Canada: Foreign Investors And Canadian Targets Take Note: Proposed Regulations Flesh Out The New Review Thresholds And National Security Screening Procedures Under The “Investment Canada Act”

Last Updated: July 22 2009
Article by Oliver J. Borgers and Lorne P. Salzman

Most Read Contributor in Canada, September 2018

On 11 July 2009, the Canadian government issued proposed regulations under the Investment Canada Act (ICA). These regulations further implement the important changes to the ICA that were enacted in March 2009: a revised formula, with increased investment thresholds, to determine which foreign investments will need to be reviewed and approved by the Canadian government, and the imposition of a new national security screening mechanism. There is a 30-day comment period, after which the regulations will be finalized and then brought into effect.

Although most of the proposed regulations are not controversial, foreign investors will be dismayed at the requirement for increased disclosure of confidential information, and the heightened risk of post-closing government intervention to unwind or restrict acquisitions.

New ICA Review Thresholds

The ICA requires that direct foreign takeovers of large Canadian companies be reviewed and approved by government applying the test of "net benefit to Canada." Frequently, the acquiring foreign investor will provide the government with negotiated undertakings as to employment, head office location, future investment, and the like. Today, except for certain cultural industries (where special rules apply), an ICA review is required for any direct takeover by foreign investors from a WTO country of a Canadian company with more than C$312 million in gross assets.

The March 2009 amendments to the ICA will change the review test from one exclusively based on the target's assets to one based on the target's enterprise value. Initially, the threshold will be C$600 million, and will increase in stages over four years to C$1 billion. These changes will come into effect later this year at the same time as the proposed regulations are promulgated.

The proposed regulations calculate enterprise value for a publicly traded company as follows: Market Capitalization + Total Liabilities - Cash. Market capitalization will be based on actual traded value of the company's equity securities during a defined trading period. Non-traded securities will be valued as having the same value as the largest class of traded equity securities. Rights, warrants or options will be ignored in the calculation.

Enterprise value for a non-publicly traded company, or in the case of a sale of assets, will be calculated using the same value-of-assets formula that is currently applied under the ICA. The proposed regulations therefore achieve a pragmatic compromise between the desire to move to a more market-driven valuation formula, and the practical difficulty in trying to establish market value at an early stage in the acquisition process — which is typically when the foreign investor applies for any necessary ICA review. For acquisitions of this sort, one practical consequence of the proposed regulations is that fewer acquisitions will likely be caught by the review process, given that the ICA review threshold will almost double from today's C$312 million to C$600 million when the regulations come into effect later this year (and more in subsequent years).

New Disclosure Requirements

With the new national security screening mechanism now enacted as part of the ICA, it comes as no surprise that the government wants more information about who exactly are the foreign investors. Armed with this information, the government can determine if it needs to take further action to disallow or otherwise restrict the investment on national security grounds.

The proposed regulations follow through on this need for disclosure, not only in cases where a foreign investor makes an acquisition that is ICA-reviewable, but also in cases where a non-Canadian makes an acquisition that is below the size threshold to warrant a review (and thus where only a notice must be filed with the government) and, as well, in cases where a foreign investor makes an investment to establish a new Canadian business (which is also notifiable).

Under the proposed regulations, the foreign investor that applies for a review, or files an investment notice under the ICA, must now disclose the following:

  • names of directors, the five highest paid officers and any person or entity holding more than 10% of the investor's equity or voting rights; and
  • the name of any foreign state that holds a direct or indirect ownership interest in the investor.

The requirement to disclose the name of direct and indirect foreign state investors does not contain an exception for minor or non-controlling shareholdings. Thus public companies with many shareholders and shareholder registrations through nominees will face practical difficulties in trying to satisfy this requirement.

National Security Screening Procedures

The March 2009 amendments to the ICA established a new national security screening mechanism for foreign investments. By doing so, Canada has caught up to the USA and Australia, which have had such screening procedures in place for many years. The Canadian government now has the legal authority to examine foreign investments in Canada, whether direct or indirect, to determine if they are "injurious to national security." If the government is satisfied that the investment will be injurious to national security, it can disallow, impose restrictions on, or even unwind the investment.

The proposed regulations set out time frames for the government to invoke the national security screening process. To a large extent, these time frames are triggered by the review and notice processes already in place under the ICA. The key time frames for the government to invoke national security screening are as follows:

  • where an ICA review is required — up to 45 days after filing the complete review application;
  • where only an ICA notice is required — up to 45 days after the later of (a) the filing of the complete notice, and (b) implementation of the investment;
  • in all other cases — up to 45 days after implementation of the investment.

The good news is that once these screening time frames have expired, the government has given up the right to challenge foreign investments on national security grounds. The less-than-good-news is that for a period of 45 days after "implementation" of a non-reviewable investment (including minority investments), the government can initiate national security screening, with the risk that an investment can be unwound or restricted. Needless to say, a foreign investor that has already implemented its investment will be very dismayed to learn that the government will undertake such an after-the-fact review with the potential for mandated divestiture or other unwelcome remedial action.

If an investment is one that becomes subject to national security screening, the proposed regulations set out time frames for the various steps. Depending on the results of the government's national security analysis, and the outcome of negotiations with the investor, the entire screening exercise could stretch to four months or more.

To Conclude

The proposed regulations complete the updating to the ICA that began with the March 2009 amendments. The regulations provide a necessary filling in of the various procedural steps to make the amended ICA provisions work properly. Many of the changes are benign in nature. Some, such as the increase in review thresholds, will be welcomed by foreign investors. Other changes, however, will burden foreign investors with increased disclosure requirements and a heightened, albeit still remote, risk of government action post-closing. Foreign investors will want to take note of the finalized regulations, once these come into effect later this year.

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 Topics
Related Articles
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