The Overseas Investment Office’s habit of rubber stamping applications to buy New Zealand land finally met a brick wall with the recent High Court decision regarding the Crafar farms.
The Crafar Farms went bust a few years ago and are now being sold by receivers Korda Mentha on behalf of Australian banks and finance companies owed around two hundred million dollars.
New Zealand investors are keen to buy some of the farms but Korda Mentha has decided to sell the whole package as a going concern.
A Chinese Company Shanghai Pengxin has been keen to acquire the farms but their argument that Chinese ownership of New Zealand dairy farms would somehow benefit New Zealand was entirely negated by the High Court saying that the Overseas Investment Office applied the wrong test.
Justice Forrie Miller’s decision noted the Overseas Investment Act was intended to allow overseas investment in farmland only where that investment was likely to benefit New Zealand.
In his decision he said the benefits of Shanghai Pengxin’s ownership of the land were likely to accrue no matter who owned it.
An overseas purchaser must show that they are bringing significant economic benefit to New Zealand. The fact that Shanghai Pengxin may pay the creditors – who happen to be Australian owned banks – more than a New Zealand bidder is not counted as an economic benefit.
In the High Court it was successfully pointed out that Shanghai Pengxin’s argument that they would bring the farms up to working order was simply not good enough. By that test any New Zealand business that had gone bankrupt could be purchased by an overseas investor arguing they would get the business back into profit.
One of the best things to come out of the High Court decision is that the Overseas Investment Office and its decision making processes are finally getting some much needed scrutiny. In the wake of the High Court’s decision it emerged that the Overseas Investment Office – which is happy to support all manner of dubious arguments regarding the benefits of overseas investment to New Zealand – never bothers to check if there is a downside.
RNZ interviewer Simon Mercep : When you look at the benefits, to what extent do you take into account any disadvantage coming from the sale of foreign land going overseas that affects the New Zealand current account deficit and its international liabilities ? Do you look at that?
OIO manager Annalies McClure: No… the benefit to New Zealand test is framed in very positive terms. So we don’t take detriments into account.
Mercep: Shouldn’t you have an overall view that takes into account [the] detriments?
McClure: We have looked at this question previously, and interpreting the Act that’s certainly the view that our legal advisers have taken.
This is the same Office that considered they would be able to get a new application for the Crafar farms sorted in days. It now turns out that this will be a few weeks away at least. The Ministers who signed off on the Overseas Investment Office’s advice and the Prime Minister have suffered a big setback in their plans to get this important issue out of the way quickly in this part of the political cycle.
The issue of New Zealand’s economic sovereignty and ability to prevent losing control of our productive farmland is now shaping as one of the big issues of 2012.