Canada: Canada Proceeds With Promised Changes To Foreign Investment Review

Translated by Rofi Zhou


The Canadian government's 2013 budget implementation bill (C-60) will enact a number of previously announced adjustments to the Investment Canada Act (ICA). The proposed amendments address three main areas:

  • the long-awaited increases in the thresholds for review of most acquisitions to C$1 billion in "enterprise value", phased-in over a four-year period;
  • the manner in which state-owned enterprises (SOEs) will be defined and the introduction of additional "control in fact" tests for acquisitions by SOEs; and
  • extensions to the timelines for national security reviews.

These amendments follow on the heel of the December 2012 revisions to the guidelines for assessing investments by SOEs (Revised SOE Guidelines). At the time, the government emphasized Canada's continuing openness to foreign investment generally and signalled these areas of further fine-tuning. It also approved two major SOE investments in the oil and gas sector, while noting that further investments by SOEs in the Western Canadian oil sands would likely be limited to joint ventures and minority interest transactions. (The Revised SOE Guidelines and the accompanying materials are more fully discussed in our September 2012 and December 2012 bulletins.)

The additional provisions addressing SOEs appear to be motivated by the government's concern that "[t]he larger purposes of state-owned enterprises may go well beyond the commercial objectives of privately owned companies."1 This attention to commercial objectives is reinforced in the Revised SOE Guidelines, which describe some of the factors the Minister will consider in his or her assessment, including:

  • the investor's commitment to transparent and commercial operations;
  • adherence to Canadian standards of corporate governance, laws and practices, including free market principles; and
  • the likelihood that the acquiring SOE will operate on a commercial basis, including with respect to exports, processing, employment of Canadians, R & D and innovation, and the level of capital expenditure to keep the Canadian business in a globally competitive position.

Neither these earlier revisions nor the Bill C-60 amendments will close the door on investments by SOEs, and they are more welcoming than ever to non-SOE investors. Notably, after the December 2012 announcements, a C$2.2 billion shale gas joint venture between Encana Corp. and PetroChina Company Limited proceeded without ICA review. Under the transaction, PetroChina, a SOE subsidiary of China National Petroleum Corporation, obtained a 49.9% interest in the joint venture while Encana retained 50.1% ownership and will serve as operator of the joint venture.

Thresholds For Review

The Bill C-60 amendments will finally implement the substantial increases to the financial thresholds for review first proposed in June 2008, and approved in principle by the government in 2009. The standard threshold (for direct acquisitions involving investors or vendors controlled by citizens of WTO member countries) will be raised from C$344 million in asset value to C$600 million in enterprise value for two years, commencing the day that the amendments come into force. It will then rise to C$800 million for the following two years before reaching C$1 billion. The current thresholds are already high and we expect that relatively few transactions will be reviewable under the new thresholds.

The definition of "enterprise value" is still pending. The most recent draft regulations proposed to calculate "enterprise value" as market capitalization, plus liabilities, minus cash and cash equivalents in the case of a publicly traded entity carrying on business in Canada. In the case of a non-publicly traded Canadian business, the proposed enterprise value would equal the total acquisition value, plus the entity's total liabilities, minus cash and cash equivalents. There is no indication yet as to when the implementing regulations will be finalized or whether these definitions will be modified.

Investments in the cultural sector, as well as those by non-WTO investors, will continue to be subject to the C$5 million asset value threshold (or C$50 million for indirect acquisitions). Investments by SOEs (where the acquiror or vendor is from a WTO country) will continue to be subject to the existing C$344 million review threshold (with annual indexing to reflect Changes In Canada's GDP).

Definition Of "SOE"

Bill C-60 will broaden the definition of "SOE". As indicated in the Revised SOE Guidelines, a SOE would include an entity that is directly or indirectly controlled or influenced by a foreign government or agency. The SOE definition also includes the foreign government or agency itself, as well as an individual acting under the direction or influence of a foreign government or agency.

It is not yet clear what degree of influence by a foreign government or agency will be applied to the SOE determination. While "influence" is a broader concept than "control in fact", many of the same factual considerations will be relevant in making such assessments. The Investment Review Division of Industry Canada has already started using a structured list of questions to determine the degree of control or influence by a foreign state. Not surprisingly, the analysis considers share ownership by a foreign government, decision-making rights attached to these shares, and the powers to appoint senior management and nominate board members, among other things. Further clarification will be important, and we expect that in relatively short order there will be precedents or guidance demonstrating that the influence branch of the SOE definition will be applied in a responsible and workable manner.

"Control In Fact" Tests For SOEs

Bill C-60 gives the Minister of Industry the ability to make determinations that:

  • an entity is or is not controlled in fact by a SOE;
  • there has or has not been an acquisition of control of a Canadian business by a SOE; and
  • an entity which is otherwise Canadian-controlled is controlled in fact by a SOE.

