With many SMEs on the horizon expecting to fold because of the economic consequences of COVID-19, the Australian government is taking additional measures to protect Australian distressed business for sale.
This comes after internal scrutiny from Liberal MPs as well as the Foreign Investment Review Board (FIRB). They are bracing for an onslaught of acquisition attempts from foreign companies. This includes a heavy emphasis on Chinese investors looking to snap up distressed businesses for sale.
Yet foreign investment, as some advocates say, could act as a valuable lifeline for struggling Australian companies. So how do you draw the line between economic investment and national interest?
If you’re thinking of a quick exit, here’s what you need to know.
New regulations to addressed concerns over distressed assets for sale
The Australian government has temporarily reduced the threshold from $15-$60M (depending on the industry) to $nil, making it much more difficult for Australian business owners to sell to overseas buyers.
It’s worth noting that the government hasn’t frozen foreign investment. However, they are rigorously assessing each bid on a case-by-case basis. This approval review will take place regardless of the nature or value of the business and will involve a greater investigation into company links and foreign governments.
Instead of a 30-day review period, the FIRB has extended it for up to six months. This will allow for the influx of applications against the government’s new regulations.
This extended approval process will present real challenges to struggling Australian businesses trying to sell. This rings especially if they’re on the verge of insolvency. However, not all reviews will take six months. If your business acquisition plan involves keeping doors and jobs open, then the FIRB will give you priority.
Implications for your business
Already midway through the sales process with a foreign buyer? If your business met the previous regulations and did not require FIRB approval (ie, if your business was valued below the threshold), you will need to take a step back. Reconsider whether you need to seek additional approval from the Treasurer. You will also need to familiarise yourself with FIRB requirements and ensure you have all the necessary documentation required to make it through the approval process.
Also, be conscious of the extended approval timelines by the FIRB and how that could impact your business transactions, revenue stream, and overall commercial health.
Finally, expect these conditions to adapt and change as the situation does. Depending on the type of sector your business operates in, new regulations could come into play in order to meet the demands of the government.
We can look at the global financial crisis for a working example of how quickly the FIRB can modify demands. After the GFC, the FIRB put forth conditions that were centered around keeping target businesses in Australia. This ensured there was an ongoing presence in the market and that the amount of Australians employed remained high.
This is a time of great uncertainty for many business owners, but we want you to know, you are not alone. If you are concerned about your business, get in touch with us. There may be alternative solutions than selling to foreign investors. We can help you devise an appropriate game plan before you start jumping through all the red tape.