Australia blocks Chinese Company Case Analysis

Australia has banned a China-linked company from acquiring financially troubled lithium miner Ali on the advice of Australia's Foreign Investment Review Board (FIRB), a spokesman for Treasurer Jim Chalmers said on Friday. Alita Resources Ltd.

Chalmers issued an injunction preventing Austroid Corporation from acquiring an additional 90.10% stake in lithium miner Alita Resources Ltd, which would have brought its shareholding to 100%. An injunction notice shows that Austroid Australia, the local subsidiary of US-based Austroid, has also been banned from making a proposal to fully acquire Alita Resources Ltd.

Company documents show that Austroid Australia's director is a Chinese national with extensive experience in the Chinese mining industry.

Alita has been under administration since 2019. Austroid said in a statement it was "shocked and disappointed" by the decision to block the debt-for-equity acquisition, adding that the impact on operations at the Bald Hill lithium mine, which exports to China, was not yet fully understood.

"The Treasurer has issued a cease and desist order on the advice of the Foreign Investment Review Board," Chalmers' spokesman said in a statement to Reuters.

Chalmers' office declined to say whether the acquisition was blocked because of national interest.

Documents show Austroid's director is Mike Que. He is the son of Que Wenbin, who has a major interest in Sichuan Western Resources, a Chinese lithium battery manufacturer.

Mike Que is also a director of the Alita subsidiary that operates the Border Mountain lithium mine. Company documents show he was also the sole director of Cayman Islands company China Hydrogen Energy Limited (CHEL), which failed to obtain FIRB approval when it attempted to acquire Alita in 2019.

Chalmers said in a speech last year that Australia, the world's largest lithium supplier, would be more selective in investing in its key minerals industry.

China has criticized Australia for blocking Chinese investment on the grounds of national security. China's top diplomat Wang Yi said after meeting with Australian Foreign Minister Huang Yingxian last week that Australia should provide a "non-discriminatory business environment" for Chinese companies to invest in Australia.

"The government does not comment on the application of foreign investment screening arrangements," a spokesman for Chalmers said.

China dominates the processing of critical minerals, accounting for more than 80% of global rare earth production, and has invested heavily in lithium and other mining and processing operations in Australia, Africa and South America.

Alita administrator McGrath Nicol said in a notice to shareholders on Wednesday that Austroid had said it had withdrawn its application to the Foreign Investment Review Board and intended to lodge a new application.

"Austroid is shocked and disappointed by this decision," Austroid said in a statement.

"Given our full cooperation and detailed responses to any questions raised by FIRB during this process, we are completely at a loss to understand the reasons for this decision," it added.

Austroid said it has invested significant capital in Border Hill to enable it to restart operations in 2022, following the appointment of administrators in 2019.

Generally, Australia encourages foreign investment, but certain types of investment require approval. FIRB provides advice when the Finance Minister makes decisions on foreign investment. FIRB is primarily responsible for reviewing foreign investment plans, assessing their impact on national interests and providing recommendations to assist the Finance Minister in making decisions.

When assessing an application, FIRB will consult extensively with federal, state and territory government departments and agencies, in particular the following departments, including the Australian Competition and Consumer Commission (ACCC) , Australian Taxation Office (hereinafter referred to as "ATO") and major infrastructure departments related to major infrastructure assets (including telecommunications, natural gas, electricity, water conservancy and ports).

The ATO will conduct a "tax risk assessment" on each FIRB application. FIRB collaborates with the ACCC on competition issues, but even if the ACCC approves a transaction, FIRB still has the right to maintain its own position on competition issues. If the target is a major infrastructure asset, the Critical Infrastructure Center will conduct a national security risk assessment of the proposal.

If an investment proposal is deemed to be contrary to the national interest, the proposal will be rejected. The concept of "national interest" includes factors such as national security, market competition, economic impact, social impact and investor characteristics. If the proposal involves a foreign government or related entity, the government will also consider the commercial nature of the investment.

"Trigger conditions" for mandatory declaration

Foreign investors are required to apply to the Minister of Finance before carrying out certain transactions known as "notifiable activities" or "notifiable national security activities."

Generally speaking, if a foreign investor plans to acquire the following types of interests, the transaction is a notifiable activity and therefore mandatory notification is required:

Interests in Australian land or property entities (including mining and processing tenements);

a direct interest in an Australian entity or agribusiness (generally 10% or more);

a significant interest in an Australian entity (generally 20% or more); or

At least 5% interest in an Australian media enterprise.

and compliance with relevant funding standard tests, and circumstances in which relevant exemptions are not applicable.

If a foreign investor plans to carry out activities subject to national security declarations, it must obtain foreign investment approval before carrying out the activities, regardless of the size or value of the activities. An activity is a declarable national security activity if the foreign investor is responsible for or proposes to carry out the following activities:

Conduct national security business;

Acquisition of direct interests in national security businesses;

Acquisition of direct interests in entities engaged in national security business;

An interest in land that is Australian national security land at the time of acquisition; or

Interests in prospecting leases related to Australian national security lands during the acquisition period.

If mandatory notification is required, foreign investors are legally obliged to declare proposed transactions to FIRB, and those who fail to declare will be criminally liable.

Foreign investors are not allowed to complete the proposed transaction without FIRB's approval. If the proposed transaction is determined not to be contrary to the national interest, the Secretary of the Treasury may approve the transaction. The Finance Minister can approve a proposed transaction unconditionally or impose conditions on it.

The Treasurer can order a ban on a proposed transaction if he deems the transaction to be contrary to the national interest. If a transaction has already taken place, the Treasurer still has the power to order the disposal of the asset or business.

Where voluntary notifications apply, and without prior FIRB approval, foreign investors are exposed to the risk that the Minister of Finance may exercise step-in powers within ten years of completion of the transaction and review and order the transaction on national security grounds. Orders (such as disposal orders).

Due to unfamiliarity with the business environment and business culture, many large companies may not directly choose primitive company growth when expanding the Australian market, but will conservatively directly acquire local "home-grown" companies in Australia. Overseas acquisitions can mainly be carried out in two ways: On-Market takeover and Off-Market takeover.

On-market acquisitions require approval from the government or bondholders and are settled in cash, which is more complicated and is generally not recommended. Over-the-counter acquisitions can be implemented through a takeover bid or a scheme of arrangement, which allows the acquirer to gain control of the target company relatively quickly and effectively control the transaction process. Renaissance Group's A$439 million acquisition of ROC (ROC) in 2014 was an off-market tender offer.

作者简介

于百溪

西南政法大学经济法本科，澳大利亚新南威尔士大学法学职业博士（UNSW Juris Doctor），澳大利亚新南威尔士州Solicitor。
有多年行政执法工作和办理经济类犯罪案件经验。
现专注经济法类，经济类犯罪，行政、刑法交叉案件，刑事合规和涉外案件。

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