Currently, where the Minister believes that a failure by a
foreign investor to comply with a written undertaking has occurred
and no consensual resolution can be reached, the Minister's
only effective remedy is to initiate court proceedings.
The Canadian government has now issued a guideline providing
that, where the Minister believes that the foreign investor has
failed to comply with a written undertaking, the parties may
commence a process with a third-party mediator to facilitate a
resolution rather than engage in litigation. This guideline is
presumably in response to the costly and protracted enforcement
measures taken against U.S. Steel by the Canadian government for
its failure to comply with its undertakings in connection with its
2007 acquisition of a Canadian steel company (for more information
about those proceedings, please see the Goodmans Update dated June
23, 2010 titled "U.S. Steel: Federal Court Upholds the Constitutionality of
Section 40 of the Investment Canada Act" at
Increase in Review Threshold
The announcement also contemplates issuing amending regulations
under the ICA to increase the transaction review threshold
substantially from the current level of $330 million in asset value
(based on the value of the assets reflected in the financial
statements of the business) to $1 billion in enterprise
value1 over a fouryear period.2
For the first two years following the amendments, the
transaction review threshold would increase to $600 million. The
transaction review threshold would then increase to $800 million
for the subsequent two years, and $1 billion thereafter (indexed to
reflect changes in Canada's gross domestic product going
forward). In its announcement of the proposed amendments, the
Canadian government stated that the concept of enterprise value
better reflects the value of a business as a going concern and the
increasing importance of service and knowledge-based industries.
The Canadian government has provided a 30-day period for comments
to the draft regulations before final publication.
No Reference to "Net Benefit" Test
Following the controversial November 2010 decision by the
Canadian government that the proposed takeover of Potash Corp. by
BHP Billiton was not likely to be of net benefit to Canada, foreign
investors and Canadians alike have been anticipating clarification
from the Canadian government to the "net benefit" test
(which requires a foreign investor to provide the Minister with
justification as to why its investment would be of net benefit to
Canada). Notably, neither the proposals announced on May 25, 2012,
nor those announced in late-April, provide any clarification in
1 The draft regulations first pre-published for public
comment in 2009 included a proposed "enterprise value"
based on the "market capitalization" of the entity, plus
its total liabilities minus its cash and cash equivalents. The May
25th announcement suggests that additional proposed changes to the
methodology for calculating "enterprise value" will be
contained in the proposed amendments to the regulations; however,
at the time of this update, the proposed amendments to the
regulations have not yet been published.
2 The proposed amendments give effect to prior amendments
to the ICA that were passed through the Budget Implementation Act,
2009. For more information about the 2009 amendments, please see
the Goodmans Updates dated February 11, 2009 and March 16, 2009
titled "Significant Changes Proposed to the Competition Act
and the Investment Canada Act" and "Amendments to the
Competition Act and the Investment Canada Act Granted Swift
Passage", respectively at
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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The Commissioner of Competition addressed innovation, enforcement and policy initiatives at the Competition Bureau in his keynote speech, "Strengthening Competition: Innovation, Collaboration and Transparency."
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