In March 2009, the Canadian Parliament amended several laws that
impact foreign investment in Canada. It both reduced and clarified
some important foreign investment restrictions, while also imposing
what could be significant new burdens on investors.
The Investment Canada Act authorizes the Canadian
government to screen foreign investment to determine if it is
likely to be of "net benefit" to Canada. Foreign direct
acquisitions of Canadian businesses with assets that exceed $312
million, for most industries, and $5 million, for certain sensitive
sectors of the economy, must endure a "review" by one of
the two government departments that deal with such matters. Often
the review will lead to the foreign investor giving undertakings
relating to employment, future investment and other commitments
considered beneficial to Canada.
The March 2009 amendments to the Investment Canada Act
are intended to make it easier for foreign investors seeking to
acquire Canadian companies, as fewer acquisitions will have to
endure the Investment Canada review process. The list of sensitive
sectors has been narrowed to only include certain cultural
industries. Thus, acquisitions in the uranium mining, financial
services, and transportation services sectors will no longer be
subject to the low $5-million review threshold.
As well, the formula for calculating the higher review threshold
will be changed and the threshold number will increase. The
threshold moves from a test based on the book value of the assets
of the target company to a test based on its "enterprise
value." The definition of this term has been set out in
proposed regulations published for comment on July 11, 2009. For a
publicly listed company, enterprise value means market
capitalization plus debt less cash. For non-publicly traded
companies, or for asset sales, enterprise value will be calculated
using the value-of-assets formula currently applied. The new
enterprise value threshold will be set at $600 million initially
and will increase in stages to $1 billion in four years'
An important addition to the Investment Canada Act is
the new power given to the federal government to vet investments by
non-Canadians on national security grounds. Canada joins the United
States, Australia, and most recently, Germany, with explicit
procedures to review, adjust, and if necessary, reject, foreign
investments that are perceived to be injurious to national
The scope of the review is potentially very broad. There is no
minimum investment threshold. A review can be undertaken for a
takeover of an existing business or the start-up of a new business.
To date, there is no list of sensitive sectors, where a review is
more likely; nor is there a procedure to voluntarily pre-clear
potentially sensitive transactions. The proposed regulations set
out time frames for the government to invoke the national security
screening process. They also require foreign investors to disclose
more information than previously about the foreign investor
— a requirement that applies both to reviewable
transactions and to transactions that are merely notifiable.
The March 2009 amendments to the Competition Act that
bear most notably on foreign investment decisions concern the
Canadian pre-merger notification procedures. These have now been
substantially aligned with the equivalent US procedures under the
Hart-Scott-Rodino Act. No change has been made to the
substantive test for prohibiting anti-competitive mergers.
Under the new procedures, parties to a notifiable merger must
file the requisite information, and then wait 30 days. By the end
of the 30-day period, either the Competition Bureau will issue a
second request for additional information or, if no such second
request is made, the parties are free to close the transaction. If
the parties receive a second request, it will set out the further
information that must be submitted. The parties must assemble the
requested information, submit it to the Competition Bureau, and
then wait a further 30 days before closing their transaction
— unless the Competition Tribunal blocks the closing upon
application by the Bureau.
The 2009 amendments do not materially change Canada's
ownership and control rules that apply in certain targeted
industries, such as telecommunications and broadcasting. Nor do
they alter merger approval rules that can apply to other industries
such as large transportation undertakings. All of these rules
continue to be relevant to a potential foreign investor. See the
article in this issue.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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