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Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 [2015] AUSStaCSBRp 101 (2 December 2015)


Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015

Introduced into the House of Representatives on 20 August 2015

Portfolio: Treasury

This bill received Royal Assent on 25 November 2015

Introduction

The committee dealt with this bill in Alert Digest No.9 of 2015. The Treasurer responded to the committee’s comments in a letter dated 30 September 2015. The committee sought further information and the Treasurer responded in a letter dated 24 November 2015. A copy of the letter is attached to this report.

Alert Digest No. 9 of 2015 - extract

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Background

This bill is part of a package of three bills. The bill amends various Acts relating to foreign acquisitions and takeovers to:

• introduce certain civil and criminal penalties;

• transfer to the Australian Taxation Office the responsibility of regulating foreign investment in residential real estate; and

• lower screening thresholds for investments in Australian agriculture.

Delegation of legislative power
Schedule 1, item 4, proposed sections 44 and 48 of the Foreign Acquisitions and Takeovers Act 1975

Proposed section 44 permits regulations to be made that provide that a specified action is a ‘significant action’ for the purposes of the Act. The explanatory memorandum (at p. 51) provides three examples:

... it is anticipated that regulations will prescribe the following actions to be significant actions:

• the acquisition by a foreign person of an interest of at least 5 per cent in an entity or business that wholly or partly carries on an Australian media business;

• the acquisition by a foreign government investor of a direct interest in an Australian entity or Australian business; and

• the starting of an Australian business by a foreign government investor.

However, the explanatory memorandum does not explain why these and other proposed ‘significant actions’ cannot be included in the primary legislation rather than the regulations. The committee therefore seeks detailed advice from the Treasurer as to the rationale for this proposed significant delegation of legislative power.

The committee notes that the same issue arises in relation to proposed section 48 which specifies that the regulations may provide that a specified action is a ‘notifiable action’. The committee therefore also seeks the Treasurer’s advice in relation to the rationale for this provision.

Pending the Treasurer’s reply, the committee draws Senators’ attention to the provisions, as they may be considered to delegate legislative powers inappropriately, in breach of principle 1(a)(iv) of the committee’s terms of reference.

Treasurer's first response - extract

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Schedule 1, item 4, proposed sections 44 and 48 of the Act - Delegation of legislative power

Proposed sections 44 and 48 of the Act would enable regulations to be made that provide that a specified action is a ‘significant action’ and a ‘notifiable action’ respectively. In short, if I am notified that a person is proposing to take a significant action, I can make an order prohibiting the significant action if I am satisfied that the action would be contrary to the national interest. If a significant action has already been taken and I am satisfied that this is contrary to the national interest, I can make certain orders that have the effect of undoing that action (for example, by disposing of an interest that has been acquired). I can also impose conditions in such circumstances as an alternative to a disposal order. Some actions, which are called notifiable actions, must be notified to me before the action can be taken. A foreign person who takes a notifiable action without first notifying me may be liable to civil and criminal penalties. The Bill specifies that certain actions are significant actions or notifiable actions.

It is essential that the Bill includes a mechanism that allows the Government to protect Australia’s national interest over time by enabling it to quickly and effectively regulate evolving markets and new patterns in foreign investment (such as the emergence of new investment structures) and respond to changes in the Australian economy. Proposed sections 44 and 48 of the Act provide such a mechanism.

Committee response

The committee thanks the Treasurer for this response.

The committee notes the Treasurer’s advice that these provisions (which enable the regulations to provide that a specified action is a ‘significant action’ or a ‘notifiable action’) are needed to allow the government ‘to quickly and effectively regulate evolving markets and new patterns in foreign investment (such as the emergence of new investment structures) and respond to changes in the Australian economy.’

The committee considers that this general explanation does not justify the proposed delegation of legislative power with sufficient clarity. Given the significant consequences that may apply when a specified action is declared to be a ‘significant action’ or a ‘notifiable action’ (including the application of civil and criminal penalties and the potential for an order requiring a person to dispose of an interest), the committee reiterates its request to the Treasurer for detailed advice as to the rationale for the significant delegation of legislative power in these provisions. In particular, it would assist the committee if examples could be provided of situations in which it is envisaged that these regulation-making powers would need to be utilised with such urgency that providing for the matter in an amendment to the primary legislation would be ineffective. In addition, noting the significant consequences outlined above, the committee requests the Treasurer’s advice as to whether the disallowance process for these regulations can be amended to provide for increased Parliamentary oversight. The committee notes that this could be achieved by:

• requiring the approval of each House of the Parliament before new regulations come into effect (see, for example, s 10B of the Health Insurance Act 1973); or

• requiring that regulations be tabled in each House of the Parliament for five sitting days before they come into effect (see, for example, s 79 of the Public Governance, Performance and Accountability Act 2013).

Treasurer's further response - extract

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While the Bill has now been passed by the Senate, I wanted to respond to the Committee's request for advice about the rationale for including provisions in the Bill that would enable regulations to be made which provide that a specified action is a 'significant action' or a 'notifiable action'. The Committee also requested advice as to whether the disallowance process for the regulations could be amended to provide for increased Parliamentary oversight.

Successive governments have relied on Australia's Foreign Investment Policy (Policy) to supplement the requirements in the Foreign Acquisitions and Takeovers Act 1975 (Act), and have on occasions revised the Policy to expand the categories of foreign investment proposals that are screened. Changes to the Policy have often been bolstered by enacting amendments to the Act that applied retrospectively with effect from the date of the change to the Policy or the making of a public announcement. For example, on 12 February 2009, the former Government announced amendments to clarify the operation of the Act to ensure that it applied equally to all foreign investments irrespective of the way they are structured. The amending legislation, the  Foreign Acquisitions and Takeovers Amendment Act 2010 , received Royal Assent on 12 February 2015 and applied retrospectively to the date of the announcement.

While this approach has enabled successive governments to protect the national interest by quickly amending Australia's foreign investment framework in response to changing circumstances, the disadvantage of this approach is that it has frequently relied on either enacting legislation which has retrospective effect or on making amendments to the Policy. By allowing regulations to be made which provide that a specified action is a significant action or a notifiable action, the need to rely on the Policy or retrospective legislation will be minimised. Altering the disallowance provisions that apply to the making of regulations under the Act would undermine the utility of introducing the new regulation-making powers, and would force governments to continue to rely on making amendments to the Policy in response to changing circumstances.

Committee further response

The committee thanks the Treasurer for this detailed response, though notes that it would have been useful to receive the information before the bill was passed by both Houses of Parliament. The committee notes the Treasurer’s advice to the effect that:

• in the past the system has relied on changes to Australia’s Foreign Investment Policy to supplement the requirements in the current Act;

• if necessary, the Act was then amended with retrospective effect;

• by allowing regulations to be made which provide that a specified action is a significant action or a notifiable action, the need to rely on the Policy or retrospective legislation will be minimised; and

• ‘altering the disallowance provisions that apply to the making of regulations under the Act would undermine the utility’ of the proposed approach.

continued

While it may be accepted that the proposed system is an improvement on reliance on a combination of policy change and retrospective legislation, the committee remains concerned about the significance of the matters being delegated. The committee is of the view that a revised disallowance process could be used to appropriately retain Parliamentary involvement in the legislative process without compromising flexibility and responsiveness. However, as the bill has already been passed the committee makes no further comment about the bill.


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