Extended national security review timelines under the Investment Canada Act (ICA) are now in force which means that a national security review may now take up to 200 days.

In addition, significant amendments to the ICA’s “net benefit” review threshold will come into force shortly which will create a new $600 million threshold based on enterprise value. The amendments also give rise to additional disclosure requirements which will make filings under the ICA more onerous.

Extension of National Security Review Timelines

The timelines for various stages of the national security review process have been extended, potentially resulting in the total review period increasing to 200 days from 130 days. These new timelines are described below.

  • Order for Review: If the Minister of Industry has reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security, the Minister may notify the non-Canadian investor that the investment may be reviewed. If the Minister notifies the investor in such a manner and subsequently refers the investment to the Governor In Council (GIC), the GIC must decide whether to order a national security review of the investment. Currently, the GIC has 25 days from the date of the notice to the investor to order a review of the investment. This 25-day period is extended to 45 days.
  • Determination of Injurious to National Security: Once the GIC has ordered a review, the Minister must submit a report to the GIC stating whether the Minister is satisfied that, or is unable to determine whether, the investment would be injurious to national security. This report must be submitted within 45 days from the date the GIC issues the order for review. If the Minister is unable to make a decision within the 45 day period, the amendments allow the Minister to extend the 45-day period by an additional 45 days, with further possible extension with the agreement of the non-Canadian investor.
  • Order by the GIC: Once the Minister submits its report to the GIC, the GIC may then order any measure it considers advisable to protect national security. This includes directing the non-Canadian investor not to implement the investment, imposing conditions or terms relating to the investment, or divestment. The amendments extend the time period within which the GIC must make such an order to 20 days from 15 days from the date on which the Minister submitted its report to the GIC.

These national security timeline extensions are effective immediately.

Changes to the “Net Benefit” Review Threshold

Long awaited changes to the “net benefit” review threshold for World Trade Organization (WTO) investments by non-state-owned enterprise investors will come into force in one month. This threshold, which determines whether a non-Canadian investor must seek approval from the Minister of Industry under the ICA by filing an application for review, will change from the current $369 million of “asset value” to $600 million enterprise value (which will eventually rise to $1 billion enterprise value). The amendments set out complex formulas for calculating the enterprise value of public entities, non-public entities and Canadian businesses acquired by way of an acquisition of assets.

The existing asset based method for determining the value of a Canadian business will remain for (i) state-owned enterprise (SOE) investors, (ii) Canadian cultural businesses and (iii) non-WTO investments.

The different thresholds applicable to SOE and non-SOE investors mean that parties may need to do multiple calculations depending on who the prospective non-Canadian investors are, potentially resulting in the inconsistent application of the ICA. Such a situation could arise if a Canadian business’s asset value is below $369 million, but enterprise value is $600 million or more, and vice versa.

The amendments also give rise to additional onerous reporting requirements for investments that are subject to review or post-closing notification under the ICA, such as the following:

  • North American Industry Classifications System Codes for products and services that are or will be manufactured, sold or exported by the Canadian business,
  • For the investor’s board of directors, the five highest paid officers and any individual that owns at least 10% of the equity or voting interest of the investor: legal names; business, local mailing and email addresses; telephone and fax numbers; dates of birth and disclosure of equity or voting interest in the Canadian business,
  • Information regarding whether the investor is owned, controlled or influenced, directly or indirectly, by a foreign state, and
  • Sources of funding for the investment.