Most Read Contributor in New Zealand, September 2016
New Zealand is an attractive destination for foreign direct
investment, despite having the seventh most restrictive screening
regime in the OECD.
Obtaining consent for a business purchase not involving
"sensitive land" is relatively straightforward although
potential investors must satisfy an investor test that assesses
their character, relevant business experience, acumen and financial
commitment to the investment.
Acquisition of sensitive land and fishing quota requires the
consent of two Ministers and, in addition to the investor test, a
"benefits test" which examines whether the investment
will result in benefits to New Zealand.
Increasingly, the OIO requires a detailed business plan to
substantiate these benefits, including hard data on planned capital
investment, job creation, increased productivity and export
receipts. Enforceable commitments to proceed with promised plans
will typically be a condition of consent.
Satisfaction of the benefits test may require identification of
a hypothetical New Zealand purchaser (even if no actual New Zealand
bidder exists) and consideration of what benefits might reasonably
arise from ownership of the assets by this hypothetical New Zealand
This "counterfactual" analysis represents an evolution
in analytical approach that adds additional complexity to the
consent process and poses particular challenges when acquiring
mature assets where there is limited scope to lift productivity,
deploy new technology or create new jobs.
In our experience these challenges can generally be met, but can
require a considerable commitment of time and effort on the part of
intending investors and their management teams.
The application process can be frustratingly time-consuming,
reflecting a high number of applications and limited resources in
the Overseas Investment Office (OIO). At no stage in the 13 months
to the end of January 2015 did the OIO have fewer than 60 consent
applications in progress, and at its peak – in October
– it had 73. These volumes are challenging the regime's
Although there are no statutory time frames for decision-making,
the OIO's target is to have 90% of business and land
acquisition proposals assessed within 50 working days of active
consideration. It achieved a hit rate of only 76% in the second
half of 2014. In our experience, processing of complex applications
can take closer to 100 working days, when time for correspondence
with the OIO and Ministerial sign-off is factored in.
The 2014 Briefing to the Incoming Minister (BIM) noted
that timing of decisions could have personal implications for
various applicants, including funding arrangements.
Reform of the screening regime is always contentious,
particularly if the direction of the reform is toward
liberalisation, but most of the emotion in the debate is around
land and other natural resources. It is our view that the New
Zealand public would take a much more pragmatic attitude to the
treatment of business assets and listed companies, and that reform
in this area is overdue and could yield real dividends.
An example would be to treat NZX listed companies with no more
than 49% foreign ownership or control as New Zealand companies for
the purpose of the Overseas Investment Act. This has been on the
government's capital markets Business Growth Agenda for years
now so it is disappointing that it is still on the 'to do'
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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