25 November 2010

New foreign takeover controls on farms?

Foreign acquisitions of Australian farms and agricultural companies are the target of a new Bill before Parliament.

Senators Xenophon and Milne yesterday tabled a private members' bill, the Foreign Acquisitions Amendment (Agricultural Land) Bill 2010.

If passed, this Bill would:

  • require Federal Treasurer approval for the acquisition of an interest in farms of more than 5 hectares;
  • require the Treasurer to consult a statutory checklist of "national interest" issues before approving such an acquisition;
  • require the Treasurer to publish details of all agricultural land applications.

What acquisitions does the Bill apply to?

In broad terms, the acquisition of agricultural land by a foreign person currently only requires notification to the Treasurer if the purchase price exceeds $A231 million.

The Bill proposes to change that monetary threshold with a spatial one. An acquisition of an interest in agricultural land of more than 5 hectares would have to be notified. Once notified, an acquisition could be blocked by the Treasurer if it was contrary to the national interest.

The Bill covers more than just the acquisition of farm real estate. It would apply to acquisitions of "interests" in agricultural land, including:

  • management rights;
  • leases of more than 5 years;
  • profit-sharing arrangements.

The Bill would also apply to acquisitions of shares in a company or units in a trust in which agricultural land accounts for more than 50% of its assets.

What is "agricultural land"?

Under the Bill, agricultural land would be defined as land "used predominantly for carrying on a business of primary production". This brings in the definition of "business of primary production" in the Income Tax Assessment Act, which includes:

  • animal husbandry/farming;
  • horticulture;
  • fishing;
  • forestry;
  • viticulture;
  • dairy farming.

How would the Treasurer determine the "national interest"?

At present, there is no statutory definition of "national interest". Current Government policy sets out a number of non-binding factors which the Treasurer typically takes into consideration when evaluating an application.

This Bill would prescribe a list of factors which the Treasurer would have to take into account when judging a proposed acquisition of agricultural land. These factors are considerably more detailed and expansive than the current policy.

The current policy says that, as well as competition and tax issues, the Treasurer currently considers the impact of an investment on the economy and the community. The Bill expands the economy/community policy to a detailed list of factors, including:

  • any benefit to Australia or Australians or any part or group thereof;
  • creation or retention of jobs in Australia;
  • the introduction of new technology or business skills;
  • the effect on Australian exports;
  • any increased processing of primary products in Australia;
  • aggregation and vertical integration;
  • head office arrangements.

What information would be made public?

Foreign takeover applications are currently handled on a confidential basis.

The Bill would require details of all agricultural land applications to be published on a government website.

This website would be updated weekly, with details of the progress of each application.

Coincidentally, on the day before the Bill was introduced into Parliament, the Government announced a cross-agency research project to gather information about the extent of foreign ownership in the agricultural sector.

Comment

Traditionally, private members' Bills have rarely been passed by the Australian Parliament. However, in the current environment, that no longer necessarily holds true.

The passage of the Bill in its current form could have two significant flow-on effects.

At present, applications for approval of foreign takeovers are often submitted confidentially, so that the approval process does not delay the takeover when it is finally announced to the market. Requiring the publication of applications would force potential bidders for agricultural land corporations to delay making those applications.

On a wider front, it is not difficult to see that the introduction of a statutory national interest test for agricultural land would add weight to existing calls for a similar test for other types of acquisitions and takeovers. A statutory test could expose the Treasurer to the possibility of judicial review of his decisions. It could also provide another avenue for opponents of a takeover to challenge it.

 

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Disclaimer
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.
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