COVID-19 crisis inspires global tightening of Foreign Investment Screening

Global Publication June 30, 2021

Foreign direct investment is regulated by the federal government under the Investment Canada Act (ICA, or the Act), which empowers the Minister of Innovation, Science and Economic Development (the Minister) (and in certain cases the Minister of Canadian Heritage) to screen, impose conditions, or possibly forbid, such investments.

The ICA contains three main components: notification, “net benefit” (or economic) reviews and national security reviews. Where a non-Canadian investor seeks to acquire control of a Canadian business with an enterprise value exceeding prescribed financial thresholds, which vary depending on the type and origin of foreign investor and the business carried on by the Canadian business, the transaction is subject to a “net benefit” review and must be approved by the Minister prior to closing. Under this review, the Minister must determine whether the transaction is likely to result in a net benefit to Canada based on a number of factors set out in the ICA.

Where a transaction does not meet the financial thresholds, the foreign investor is simply required to file a notification of the transaction within 30 days of closing. Reviewable and notifiable transactions are both also subject to review to assess whether the transaction could be injurious to Canada’s national security. Although “national security” is not defined in the Act, the Canadian government has published guidelines (the Guidelines) which set out a number of categories of transactions where such issues could arise and has recently updated them to offer more examples of such transactions. The Guidelines also inform investors of the procedures applicable to such a review. Namely, if a notification or application for economic review is filed, the Minister has 45 days from certification of a complete filing to notify the investor that an order for national security review may be issued. In addition, where a transaction is not subject to notification or economic review (because it is an investment of a minority interest), it is still subject to a national security review for up to 45 days from closing.

It is considered to be a best practice in Canada to submit a notification at least 45 days before closing where a transaction falls within the areas identified in the national security Guidelines. Parties should therefore build in this time in their transaction timelines. This will provide an opportunity to obtain some guidance from investment officials on their views of whether the transaction may raise concerns under the national security provisions of the Act.

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