Part 6: The recommendation for consent for an overseas investment

How the Overseas Investment Office uses information.

After the OIO has analysed the application, a recommendation about whether consent should be granted is prepared and provided to the relevant decision-maker.

Consistently structured and comprehensive consent recommendations

In coming to a recommendation, the OIO will consider the information it has gathered from the application, the investor and benefit tests, declarations, and other checks, such as an overseas investor's character.

The OIO also retains:

  • a written explanation of the main issues and how or why staff are satisfied about them, a record of the steps taken in considering the application, and why a particular recommendation is being made; and
  • a record of the peer review, managerial review, and checks that all the required documents (such as the statutory declarations) have been received.

The recommendation prepared for the decision-maker includes the following information:

  • introduction, background to the applicant and the application, and any issues identified in the quality assurance process;
  • what is known about the applicant, their business activities, and any previous applications;
  • information about the relevant overseas person, including all the details about directors and executives and those who might be in control;
  • information about the vendor;
  • information about the transaction, the consideration being paid, and the rationale for the transaction;
  • the investor test;
  • the benefit test (if required);
  • what conditions might be placed on the consent; and
  • communications with the applicant or their agent.

In the applications we reviewed, the OIO provided a full copy of the application to the decision-maker as well as the OIO's analysis and advice. This meant all of the information provided to the application was available to the decision-maker to review if they chose to.

Improving the conditions of consent

A consent to make an overseas investment can be granted subject to any conditions the relevant decision-maker thinks appropriate.27 The person granted the consent is required to fulfil those conditions.

The Act also places some general conditions that the consent holder needs to fulfil. Every consent is provided on the basis that all information provided by the applicant in the course of getting the consent was correct when it was provided. In addition, the person granted the consent "must comply" with what it told the OIO it would do (the "representations and plans" put to the OIO) and which the decision-maker notifies the person have been taken into account.28

If the OIO considers that specific conditions should be attached to a consent, it includes those proposed conditions as a list of items in the consent that need to be fulfilled in the recommendation to the decision-maker. In the applications we reviewed with a recommendation to approve the application, the OIO always included advice to decision-makers about specific conditions.29

The type of conditions we saw included process requirements, reporting of certain information by certain dates, and performing certain actions or commitments of the overseas investment (see Figure 3).

Figure 3
Examples of conditions included as part of a consent for an overseas investment

Process conditions Content conditions Reporting conditions
Allow inspection by the OIO of the overseas investment if requested.

Follow a specified process for disposing of the overseas investment if the conditions are not met.
Complete settlement of the investment, usually by a specified date.

Implement a specified project and complete it by a specified date.

Possess a residence class visa within 12 months.

Continue to be of good character.
Provide details on settlement.

Provide an annual report detailing compliance with specified requirements.

Report on any change in circumstances.

Provide a written report on specified compliance issues, if requested.

We saw evidence of the OIO staff consulting applicants on proposed conditions before providing advice to the decision-maker. It was also evident that, where the OIO staff considered there was more risk associated with a particular application more conditions were recommended.

Effectiveness of conditions

A condition will be effective if it is relevant to the investment and can be measured and enforced. A degree of judgement may be required in the circumstances of a given application as to what the appropriate conditions are for that investment. For example, in most of the applications we reviewed where the overseas investment was required to be of benefit to New Zealand, there was a link between the relevant benefits and the subject of the conditions. Where there was not a direct link, the conditions focused on the delivery of the actual investment rather than delivery of specified benefits.

Some of the conditions we saw were very specific (for example, a certain action has to be done by a certain date).

We saw some conditions that were more general in nature. For example:

  • some conditions included terms such as "make all reasonable efforts to ..." without any indication of what was reasonable in the circumstances;
  • some conditions required the overseas investor to report spending in certain specified categories with no specific amounts that had to be spent; and
  • some required working with a particular organisation and implementing what is agreed with that organisation with no certainty that anything would be agreed.

The OIO told us as at late 2016 the nature of the conditions placed on older consents by the OIO had sometimes limited its ability to enforce them. Staff described situations such as:

  • the anticipated benefits of the investment being realised may depend on the actions or activities of third parties and be beyond the control of the consent holder;
  • the requirements placed on the consent holder being unclear and/or not specifying what they are required to do;
  • conditions that specify certain actions of the consent holder but do not specify when those actions are to have occurred or provide a long period in which to complete those actions; and
  • conditions that might not provide any guidance about how tolerant the OIO should be if conditions are not met for what might be valid unforeseen reasons.

The OIO told us that improving the nature of conditions is a priority.

The OIO will be able to more efficiently and effectively monitor and enforce conditions that are measurable. For example, a condition that quantifies the agreed benefits can be tested at a later time. Similarly, a condition that requires a particular action by the investor by a particular date can be measured in the future.

Ensuring that the conditions of consent are specified in a manner that allows them to be monitored will assist both compliance by the applicant and enforcement by the OIO.

In our view, the OIO might consider whether knowledge from other applications informs the types of conditions it recommends. It was not evident in the applications we reviewed, and in the discussions we had, that the OIO was consistently making use of the information about conditions used in previous applications, and the resulting benefits, when preparing and recommending conditions in present cases. The OIO could consider whether those are sources of information it might access more consistently in preparing and recommending conditions.

In March 2018, when providing comment on the draft of this report, the OIO told us that it:

  • was in the process of finalising changes to the format and content of consent conditions to make them clearer and more effective; and
  • intends to establish a reporting template to assist people to identify progress against those conditions and to enable the OIO to identify areas to follow up.

27: Section 25 of the Overseas Investment Act 2005.

28: Section 28 of the Overseas Investment Act 2005.

29: The number of additional conditions ranged from three (for an application where it was not a requirement to demonstrate the benefit to New Zealand) to 25 (for an application where the assessment of benefits was particularly complicated).