On June 1, 2012 the government published regulations that would
significantly change the general review threshold and disclosure
requirements under the Investment Canada Act.
The key amendments include:
Changing the basis of the general net benefit review threshold
calculation from book value of assets to "enterprise
The enterprise value of a publicly traded entity will equal its
market capitalization, plus its liabilities, minus its cash and
The enterprise value of a privately held company will equal its
acquisition value, plus its liabilities, minus its cash and cash
The draft regulations set out detailed provisions for
determining enterprise value, including in situations where assets
or less than 100% of equity securities are acquired. A
summary of those provisions is available
Setting the enterprise value threshold at $600 million for two
years, then at $800 million for two years, then at $1 billion for
one year, and thereafter indexed to Canada's GDP.
Requiring foreign investors to disclose additional information,
including information about their directors, officers, and
investors. The government's stated purpose for requiring
this information is to enable it to assess potential national
security related concerns raised by a foreign acquisition. A
summary of the specific additional information required is
The key results of the amendments will be that:
Fewer foreign acquisitions will be subject to net benefit
review. It is worth noting, however, that some acquisitions
that would be below the existing C$330 million asset value
threshold may exceed the enterprise value threshold, particularly
when it is at the C$600 million level, due to differences in
The process of determining whether a proposed acquisition
exceeds the review threshold will be more complicated, and the
preparation of notification and application for review forms will
generally involve more work by the parties and their counsel.
The regulations are open for public comment for 30 days.
It is possible that they will be amended as a result.
However, we do not anticipate significant, if any,
amendments. We also anticipate that the government will
finalize the regulations and implement the amendments contemplated
by them fairly quickly. The regulations relate to the
implementation of amendments to the Investment Canada Act
that were made more than three years ago, in March 2009. The
government initially issued draft regulations to implement these
amendments in July 2009, but withdrew them due to stakeholder
criticism of the formula for calculating enterprise value.
The regulations published on June 1, 2012 already reflect one round
of stakeholder comments.
We will provide a further update to confirm the date on which
the amendments contemplated by the regulations take effect.
A brief overview of the Investment Canada Act,
additional background on the 2009 amendments, and additional detail
about the regulations is available
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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