securities and further securities are the same class.

Less than 10%:
The transaction(s) result in A and its associates* holding or controlling no more than 10% of B’s securities of that class in addition to the securities that A and its associates* held or controlled immediately after A’s consent was granted.

Less than control limit:
The level of control in B is less than A’s control limit:

  • A’s level of control in B is the higher of the proportion of B’s governing body that A and its associates* have the power to control and the proportion of the voting power at a meeting of B that A* has the power to control the exercise of.
  • A’s control limit is the next highest level of 25%, 50%, 75%, and 100% above A’s level of control. (For example, if A’s level of control is 40%, then A’s control limit is 50%).

*Regulation 38(3) has very broad associate rules.  A here, in particular, includes an associate of A, and A’s holding or controlling interest, either alone or together, whether directly or indirectly.

Example:

An overseas person (K) is granted consent to acquire 70% of the ordinary shares of a company (L). K has the power to control 70% of vote at L’s meetings. K’s control limit is 75%. 

K either alone or with its associates may acquire an additional 5% of the ordinary shares (only), taking the holding K’s control limit.  

If K had consent to acquire 60% of L’s shares, K (or its associates) entitlement would be an additional 10% of the shares, a total of 70%, because no control limit is exceeded.

Exemption for non-consent shareholding creep

Regulation 38A applies to:

Existing more than 25% holdings: 

  • A person (E) (either alone or together with associates) that has an existing more than 25% ownership or control interest in another person and 
  • That person has not previously been granted consent to acquire securities in that other person (but, for example, an associate of E may have been granted consent or no consent was required);

Indirect land and business acquisitions:
To acquisitions of sensitive land (under s 12(b)(ii)), significant business assets (under s 13(1)(a)), and fishing quota (under s 57D(b) of the Fisheries Act 1996).

Consent is not required to increase that existing interest if the existing and further securities are of the same class and the “less than 10%” and “less than control limit” rules are true (as outlined above).  

For this regulation, the “relevant time”, which fixes the existing interest is either immediately after the grant of the most recent consent (if applicable) or immediately before E (or their associate) first relies on this regulation.

Example:

An overseas person (E) acquired 30% of the ordinary shares of a company (F). E did not require consent as the transaction did not involve sensitive land or fishing quota, and the $100 million threshold for significant business assets was not met.

Since E’s initial investment, F has grown significantly and now has assets exceeding $100 million.

E wishes to increase its shareholding in F to 40%. E has the power to control 30% of vote at F’s meetings, and so E’s control limit is 50%. E either alone or with its associates may acquire an additional 10% of the ordinary shares, taking the E’s investment to 40%, which is less than E’s control limit. 

Last Updated: 15 September 2020