Canada: Draft Investment Canada Regulations Released: Details On National Security Regime And New Review Threshold

On July 11, 2009, Industry Canada released draft regulations (the Draft Regulations) that will implement certain amendments to the Investment Canada Act (ICA) introduced with the passage of Bill C-10 in March of this year. The Draft Regulations provide prescribed information necessary to implement amendments to the ICA raising the monetary threshold for the review of investments and establishing a process for national security reviews under the ICA, in addition to setting out new information requirements for ICA filings. As there is a 30-day comment period, the Draft Regulations could come into effect as early as mid-August.

New investment review threshold

Under the ICA, the Industry Minister is required to approve transactions that meet certain monetary thresholds on the basis that they are of "net benefit to Canada". Pursuant to the recent Bill C-10 amendments, the new WTO review threshold for direct acquisitions1 of Canadian businesses (not engaged in cultural activities) under the ICA is increased from CDN$312 million in book value of the assets of the target Canadian business to CDN$600 million in "enterprise value" (EV). (This will increase to CDN$800 million by 2011 and to CDN$1 billion by 2013 and indexed thereafter.) Although it was passed as part of Bill C-10, the new EV threshold will not be in force until the regulations defining EV are finalized.

The Draft Regulations define EV as follows:

  • for acquisitions of control of a Canadian business involving the acquisition of a publicly traded Canadian corporation or other publicly traded entity (a Canadian or non-Canadian trust, partnership or joint venture), the EV is the market capitalization of the entity, plus its total liabilities minus its cash and cash equivalents.
  • for other transactions, i.e. transactions involving asset acquisitions or if control of a Canadian business is acquired without acquiring a publicly traded entity, the EV is the book value of the assets as shown on the audited financial statements. This is the current method of calculating the review threshold for all transactions.

For investors directly acquiring a publicly traded entity (except a non-Canadian corporation that owns a Canadian entity, which is considered an "indirect" acquisition for the purposes of the ICA), the Draft Regulations introduce a level of complexity not faced by purchasers of assets of a Canadian business or of private entities. "Market capitalization" is calculated by adding: (i) for each of class of equity security listed on a stock exchange, the average daily number of securities that are outstanding during the "trading period" multiplied by the average daily closing price on the stock exchange where there is the greatest volume of trading (the "primary market") during the trading period and (ii) for each class of unlisted equity securities, the average daily closing price of equity securities on the primary market belonging to the "primary class" (the class with the largest number of outstanding securities) during the trading period multiplied by the average daily number of the class of unlisted equity securities outstanding during the trading period. The "trading period" is defined as the most recent 20 days of trading before the end of the entity's quarterly fiscal period immediately preceding the closing of the acquisition. By contrast, liabilities and cash are equal to the amounts listed on the audited financial statements for the year preceding closing of the transaction.

While using EV for publicly traded entities might represent a more accurate means of assessing the relative importance and size of a target Canadian business than book value (e.g., where the business has high revenues but low asset values), the Draft Regulations would cause unpredictability for certain transactions. For example, for a proposed purchase of a publicly traded Canadian corporation with a calendar-based fiscal year, the foreign purchaser that signs an agreement in January but is not able to complete the transaction until July would not have definitive knowledge of the market capitalization value required for the purposes of the EV calculation until the end of June. In a volatile market, a deal which was not reviewable on the basis of its market capitalization in January might well be reviewable in June, if the target's stock was increasing in value on the market, with the converse being possible in a declining stock value situation.

Unfortunately, the distinction the Draft Regulations make between EV for public versus private companies emphasizes the significance of the form of a transaction over its substance (i.e., the relative importance of the Canadian business to the Canadian economy). That is, a transaction that is structured as an asset acquisition would be subject to the book value determination as opposed to a market capitalization test.

National security review

Bill C-10 introduced a new national security review process, in addition to the existing investment review process noted above. The amendments provided that the timeline for national security review and its impact on the existing investment review process regulations would be prescribed by regulation. The Draft Regulations set out the timelines for each step of the national security review process. As each individual step may involve a number of possible outcomes, however, it is difficult to provide a concise summary of the length of time a national security review would take according to the Draft Regulations. Variables include: (i) whether a transaction is notifiable or reviewable under the ICA, or indeed neither; (ii) how serious potential national security concerns are and accordingly, whether a notice of possible review is given; (iii) the length of time required for a review; and, in the near term, (iv) whether timing of a transaction would be such as to trigger application of the transitional provisions respecting national security reviews.

What is clear is that the national security review process has the potential to add significant delays to the process of obtaining required regulatory approvals for transactions if the maximum prescribed periods are fully utilized. In such a scenario, a national security review could take 130 days (assuming a notice of possible review is issued), with the potential for the Industry Minister to request an extension of the period available to him to complete his review which would take the review period beyond 130 days. Moreover, it should be underscored that the national security review process applies not only to the establishment or acquisition of control of a Canadian business, but also to minority investments in Canadian businesses.

Draft information requirements for the forms

The Draft Regulations also provide that revised notification and application forms would require additional information for net benefit and national security review purposes. For example, investors would be required to give the names, mailing address, telephone numbers, fax numbers and email addresses for each member of the investor's board of directors, the five highest paid officers of the investor and any individual or entity that owns 10% or more of the equity or voting rights of the investor. They would also be asked to disclose any ownership interest by a foreign government, as well as the sources of funding for the investment.

It is clear that the Government's objective is to uncover the ultimate ownership and control behind foreign investors. Currently, applicable regulations do not generally require disclosure of a passive investor without a controlling interest. The proposed draft Regulations would therefore result in greater transparency to the Government of, for example, foreign state involvement or of known criminals or terrorists. Such disclosure accords with the Government's interest in national security and state-owned enterprises and sovereign wealth funds as evidenced by its guidelines on Investments by state-owned enterprises (released in December 2007).


1. Note that indirect acquisitions (i.e., acquisitions of Canadian entities indirectly through the acquisition of a non-Canadian corporation) are not reviewable for WTO investors provided that the target is not engaged in cultural sector activity.

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.

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.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.