AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
9. Takeover Finance 9.1 Regulated Targets Certain industries are regulated in Australia, including: • casinos; • insurers; • superannuation funds; • the “big four” banks and other financial ser- vice providers; • media broadcasters; and • owners of key infrastructure such as airports and power and utility providers. A change in the ownership or control of compa- nies in the regulated industries (at either a federal or state level) will usually require governmental approval. Regulatory consents may be required to complete the acquisition itself or take security over the assets of the entity, but these consents do not usually affect the financial covenants or other terms of the debt documents. Legislation relating to the foreign investment or acquisition by foreign persons of a legal or equi- table interest in Australian companies, assets, land or businesses generally must be consid- ered. The Foreign Acquisitions and Takeovers Act 1975 (Cth) and associated regulations may require a proposed acquisition to be notified to the Foreign Investment Review Board (FIRB), which provides advice to the Treasurer, who has the discretion to prohibit the acquisition if it con- siders it to be contrary to the national interest or, in some cases, national security only. The Australian government has recently passed reforms to Australia’s merger control regulations, moving away from a longstanding voluntary, informal clearance process to a mandatory and suspensory notification administrative regime.
a borrower’s debt deductions to the extent to which they exceed the borrower’s “third-party earnings limit” . The third-party earnings limit is calculated by reference to debt from unrelated lenders, which satisfies certain conditions. A key requirement of the third-party debt test is that a lender’s recourse for payment of the debt is limited to Australian assets of the borrower, membership interests in the borrower (unless the borrower has a legal or equitable interest, directly or indirectly, in an asset that is not an Australian asset), and Australian assets of Aus - tralian entities that are members of the obligor group in relation to the debt. Another requirement of the third-party debt test is that the debt funding, or substantially all of it, must be used by the borrower to fund its com- mercial activities in connection with Australia. Finally, taxpayers who are a member of a world- wide group with audited consolidated financial statements are able to deduct net debt deduc- tions based on financial metrics of the worldwide group. Ordinarily, this test would benefit entities with higher debt levels at the group level. Debt deduction creation rules were also introduced together with the amendments to the thin capi- talisation rules. These rules disallow debt deduc- tions on related party funding to an entity: • to fund the acquisition of an asset (or an obli- gation) from an associate; and • to fund specified payments or distributions to an associate. The debt deduction creation rules applied from 1 July 2024, even to arrangements that were in place before that date.
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