This section contains information determining ownership or control interest.

Introduction

Measuring ownership or control interest is relevant to determining if a company, trust, partnership or unincorporated joint venture requires consent to invest in sensitive New Zealand assets.

Consent may be required for:

  • a transaction by an overseas person to acquire 25% (or more) ownership or control interest
  • a transaction to acquire less than 25% ownership or control interest if the aggregated ownership or control interest of unrelated overseas persons is 25% (or more)
  • a transaction that meets the tipping point for New Zealand listed issuers – see Changes to the Overseas Investment Act for more information

A company incorporated outside New Zealand is an overseas person regardless of who owns or controls it.

Legislation

Section 6(4) and 6(5) of the Overseas Investment Act 2005 defines more than 25% ownership or control interests.

Trusts are defined in section 7(2)(e) of the Act.

The Overseas Investment Regulations 2005 exempt certain situations relevant to ownership and control, such as:

  • internal restructuring arrangements (regulation 37)
  • the transfer of property to an overseas person beneficiary of the trust (regulation 40(b) and 40(c)
  • the replacement of a trustee with an overseas person trustee (regulation 40(a).

Control, beneficial entitlement and voting power

If an overseas person has 25% ownership of a company that holds sensitive land, but the overseas person is given the power to appoint 50% of the directors of the company under the company's constitution, then consent is required for the acquisition by the company. In order to determine whether a transaction will increase an existing more than 25% ownership or control interest in "B", one must determine whether:

  • the person will have a beneficial entitlement to more of B's securities than they already hold
  • the person will control the composition of a larger proportion of B's governing body, and
  • the person will be able to exercise more voting power at a meeting of B.

Where one or more of these factors increases, and the others remain the same, then the transaction will result in an increase in an existing more than 25% ownership or control interest.

Refer to different ownership and control thresholds that apply to New Zealand listed issuers and managed investment schemes

For example:

Facts:
O, an overseas person, owns 30% of the shares in T, and exercises 30% of the voting power at meetings of T. O has no ability to control the composition of the governing body of T.
O proposes to acquire an additional 10% of the shares from a third party.

Result:
O's shareholding and voting power will increase. O will still have no ability to control the composition of the governing body of T.
O will have increased their more than 25% ownership or control interest.
Where one or more of these factors decreases, and the others remain the same, then the transaction will not result in an increase in an existing more than 25% ownership or control interest.

In all other cases there will inevitably be some doubt, particularly where there are special, limited or conditional voting rights conferred by the constitution. See associate provisions or contact the Overseas Investment Office for more information.

Note: Different rules and “tipping point” thresholds apply for certain New Zealand listed issuers and managed investment schemes per clause 32 of Schedule 1 AA of the Act.

Aggregating the interests of unrelated overseas persons

A transaction to acquire a 25% or less ownership or control interest may require consent if the aggregated ownership or control interest of overseas persons, even unrelated overseas persons, is more than 25%.

Consent is required if, as a result of a transaction, a company (or other person) that owns or controls sensitive land becomes an overseas person - see section 12(b)(iii) of the Act.

For example:

Facts:
C is a company registered in New Zealand that owns or controls sensitive land.
24 percent of the shares in C are owned by overseas persons. 76 percent of the shares in C are owned by New Zealanders.
O, an overseas person, purchases 3 percent of the total shares in C from one of the New Zealand shareholders.

Result:
After the transaction, 27 percent of the shares in C are owned by overseas persons.
C becomes an overseas person.
O requires consent to acquire the 3 percent shareholding in C.

Note: Different rules and “tipping point” thresholds apply for certain New Zealand listed issuers and managed investment schemes per clause 32 of Schedule 1 AA of the Act.

Internal rearrangements

Regulation 37 exempts certain internal restructuring arrangements. 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.

For example:

Facts:
'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.

Result:
'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.

Subsidiary Process image

Trusts

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.

See section 7(2)(f) of the Act.

Unit trust

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.

See section 7(2)(g) of the Act.

Discretionary trust beneficiaries

The Act treats a trust as a person rather than a relationship between trustee and beneficiary. The Act recognises three separate classes of person, each member of which might be an overseas person independently of each other:

  • 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 considered 1 . 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 of the discretionary beneficiaries are overseas persons, then the OIO 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 - 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. See associate provisions.

Transfer to beneficiaries

The exemption in regulation 40(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 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(c) 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 as a result 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.

Apply for consent

See how to apply for consent.

Disclaimer

This website provides general information only. The OIO and LINZ do not assume any responsibility for giving legal or other professional advice and disclaim any liability arising from the use of the information. If you require legal or other expert advice you should seek assistance from a professional adviser.

Footnote

1. Gartside v Inland Revenue Commissioners; sub nom Gartside's Will Trusts, Re [1968] AC 553; [1968] 1 All ER 121

Last Updated: 16 June 2020