Order under subsection 67(2) - Prohibition - State Grid International Development Limited

Overview

The Foreign Acquisitions and Takeovers Act 1975 was enacted to safeguard Australia's national security and economic interests from potentially harmful foreign acquisitions and takeovers. This legislation was introduced to address the problem of foreign entities acquiring significant stakes in Australian businesses and assets without adequate scrutiny, which could pose risks to national security and economic stability. The policy objective of the Act is to ensure that any foreign acquisition of Australian assets or businesses is assessed against national security and economic criteria. The enacting body for this legislation is the Parliament of Australia, which authorised the Treasurer to make orders prohibiting or conditioning the acquisition if it is contrary to the national interest. The 2016 Notifiable Instrument F2016N00017 under the Act was issued by the Hon Scott Morrison MP, Treasurer of the Commonwealth of Australia, to prohibit the proposed acquisition by State Grid International Development Limited and its parent company, State Grid Corporation of China, of a 50.4 per cent interest in the Ausgrid electricity network in New South Wales. The Treasurer was satisfied that this acquisition would involve significant actions under various sections of the Act, including the acquisition of interests in Australian business assets and land, and would be contrary to the national interest due to potential security risks. This order was made to prevent the foreign acquisition from proceeding, reflecting the government's commitment to protect critical infrastructure and maintain national security.

Scope and Application

The Foreign Acquisitions and Takeovers Act 1975 governs the acquisition of interests in Australian businesses and Australian land by foreign persons, foreign governments, and foreign government investors. This Act applies to any person or entity intending to acquire significant interests in Australian businesses or land, regardless of whether the entity is incorporated in Australia or elsewhere. The legislation extends its reach to cover transactions that involve the acquisition of Australian land or interests in Australian businesses by foreign parties, with specific attention to those actions deemed contrary to Australia's national security or economic interests. The Act's provisions are not confined to a particular geographic area but operate nationally, impacting any foreign acquisitions or takeovers across Australia. While the Act broadly applies to a wide range of transactions, certain exclusions and exemptions may apply, such as those involving minor interests or specific conditions set by the Treasurer. The application of the Act can be further refined through subordinate instruments, allowing for specific circumstances or types of acquisitions to be addressed in detail.

Key Provisions

The Foreign Acquisitions and Takeovers Act 1975 (the Act) is a pivotal piece of Australian legislation designed to regulate foreign acquisitions of Australian businesses and assets. The Act provides mechanisms for the government to review and, if necessary, prohibit acquisitions that may be contrary to the national security or public interest of Australia. Sections 41, 43, and 56 of the Act are particularly relevant, as they pertain to the acquisition of interests in Australian businesses, land, and direct interests in Australian businesses by foreign government investors, respectively. In this context, the Act requires that any proposed acquisition that falls under these provisions be notified to the relevant authorities. Under this legislation, specific obligations are imposed on parties proposing to acquire significant interests in Australian entities. For instance, section 41 of the Act requires notification when there is a proposal to acquire interests in the assets of an Australian business or to enter into significant agreements with such businesses. Similarly, section 43 requires notification for the acquisition of interests in Australian land. The obligations extend to foreign government investors, as outlined in section 56 of the Foreign Acquisitions and Takeovers Regulation 2015, which mandates notification for direct interests in Australian businesses by such investors. These obligations are designed to ensure transparency and to allow the government to assess the potential impact of the proposed acquisitions on national security and public interest. Failure to comply with the notification requirements or proceeding with a prohibited acquisition can result in significant consequences. Under the Act, the Treasurer has the authority to prohibit transactions that are deemed contrary to the national interest. In this specific case, the Treasurer has issued an order prohibiting the proposed acquisition by State Grid International Development Limited and its parent company, State Grid Corporation of China, of a 50.4 per cent interest in the Ausgrid electricity network in NSW. This prohibition is underpinned by the determination that the acquisition would be contrary to the national interest, thus triggering the provisions of the Act that allow for such intervention. The consequences of non-compliance or proceeding with a prohibited acquisition can include criminal penalties, civil penalties, and potential legal actions aimed at reversing the acquisition. The severity of these penalties can vary but may include substantial fines and imprisonment for individuals, as well as financial penalties for the entities involved.