The Canadian Government is again addressing "unfinished
business" relating to the Investment Canada Act (the
ICA) following closely on the heels of its announcement last month
of amendments permitting the disclosure of notices of, and reasons
for, provisional rejections of foreign investments as well as
security for payment of penalties for failure to comply with
undertakings (see Focus on Foreign Investment dated May 1,
2012; click
here to view). On Friday, May 25, Industry Canada Minister
Paradis issued a press release heralding an increase in the review
threshold under the ICA and a guideline permitting a foreign
investor and the Government to resolve disputes over undertakings
through mediation.
Increase in Foreign Investment Review Threshold
The Government will be increasing the review threshold under the
ICA for foreign acquisitions of Canadian businesses
‐‐ from $330 million in the book value of the
target assets to $1 billion in the target's "enterprise
value" over 4 years (with the threshold to be $600 million for
the first two years following issuance of regulations and $800
million for the following two years).
The ICA was amended three years ago to raise the threshold in
response to the recommendation of the Competition Policy Review
Panel in its report Compete to Win (2008). The Panel noted
that: "[A] higher threshold is consistent with the scope for
intervention being narrower, and thus more exceptional, than under
the current ICA. Second, a higher threshold would be aligned with
Canada's underlying premise that foreign investment is, except
in unique circumstances, beneficial to Canada."
The 2009 amendment to the ICA was never implemented: draft
regulations issued in July 2009 were subject to significant
criticisms relating to the definition of "enterprise
value" in relation to publicly listed companies. It is
anticipated that the change from book value to enterprise value
will result in greater recognition of the importance of targets in
service and knowledgebased industries (which tend to have lower
asset values than traditional industries such as
manufacturing).
While Minister Paradis' announcement is in many ways
"old news", it adds momentum to the Government's
recent efforts to begin addressing the "chill" on the
climate for foreign investment following its rejection of BHP's
proposed acquisition of Potash Corporation of Saskatchewan in late
2010.
Draft regulations will be published in the Canada Gazette for
public comment.
Mediation Guideline
Minister Paradis also announced a new process to facilitate the
resolution of disputes between the Government and a foreign
investor relating to whether undertakings given by the investor in
the context of the acquisition of a Canadian business have been
fulfilled. The goal of mediation would be to avoid lengthy and
costly legal proceedings.
Currently, an investor has the options of engaging in
discussions with Industry Canada officials, offering new
undertakings or responding to a demand letter from the Minister
justifying its compliance or explaining why it has not complied. In
the event there is no resolution, the Minister may initiate court
proceedings against the foreign investor, as occurred in the
Government's lawsuit against US Steel for not complying with
its undertakings in respect of the acquisition of Stelco in 2007
(which was settled late last year).
About Fraser Milner Casgrain LLP (FMC)
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