These control in fact tests are not unique in foreign ownership reviews. The existing ICA status and acquisition of control rules focus heavily on ownership of voting shares, but also include a control in fact aspect in the "presumed control" provision. Currently, control is deemed to exist above 50% and not to exist below 33.33% of the voting shares of a corporation. Within the 33.33 – 50% shareholding range, control is presumed to exist unless it can be shown that the investor will not control the corporation in fact through ownership of voting shares.

Bill C-60 would give the Minister the ability to examine situations where a SOE has, or will acquire, less than one-third of the voting shares or interests, but has, or will acquire, control in fact over the entity. There is no prohibition against control in fact situations — the implication is simply that such investments (if they meet the financial thresholds) are subject to the standard net benefit to Canada test. Similarly, the Minister could determine that an apparently Canadian controlled entity is a "non Canadian" under the ICA if it is controlled in fact by a SOE. There are no immediate implications to such a determination, but it would mean that, if the Canadian-based entity decides to invest in another Canadian business, such a transaction could be reviewable under the ICA (assuming the financial review thresholds applicable to SOE transactions are met).

The Minister may request information in order to make control in fact determinations, and the investor will have the opportunity to make submissions regarding such determinations. The determinations may be made prospectively or with possible retroactive effect to the date of these amendments (which allows the Minister to deal with situations that were not submitted by the parties in advance).

Similar control in fact provisions apply to acquisitions of cultural businesses and national security reviews under the ICA. In our experience, these issues require attention when potential transactions are being considered, but they rarely impede transactions. Control in fact provisions also exist in the broadcast, telecommunications and transportation sectors. In these areas, control in fact has been defined as the ability to determine strategic decision-making activities, or the ability to manage the day-to-day operations of an enterprise, whether this ability is exercised or not. Recent cases show that the government has not applied control in fact tests in a protectionist manner. Transactions are seldom rejected; instead, modest adjustments to governance structures are often made as part of the regulatory approval process. Most notably, when the Canadian Radio-television and Telecommunications Commission decided that a new wireless provider with foreign financial backing was "controlled in fact" by a non-Canadian, the federal Cabinet reversed the decision.2 This is consistent with the government's "open for business" approach.

We do not expect that the control in fact rules would be used in a protectionist manner in the SOE context any more than they have been in the cultural industry or national security contexts. Even if a control in fact determination is made, the main consequence for SOE investors is to be prepared to meet the net benefit test by demonstrating their commercial objectives and providing undertakings which are typically expected to include:

  • appointment of Canadians as independent directors;
  • employment of Canadians in senior management positions;
  • incorporation of the business in Canada; and/or
  • listing of shares of the Canadian target or acquiror company on a Canadian exchange.

Extension Of Timelines For National Security Reviews

Currently, national security reviews can take up to 135 days to complete if all possible phases are undertaken. Bill C-60 extends the deadlines for the Minister to take specific steps in relation to national security reviews to 30 days (instead of five days) after the expiry of each prescribed period. The new maximum timeline will be clarified when the implementing regulations are finalized. The amendments will also allow timelines to be extended by agreement between the Minister and the applicant (as is currently the case for standard net benefit reviews).

While the changes may increase the theoretical maximum length of national security reviews, the review powers have rarely been used and the timelines have not been excessively long compared to other regulatory review processes (e.g., the Committee on Foreign Investment in the United States, or second phase review transactions by the competition agencies in Canada, the US or Europe). We expect that investors who engage proactively on potential national security issues will not encounter undue delays.

Concluding Observations

The Bill C-60 amendments do not represent a significant departure from Canada's openness to foreign investments. The increase in the review threshold to C$1 billion in enterprise value underscores this orientation. The extended timelines for national security reviews provide the Minister with additional flexibility but will not necessarily be fully utilized, especially where the parties are addressing issues promptly. The control in fact provisions for SOEs are consistent with those applied in other foreign ownership contexts and there is no reason to expect that the government would employ the new provisions in a protectionist manner. The additional scrutiny appears to be driven by a desire to ensure that SOEs will be operating with a commercial orientation, and there remains significant scope for investment in Canada by SOEs who are prepared to do so. Investors and their advisors may need to take a more proactive and comprehensive approach to the foreign investment review process, but should not be discouraged from pursuing transactions in Canada.


1 See Stephen Harper, "Statement by the Prime Minister of Canada on foreign investment" (7 December 2012).

2 See Order-in-Council PC-2009-2008 in connection with Globalive Wireless LP's bid for wireless spectrum licences.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Jun Chao Meng
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Davies Ward Phillips & Vineberg
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Davies Ward Phillips & Vineberg
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions