Changes to FIRB Rules Regarding Money Lending Agreements and Unlisted Land Entities

The federal government continues to refine and refine Australia’s foreign investment review rules, amending Foreign Acquisitions and Takeovers Regulations 2015 (Cth) (Regulation) now in force (since April 1, 2022).

These amendments aim to clarify certain aspects of the foreign investment framework and to streamline the treatment of less sensitive types of investment.

In this article, we describe the main changes that foreign investors, their advisers and their counterparties should be aware of.

Money Lending Agreement Definition Changes

To align with common industry practice, the definition of “money lending agreement” has been replaced with a definition that clarifies that a relevant agreement entered into by a new entity will meet the definition where the new entity has was created by an existing money lending business for the primary purpose of lending money (or otherwise providing financial accommodation).

With the new definition of “money lending agreement” comes the requirement that:

  • the agreement entered into by the newly created entity must not relate to any matter unrelated to:
    • the purpose of lending money; and
    • carrying on the business of lending money to the person or entity that created the new entity.
  • the newly created entity must not have engaged in any activity unrelated to the purpose of lending money or otherwise providing financial facilities.

Amendments to the definition of moneylending agreement also expand the class of persons who may acquire an interest arising from the performance of a moneylending agreement to include a subsidiary or holding entity of the person who entered into the money lending agreement.

Finally, entities that do not have issued securities (such as non-stock and mutual entities) but have at least 100 members and are not foreign public investors, have been added to the category of pawnbrokers. covered by the exemption relating to the acquisition of interests in residential land. Previously, this was limited to foreign non-governmental investors who are licensed financial institutions with at least 100 shareholders.

Australian media company

The threshold test for investments in Australian media companies has been revised to align the threshold for acquisitions of Australian media companies with the threshold which generally applies to more sensitive investments, including acquisitions of national security and acquisitions by foreign government investors.

As a result, the previous requirement that a foreign person must obtain FIRB approval before acquiring a 5% or more interest in a media company has been replaced by a requirement that approval must be sought before that the foreign person acquires a “direct participation”, being:

  • a stake of at least 10% in the entity or company; Where
  • a stake of at least 5% in the entity or business if the person acquiring the stake has entered into a legal agreement relating to the businesses of the person and the entity or business; Where
  • an interest of any percentage in the entity or business if the person who acquired the interest is either in a position:
    • influence or participate in the central management and control of the entity or business; Where
    • to influence, participate in, or determine entity or corporate policy.

Unlisted Australian land entities

The threshold for a foreign person to acquire a passive interest in unlisted Australian real estate entities that do not invest in established housing has been raised from 5% to 10%. This amendment aligns the percentage control thresholds for acquisitions of unlisted Australian land entities with listed Australian land entities.

Acquisitions of interests whose share or ownership of units will not increase

Following the amendment of the regulation, an exemption now exists, which means that the notification provisions of the Foreign Acquisitions and Takeovers Act do not apply to foreign persons who acquire an additional interest in an entity, provided that their proportionate percentage interest generally does not increase after the acquisition.