When amendments to the Investment Canada Act (“ICA”) were rushed through the Canadian Parliament earlier this year as part of the Budget Implementation Act 2009 (“Bill C-10”), many important details were left to be dealt with through revisions to the Investment Canada Regulations. On July 11, 2009, Industry Canada published proposed new National Security Review of Investments Regulations and amendments to the Investment Canada Regulations (collectively, the “Draft Regulations”). The Draft Regulations set out the process for national security reviews and establish the basis for calculating the new investment review threshold. They also increase the informational requirements for non-Canadians in applications for review and notification forms for net benefit and national security review purposes.

The Government has initiated a 30-day public comment period (i.e., until August 10, 2009) during which any person may file written comments on the Draft Regulations.

The Draft Regulations were released the same week that the Minister of Industry announced his intention to go to court to require that U.S. Steel Corp. comply with the employment and production-related undertakings it gave to the Government in connection with its November 2007 acquisition of Stelco Inc. The Minister has also requested that the court impose a penalty of $10,000 per day calculated from November 1, 2008. This is the first time that the Minister has taken such an action and highlights the importance that the Government places on investors fulfilling the commitments they make when negotiating approvals under the ICA.


Bill C-10 added a national security test and review process to the ICA that authorizes the Government to take any measures in respect of an investment that threatens national security, including prohibiting investments made by non-Canadians. Bill C-10 set out a framework for such reviews but did not include any details on the time periods for such reviews. See our earlier bulletin for more information about the impact of Bill C-10.1

The Draft Regulations prescribe the time periods that will apply to the various steps in the national security review process. The duration of a review can vary depending on several factors, such as whether the transaction is notifiable or reviewable, the seriousness of the potential security threat, the imminence of such security threat and the complexity of the review. That being said, it seems unavoidable that parties to transactions subject to a national security review will often incur significant delays (which, in some cases, might be as long as 130 days) before obtaining regulatory approval.

The Draft Regulations also list the investigative bodies with which pertinent information concerning investments that have raised national security concerns can be shared. Despite providing some guidance on the review process, the Draft Regulations remain silent on the definition of “national security” or the existence of criteria to judge whether a proposed investment may constitute a national security threat. They also lack any mechanism for pre-clearing transactions that do not give rise to national security concerns. The Governor in Council therefore retains broad discretion in making such determinations. It is hoped that the Minister of Industry will publish some guidelines on this topic in order to increase transparency and assist foreign investors in understanding the potential for a national security review.


The ICA requires that investments which meet certain monetary thresholds be approved by the Minister of Industry and be deemed to be of “net benefit” to Canada before they can be implemented. The current investment review threshold for WTO investors is $312 million in book value of assets, although an exception is made for acquisitions of Canadian cultural businesses, for which a lower threshold applies ($5 million or $50 million depending on whether the investment is direct or indirect). The amendments to the ICA have increased this threshold to $600 million in “enterprise value” (this figure will rise to $1 billion over the next four years). However, the new thresholds will only come into force once the Draft Regulations defining the “enterprise value” of a corporation’s assets have been finalized.

The definition of “enterprise value” provided in the Draft Regulations differs depending on the type of transaction contemplated:

  • For acquisitions of control of a publicly traded Canadian corporation, the enterprise value of the Canadian corporation’s assets is equal to its market capitalization plus its total liabilities minus its cash and cash equivalents;
  • For acquisitions of control of non-publicly traded Canadian corporations, or acquisitions of control of all or substantially all the assets of a Canadian corporation, the enterprise value is calculated following the “book value of assets” method as currently set out in the Investment Canada Regulations.

The introduction of the “market capitalization” test for publicly traded Canadian corporations may prove problematic in certain cases. Market capitalization is calculated by multiplying the average daily closing price of each class of publicly traded equity securities by the average daily number of outstanding equity securities of that class over the last 20 days of trading in the entity’s last fiscal quarter, and then adding the results. In addition, if there are unlisted equity securities, the same calculation is done and added to the results for the publicly traded shares, except that the average daily closing price of the primary class of publicly traded shares is used as a proxy price. Because market capitalization can only be calculated at the end of the fiscal quarter which immediately precedes the closing of a transaction, transactions which meet the investment review threshold at the time of their announcement may, in certain cases, no longer meet the threshold at the time of closing. Conversely, if the share price increases between the time of announcement and closing, a transaction that was not reviewable when announced could be reviewable at the time of closing. Investors will therefore need to determine whether to undergo a review that may not ultimately be necessary, but that could prevent delays at closing.


Finally, the Draft Regulations introduce additional information requirements for non-Canadians in investment review applications and notification forms. If adopted, investors will be required to disclose the names and contact information of members of their boards of directors, the names of their five highest paid officers and any individual or entity that owns 10% or more of the equity or voting rights of the investor. They will also need to provide a detailed description of the business activities that will be carried on by the Canadian business, including the products and services that will be manufactured, sold or exported by the Canadian business and the code assigned to such products and services by the North American Industry Classification System (NAICS 2007) – Canada, 2007. Further, investors will need to indicate the source of funding for the investment and disclose any ownership interests held by a foreign government.

These disclosure requirements are aimed at clearly identifying who controls (or controls in fact) the foreign investor and what type of business activities will be conducted as a result of the foreign investment. The requirements with respect to state ownership are consistent with the Government’s guidelines on state-owned enterprises issued last year, which aim to give additional tools to the Government to prevent investments by state-owned enterprises that are considered a national security threat.