In summer 2007, amid rising pressure to ensure the national interest is being protected after several recent high-profile foreign takeovers, including Alcan, Hudson’s Bay Co., Dofasco and Inco, the Government of Canada established the Competition Policy Review Panel to review, among other things, a key piece of Canadian legislation, the Investment Canada Act. The Panel’s mandate includes the review and evaluation of current principles and criteria used by Investment Canada in evaluating foreign takeovers of Canadian businesses and the Panel is scheduled to report its recommendations to the Minister of Industry by June 30, 2008.
However, on October 9, 2007, The Honourable Jim Prentice, Minister of Industry, announced that the Government would be accelerating the review of certain foreign investment matters and their treatment under the Investment Canada Act. In particular, Mr. Prentice announced that the Government has decided to review whether there is a need for specific guidelines or amendments regarding takeovers by state-owned enterprises and to consider the addition of a national security review at an earlier stage than was originally anticipated. While the Panel will continue its work, these two specific issues will be addressed directly by the Government on an expedited basis. Notwithstanding the accelerated timeline, it appears that the Government has adopted a considered, consultative and open approach on these issues.
The Government and Panel reviews should be closely monitored by anyone who is considering an investment or sale in Canada. It is likely that amendments to the legislation resulting from the reviews will primarily impact acquisitions of Canadian businesses by foreign, state-owned enterprises that have “unclear corporate governance and reporting” or that are guided by “non-commercial objectives” which are not in line with those of the Government of Canada. It can thus be anticipated that provisions will be added to the Investment Canada Act and guidelines will be drafted to require the Minister to consider issues that arise where a foreign investor is state-owned or controlled and whether such investments could be viewed as serving a non-commercial objective to the potential detriment of Canada. It is also likely that changes will be introduced to provide the Minister with clear authority to screen, and potentially block, foreign takeovers on grounds of “national security” to prevent the acquisition of Canadian businesses by buyers tied to organized crime or terrorism. In his announcement, Mr. Prentice quoted Ogilvy Renault’s Derek Burney, who commented in a recent speech that “Virtually every country in the world, including the [United States], has the means to review and block transactions in the name of national security.” While investment by private foreign investors may not be directly affected by the reviews, it is possible that the reviews could lead to more stringent undertakings being required of a private investor acquiring a Canadian entity.
In his recent announcement, the Minister confirmed that the “net benefit” test will continue to be the benchmark for approval of acquisitions of Canadian businesses by foreign entities and that the test will not be tightened, observing that “the Investment Canada Act should not – and will not – become a shield to protect Canadian industry from the full rigours of global competition”. In other words, the Government has no intention of rewriting the criteria for reviewing acquisitions of Canadian businesses by non-Canadians; rather, it intends to add specific provisions to deal with foreign state-owned enterprises and national security. The Government has also prudently taken the view that the Investment Canada Act should not be used to address issues of international investment reciprocity by refusing foreign investment in Canada from countries that do not allow Canadians similar access – it is preferable to pursue reciprocal access objectives through trade negotiations rather than through the blunt instrument of the Investment Canada Act. Finally, it is clear that any changes to the Investment Canada Act will not retroactively affect transactions that are currently under Investment Canada review.