Background

The 2024 Joint Forum of Fiji Australia Business Council (FABC) and the Australia Fiji Business Council (AFBC) was held in Suva, Fiji from 29 August to 31 August 2024.

ANDE + Co.’s Nitij Pal drew the short straw for the hard gig and travel to Suva to attend the Forum held at the glorious Grand Pacific Hotel (see accompanying photograph of the GPH).

The ANDE + Co. Team are reviewing the short straw draw and questioning just how Nitij managed to be the sole representative of the Firm at the Forum and take in the delights of Suva!!

Rather then dwell on missed travel opportunity, the Team at ANDE + Co. have put together a few thoughts on what a capital importing country like Fiji could consider, and implement, as reforms in order to enhance Australian investment into Fiji.

While we appreciate there’s significant investment by Fijian companies and individuals into Australia, there is a need to increase Australian investment into Fiji. So here are a few pointers, which we’ve gathered from our Firm’s experience of advising private capital while investing in emerging markets around the Indo-Pacific region.

Australia-Fiji Investor-State Dispute Settlement (ISDS)

Fiji should include an Investor-State Dispute Settlement with Australia in its trade and investment negotiations with the Commonwealth of Australia. We appreciate there are conversations being had about Fiji’s accession to Pacer Plus, but free trade agreements are essentially treaties between sovereigns.

An ISDS is a mechanism that permits investors to bring international arbitration claims against governments for breaches of international investment rules. They change the way free trade agreements (FTA) are enforced, enabling investors to bring claims against a host state, party to an FTA with an ISDS mechanism. Does Fiji, like Papua New Guinea need a separate investment treaty with Australia?

ISDS provisions usually seek to provide avenues for compensation if a host state breaches certain investment obligations. An ISDS provision only pertains to the enforcement of investment obligations, affording the investor greater protection when investing internationally.

However, there are currently no ISDS provisions applicable to Australian-Fiji investments.

Fiji, as a capital importing country, would benefit from the implementation of an ISDS mechanism, as it would provide greater security to foreign investments into Fiji. Tax incentives and or tax-free zones are beneficial but more is needed to cultivate investor confidence and having direct recourse against the sovereign in an international arbitration setting goes a long way to reduce the weighted cost of capital Fiji currently attracts.

Australian investors that have ISDS rights do not need to rely on the Federal Government in Canberra to bring a claim on their behalf. Private enterprise knows all too well the glacial speed Canberra’s bureaucrats operate at.

The common arguments against the inclusion of ISDS provisions by governments are:

(a) the (perceived) limit to sovereignty; and

(b) that these provisions restrict legitimate government activity, such as the protection of public health or the environment.

The usual response from countries lower down the ease of doing business scale (like Fiji) is to remove the availability of ISDS in free trade agreements. An alternative approach is to clarify the applicable rules under an ISDS provision.

The starting premise is that investor rights are not absolute, and the Fijian Government has the right to regulate for legitimate public welfare purposes. And ISDS provisions can be modified so that frivolous or unmeritorious investor claims are discouraged.

For more information on ISDS mechanisms, please find our full article on ISDS here.

For a full list of countries that have ISDS provisions with Australia, see here.

Low hanging fruit number one (#1).

Allowing Non-locally Residing Directors

Under section 91(2) of the Companies Act 2015 (Fj) (‘Fijian Companies Act’) a private company must have at least one director, and at least one director of that company must ordinarily reside in Fiji.

Section 91(1) states that public companies are required to have at least three directors, two of which must ordinarily reside in Fiji.

Section 3 the Fijian Companies Act specifies that to be an ordinary resident of Fiji, you must be present and living in Fiji for an aggregate period of no less than six (6) out of the last twelve (12) months.

This means that any Australian investor company has to search and retain the services of a locally Fiji resident director. This is costly and finding the right person is arduous. And the number of people in Fiji willing to consent to act as local resident directors are declining as well – think directors duties (of breaching those). But there is a solution.

Like Fiji, New Zealand also requires companies to have at least one resident director, however, section 10(d) of the Companies Act 1993 (NZ) (NZ Companies Act) expands this. Under the NZ Companies Act, a resident director may be an individual residing in either NZ or an enforcement country, who is a director of a body corporate, incorporated in that enforcement country.

Australia is the only named enforcement country, as listed in regulation 12 of the Companies Act 1993 Regulations 1994 (NZ). Why? Because Australian investors are one of the largest groups of foreign investors in New Zealand.

So why doesn’t Fiji make it easier for Australian investors by following New Zealand’s lead? This enhances Fiji’s reputation as a country open to Australian investment, by simply amending Fiji’s resident director requirement to be expanded to include directors that ordinarily reside in Australia, who are already directors of Australia domiciled corporations.

Low hanging fruit number two (#2).

