On 16 June the Government introduced a temporary emergency notification regime for overseas investors in response to the economic impacts of Covid-19. This new notification requirement will be reviewed every 90 days but will remain in place while the effects of Covid-19 justify it. Given the severe economic impacts of Covid-19 in NZ, this is likely to be with us for some time.
Overseas investors must now notify the Overseas Investment Office (OIO) of all investments, regardless of value, that would result in:
Typically, NZ tech company investment transactions would not have triggered OIO requirements other than for very large investment/exit transactions – due to the $100 million threshold, and because sensitive land is not typically involved in such deals.
Now investors must notify the OIO before a transaction is given the green light, regardless of value, and any transaction documentation must be conditional on a direction order being made by the OIO.
Once investors notify the OIO, they will complete an initial assessment within 10 working days to make sure the transaction is not contrary to New Zealand’s national interest. The OIO advises that most transactions will proceed after this initial assessment. A small number of transactions may, however, require a more thorough assessment which could take up to a further 30 working days (or even longer) and could result in conditions being imposed or the investment being stopped. The OIO will keep applicants up to date during the process.
The overseas investor needs to complete and submit a notification form, which includes the following information:
There is no cost to make a submission.
The OIO will only publish direction orders with conditions, prohibition orders, and disposal orders. Transactions that proceed without conditions imposed will remain confidential.
The Minister of Finance will review certain transactions which come through this temporary emergency notification pathway for consistency with national interest. OIO note that businesses operating in sensitive areas may raise more national interest concerns, while investments that enhance New Zealand’s economic prosperity are less likely to be caught.
The national interest concept was already something the OIO had been looking at. Covid-19 has simply accelerated its introduction. The Minister of Finance has scope to apply broad judgment in deciding whether or not an investment is consistent with the national interest.
Even when the Covid-19 emergency notification measures have ended, the national interest test will be permanent.
For the NZ tech startup ecosystem, OIO approval would not have been on anyone’s radar other than in very few cases. Now the OIO is likely to be inundated with submissions, including on certain tech transactions with substantive overseas participation. Whilst significant overseas investment is rare in tech startups for seed investments, overseas VCs have increasingly been looking at NZ companies for follow-on money. So we expect to see the practical impact of these new measures immediately.
The temporary notification scheme could slow down the transaction even for relatively small investment deals if an overseas investor is taking a significant stake. Investors, as part of providing information as to their character, are likely to be required to supply details of their beneficial ownership. Parties to any deal should factor this into the timetable.
We wouldn’t expect the OIO to have an issue with most tech investment transactions in sectors such as SaaS, services, mobile, web commerce and financial technology. Technology covers a broad field, however. Anything that touches on security, health, infrastructure or telecommunications might require closer inspection by the OIO if it indeed adopts a broad interpretation of national interest.
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