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Overseas Investment Office flexes its enforcement muscles again

July 09, 2019


Partners Greg Allen, James Hawes, Don Holborow, Andrew Matthews, Robert McLean, Michael Pollard
Senior Associates Tara Wylie

Overseas investment

The Overseas Investment Office (OIO) has once again proven its willingness to take significant enforcement action against those who breach the Overseas Investment Act’s consent requirements.

Last week the High Court ordered the overseas owners of two rural properties to pay penalties of $2.95 million (which included sale proceeds received on voluntary disposition of one of the properties) for acquiring sensitive New Zealand land without the required OIO consent. This hefty penalty comes just months after Agria was fined $250,000 for breaching its ‘good character’ condition to an earlier OIO consent (read more about the Agria decision here). 

While the OIO has always had enforcement powers, the spike in enforcement action and larger penalties may be signalling a shift towards the OIO being a more active and punitive regulator.

In summary - what you need to know

  • A spike in OIO enforcement action and larger penalties could be the new norm, and overseas investors need to take extra care not to run afoul of the Overseas Investment Act.

  • Understand the OIO regime, have internal processes in place to ensure that you comply, demonstrate what you are doing to promote compliance, and seek professional advice on consent requirements.

  • If you breach the Act, notify the OIO as soon as possible and cooperate with any investigation.

Circumventing the Act

Mr Hong and Mr Ke (both Chinese residents) acquired two rural properties in 2012 and 2014 through different structures set up to avoid the need for OIO consent. The properties were acquired either by New Zealand residents acting as an agent of companies in which Mr Hong and Mr Ke held the beneficial interest, or through a partnership arrangement. The Court found that Mr Hong and Mr Ke both knew of the requirement to obtain OIO consent and took deliberate steps to circumvent the operation of the Overseas Investment Act.

Retrospective consents not enough

In 2014 Mr Hong and Mr Ke filed two retrospective consent applications with the OIO for each of the two properties. One application was declined on the grounds that it did not satisfy the consent criteria of demonstrating a net benefit to New Zealand, and the other application was withdrawn.

Retrospective consents are an avenue for overseas persons who have inadvertently breached the Act to apply for consent and pay an administrative penalty. The retrospective consent avenue is unlikely to be appropriate where an overseas person has acquired sensitive New Zealand assets in way that has deliberately, recklessly or negligently broken the Act or where the overseas investor has tried to disguise its behaviour.


The OIO stated that the penalties totalling $2.95 million recognised the significant breach by Mr Hong and Mr Ke. The penalty was made up of the quantifiable gain of one of the properties, agreed to be $2.3 million, and Mr Hong and Mr Ke were each fined an additional penalty of $307,500. As part of the settlement arrangements Mr Hong and Mr Ke also agreed to dispose of the other property (which didn’t have any quantifiable gain).

When assessing the quantifiable gain on the properties, agreed expenses and interest was taken into account. So while one property was acquired for $4.5 million in 2014 and sold for $10.1 million in 2019, only $2.3 million of quantifiable gain was recognised.      

The Act in place at the time the properties were acquired allowed penalties to be the higher of $300,000, or the quantifiable gain on the property. This was amended in 2018 to be the higher of $300,000 or three times the quantifiable gain, giving the OIO the ability to impose greater penalties in the future. 

How to stay on the right side of the OIO

The OIO regarded the nature and extent of the breaches by Mr Hong and Mr Ke to be serious, and the penalties reflect this.  

However, breaches of the Overseas Investment Act can, and do, inadvertently occur. Following the steps below can ensure you don’t find yourself on the wrong side of the OIO:

  • Understand the OIO regime and have internal processes in place to ensure that you comply, and continue to do so.

  • Determining whether OIO consent is required in relation to a given piece of land is not always straightforward. Seek professional advice to identify whether consent will be required, and what consent pathways may be available. 

  • If you become aware of a breach, notify the OIO as soon as possible, and cooperate with any investigation. 

  • Demonstrate what you are doing, and have been doing, to promote compliance.

If you have any questions about the consent requirements, or the overseas investment regime generally, please get in touch with one of our contacts above.