Reforms to the Companies Act 2015 (Fiji)

Fiji took a while before it reformed the laws on companies i.e. almost from independence in 1970 to 2015. The Companies Act 2015 (Fj) which takes a lot of its policy intentions from Australia’s Corporations Act 2001 (Cth) is ready for review.

Reform to the Fijian Companies Act, specifically regarding voluntary administration and safe harbour should be the forefront. If Fiji wants to promote its citizens to be entrepreneurial then why not make the law easier for those businesses?

Voluntary Administration is a form of administration onset by a company’s board of directors when a company finds, or foresees, itself unable to pay debts as they fall due (insolvent). The goal of voluntary administration is to maximise the chances of a company’s continuing existence. If this is not possible, the company must be wound up.

Voluntary administration may be preferable over liquidation because voluntary administration provides the opportunity to salvage the company and/or streamline operations through restructuring. Unlike winding up or liquidation, voluntary administration can provide pathways to continue business. However, voluntary administration is not currently an available path of action, under the Fijian Companies Act. Only voluntary winding up, and court ordered administration exist.

The legislative implementation of voluntary administration would benefit investors, particularly those investing in small to medium enterprises. The risk associated with such an investment would be less, as there would be available pathways to salvage businesses that encounter financial hardship.

Safe harbour allows control to remain with directors if the company is under administration. Directors may restructure the company free from the fear of incurring additional personal liability for company debt; as personal liability is only incurred should said restructure fail. Under safe harbour, no additional adverse consequences are incurred if restructuring fails.

Safe harbour encourages businesses to continue operating and trade their way out of financial hardship. This is provided in the Australia equivalent of the Companies Act 2015 (Fj) as:

‘developing one or more courses of action that are reasonably likely to lead to a better outcome for the company.’

Generally, businesses cannot trade and incur more debt if they are already insolvent or under administration. As such, safe harbour exists as a form of defence available against the civil insolvent trading provisions.

Aligning the Fijian Companies Act with the Corporations Act would establish provisions that encourage voluntary administration and safe harbour. These provisions would reward businesses that trade their way out of financial hardship and reduces the risk of investing in Fijian companies as there are measures in place to prevent the need for companies to be wound up upon meeting financial difficulties.

Low hanging fruit number three (#3).

Enhancing Competition Policy

The Australian legal test for merger clearance application uses a two-limb test. The first limb assesses the extent by which competition could be lessened as a result of the merger. The second limb is concerned with the net benefit to the public associated with approving the merger. When assessing the net benefit, the ACCC will consider if the benefit of the merger will outweigh the detriment caused by the potential reduction in competition.

The Australian legal test is currently being reviewed and will be updated.

Fiji utilises the dominance test for its assessment. Essentially, the FCCC measures the effect on competition using a market dominance test rather than a ‘substantially lessening competition’ test.

Australia moved away from the market dominance test as it failed to account for mergers that significantly lessened competition. The test was questioned after numerous anti-competitive mergers were approved, exposing the cursory nature of the test.[1]

A smaller economy should be encouraging competition, which means it should be adopting the most recent test to prevent large enterprises in Fiji from acquiring every asset for sale. Fiji should consider aligning their merger tests with Australia’s by using the ‘substantially lessening competition’ test, or moving to the new Australian test once that is implemented. This would allow for appropriate mergers to take place with minimal risk of relative monopolies forming.

If aligned with Australia’s policy, the FCCC would foster competitive markets that can present Fiji as a more attractive investment prospect for multinational corporations (MNC). In recent years, Fiji has experienced an MNC retreat. The enhancements above would seek to reverse this economic phenomenon. This would only serve to benefit the Fijian economy and investors who wish to invest in Fijian markets. The strong and transparent regulations, alongside market expansion opportunities, made possible by the competitive Fijian market, would serve as a driving factor in encouraging MNCs to invest and operate in Fiji.

Low hanging fruit number four (#4).

Food for thought?

We trust these simple to implement policies will be adopted so that Fiji can enhance its position as an attractive investment destination for Australian investors.

How can ANDE + Co. help?

We understand the risks when a business ventures offshore to operate in another market. We advise on all aspects of international trade and investment, including the impact of free trade and investment agreements. We also advise on international arbitration cases (treaty-based ISDS cases) initiated by investors against States under international investment agreements.

Our services also include regulatory and commercial strategy advice, through which, we can help maximise your commercial relationships and increase your profile with decision-makers. We build tailored solutions which includes legal issues, the underlying commercial strategies and the impact of public law issues including law and policy reform, decisions by Government or statutory bodies and inquiries and reviews.

Disclaimer

The information contained in this article is provided as a general guide only and is not intended as specific advice. Information contained in this article may have changed or may no longer be current.

 

[1] See ACCC, ‘The Change from a Dominance to a Substantial Lessening of Competition Test in Australia’s Merger Law’, 3.2, 3.3.