Order under subsection 68 - Dakang Australia Holdings Pty Ltd

Overview

The Foreign Acquisitions and Takeovers Act 1975, enacted by the Commonwealth of Australia, was introduced to address concerns regarding foreign acquisitions and takeovers that may be detrimental to national security or the economy. This Act provides the Treasurer with the authority to intervene in significant foreign acquisitions and takeovers, ensuring they align with Australia's national interests. The policy objective is to maintain control over foreign investment in sensitive sectors and activities, thereby protecting Australia's economic stability and security. On 15 April 2016, Treasurer Scott Morrison issued an order under the Act to prohibit the proposed acquisition of 80 per cent of the issued capital of S Kidman & Co Ltd by Dakang Australia Holdings Pty Ltd, effective for a period of 90 days. This intervention was taken to allow for a thorough assessment of the potential impacts of the acquisition on national security and economic factors.

Scope and Application

The Foreign Acquisitions and Takeovers Act 1975 (Cth) governs the acquisition of Australian businesses and assets by foreign entities to ensure that such acquisitions do not prejudice Australia's national security or the economic well-being of the nation. The Act applies to foreign persons and entities, including those from overseas, and to Australian entities when their controlling interest becomes foreign. It encompasses various types of acquisitions, mergers, and takeovers, regardless of the industry, provided the transaction meets the criteria outlined in the Act. The geographic reach of the Act is national, as it applies across the Commonwealth of Australia. The Act provides certain exclusions and exemptions, particularly for acquisitions below the prescribed thresholds. The Treasurer may extend or restrict the application of the Act through orders and regulations, as seen in this instance where a prohibition order was issued to prevent the acquisition of 80% of S Kidman & Co Ltd by Dakang Australia Holdings Pty Ltd, pending further consideration of the national security implications.

Key Provisions

The Foreign Acquisitions and Takeovers Act 1975 (the Act) provides the Treasurer with the authority to regulate and control certain foreign acquisitions of Australian businesses, particularly those that may be of national significance. Section 67 allows the Treasurer to prohibit an acquisition if it is not in the national interest, while Section 68 provides for the issuance of a temporary prohibition order if the Treasurer requires additional time to make a decision (67, 68). In this instance, Section 68 has been utilised to prohibit the proposed acquisition by Dakang Australia Holdings Pty Ltd of 80 per cent of S Kidman & Co Ltd's issued capital for a period of 90 days, starting from the date of publication in the Gazette. The Act imposes certain obligations on entities and parties involved in acquisitions that may be subject to review by the Treasurer. These obligations include providing the Treasurer with timely and accurate information about the acquisition, including details of the parties involved, the nature of the business, and any relevant financial information (Section 69). The Treasurer may also require additional information or documentation to assist in making a determination as to whether the acquisition is in the national interest. Failure to comply with the Act or its regulations may result in civil or criminal penalties. Under Section 73, a person who contravenes a provision of the Act may be liable to a penalty of up to 10,000 penalty units for an individual and 50,000 penalty units for a body corporate. Additionally, under Section 74, a person who makes a false or misleading statement in any document required by the Act may be liable to a penalty of up to 5,000 penalty units for an individual and 25,000 penalty units for a body corporate. The Act also provides for criminal penalties for certain offences, including imprisonment for up to two years for individuals and five years for bodies corporate (Section 75). The Act also provides for various enforcement mechanisms, including the power of the Treasurer to apply to the Federal Court for an injunction or other court order to prevent or enforce compliance with the Act (Section 76). Additionally, the Act provides for the establishment of a Foreign Investment Review Board, which is responsible for reviewing proposed acquisitions and making recommendations to the Treasurer (Section 66). The Board may also provide advice and assistance to parties involved in acquisitions, including guidance on compliance with the Act and its regulations.