Last week, the federal government adopted regulations
implementing long-awaited changes to the Investment Canada
Act (ICA) which include:
1. Financial review thresholds to be based on
2. Additional requirements for information in ICA
notifications and application forms; and
3. Extension of the applicable time periods for national
security reviews under the ICA.
Enterprise Value Thresholds
Effective April 24, 2015, the monetary threshold for pre-closing
review of foreign investments will be based on an "enterprise
value" of $600 million (as opposed to the current $369 million
in "asset book" value), which will increase to $800
million in two years and $1 billion in four years. The monetary
thresholds will be subject to annual indexation thereafter.
"Enterprise value" for public and private entities
will be determined as follows:
For acquisitions of control of publicly traded
entities, the enterprise value of the assets of the
Canadian business is equal to the market capitalization of the
entity plus liabilities, minus cash and cash equivalents.
For acquisitions of control of private
companies and for asset acquisitions, the enterprise value
is the purchase price, plus liabilities, minus cash and cash
The "enterprise value" threshold will not apply to
investments by state-owned enterprises which will continue to be
subject to the current "book value" threshold. The
thresholds applicable to investments by non-WTO investors and
acquisitions of cultural businesses remain unchanged.
Additional Information Requirements
Going forward, foreign investors will now be required to provide
more disclosure in their ICA filings. A key change is that foreign
investors will be required to provide more detailed information
regarding their governance, management and ownership, as well as
contact details for relevant entities/individuals and birth dates
for relevant individuals.
These amendments formalize the current practice of collecting
information relevant to the national security and net benefit
review processes, in particular with regard to involvement by
state-owned enterprises. These additional information requirements
may be particularly relevant where one or more parties to the
investment have concerns regarding the degree of disclosure of
information regarding their control structure.
Despite the additional information requirements for ICA filings,
information provided will continue to have significant
confidentiality protection and it is not likely that this will
result in additional public disclosure in terms of what is
published in Industry Canada's listing of completed
National Security Review Timing Extended
The federal government also has also lengthened the timelines
for national security reviews (the associated amendments to
the National Security Review of Investments Regulations
came into force on March 25, 2015). Under the revised regulations,
it can now take up to 200 days (or longer based on the consent of
the investor) to complete a national security review (up from 130
These changes are significant for several reasons:
The move to "enterprise value" may result in more
investments being subject to review under the ICA (for example, in
the technology and mining sectors where companies often have a
market capitalization (or "enterprise value") that
significantly exceeds the book value of their assets).
For any pending transactions that are not completed/scheduled
to be completed by April 24, 2015, the parties may have to revisit
whether the transaction may now be subject to a pre-closing
approval requirement (which typically takes 75 calendar days, and
possibly longer) as soon as possible and modify the transaction
timeline and pre-closing conditions as necessary.
The changes to the national security review timeline will,
where applicable, have an impact on deal timing.
For a link of the amendment press release, please click here.
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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