Canada: Recent Changes In Foreign Investment Rules And Enforcement

Last Updated: October 13 2009
Article by Adam Kalbfleisch and Imran Ahmad

Investment Canada Act amended and Draft Regulations released

Key legislative changes to the Investment Canada Act (ICA)1 were recently introduced by Parliament pursuant to the "Budget Implementation Act" (Bill C-10).2

These changes include:

  • Introduction of a national security review mechanism;
  • Changing the basis for calculating the monetary threshold above which investments are reviewed from "gross assets" to "enterprise value";
  • Changing the review threshold for WTO investors from $312 million in gross assets (the 2009 threshold) to $600 million in enterprise value, rising progressively to $1 billion over a four-year period; and
  • Eliminating lower review thresholds for transactions in the transportation services, uranium production and financial services sector.

Draft Regulations to implement the amendments were published for comment on July 11, 2009.3 The 30-day public comment period expired on August 10, 2009. The government is expected to introduce final regulations in the coming weeks.

National Security Review

Bill C-10 introduced a new national security review mechanism that allows the Canadian government to review, block, or restrict a broad range of investments by non-Canadians on the basis of national security concerns.4 By introducing a national security review mechanism, Canada has followed the example of countries such as the United States (CFIUS), Germany, France, China, Japan, United Kingdom, Poland and Russia. Bill C-10 does not define the expression "national security", thus its scope remains unclear. It remains to be seen whether the government will interpret it to include elements of economic security.

The Draft Regulations set out timelines for the Canadian government to invoke the national security review mechanism. To a large extent, these timelines are triggered by the review and notice processes already in place under the ICA. The national security review process commences when the Minister of Industry conducts a preliminary review of the investment to assess whether it raises any national security concerns. If it does, then he refers the investment to Cabinet to determine whether a full review should be ordered or not. If Cabinet orders such a review, then the Minister will, with the assistance of other concerned departments and agencies, conduct the review and make recommendations to Cabinet. If, at the end of the full review, the Minister is of the view that the investment is "injurious to national security", then Cabinet may issue an order blocking, restricting or, if already implemented, unwinding the investment. While the duration for each step of the review process may vary depending on the specific circumstances of a given investment, the maximum duration should not exceed approximately 130 days.

Investors will be interested to know that once the review timelines have expired, the Canadian government cannot challenge a reviewable foreign investment on national security grounds. Investors should, however, be cautioned that, in respect of non-reviewable transactions, the Canadian government may initiate a national security review 45 days after the implementation which can give rise to a risk that the transaction may be unwound or restricted. This same ability to engage in a post-closing review also extends to minority investments in Canadian businesses.

Review Threshold

Under the ICA, the Minister is required to approve transactions that exceed certain monetary thresholds on condition they are of "net benefit to Canada". In light of the recent changes to the ICA and once the Draft Regulations come into force, the new review threshold for direct acquisitions of Canadian businesses under the ICA would be increased from the current $312 million in "book value of assets" of the target Canadian business to $600 million in "enterprise value". This minimum threshold will gradually increase to $1 billion over the subsequent four years.

Enterprise Value

The ICA amendments change the basis for calculating the monetary threshold above which investments are reviewed from book value of assets of the acquired business to "enterprise value". The rationale for the shift to "enterprise value" was articulated in the 2008 Final Report of the Competition Policy Review Panel which suggested that the "concept of enterprise value better reflects the increasing importance of our modern economy of service and knowledge-based industries in which much of the value of an enterprise is not recorded on its balance sheet because it resides in people, know-how, intellectual property and other intangible assets not recognized in a balance sheet by current accounting methods." 5

Interestingly, the Draft Regulations make a distinction between how enterprise value is to be calculated for publicly and non-publicly traded companies:

  • Publicly Traded Companies. In the case of a publicly traded company, the Draft Regulations provide that the enterprise value of assets of a Canadian business is the market capitalization of the entity plus its liabilities minus its cash and cash equivalents. Market capitalization will be based on the actual traded value of the company's securities during a specific trading period (20 days) which period is set out in the Draft Regulations.
  • Non-Publicly Traded Companies. In the case of an acquisition of a non-publicly traded company, or where there is an acquisition of all or substantially all of the assets of a business owned by either a public or private company, the enterprise value shall be calculated by using the same book value-of-assets formula that is currently applied under the ICA (i.e. the book value of the Canadian business as at the end of the last fiscal year, as reflected in the most recent annual financial statements). The continued use of book value for asset and private company acquisitions has come under extensive criticism since the draft regulations were released. It is possible that the final regulations will take a different approach that better reflects the enterprise value concept adopted in the amendments.

Recent Enforcement Under the ICA

Recent enforcement actions taken by the Minister of Industry against Vale Inco and US Steel are significant and demonstrate an increased willingness to scrutinize commitments made by foreign corporations wanting to invest in Canada.

Foreign investors seeking acquisitions in Canada often agree to undertakings whereby they promise to maintain production and employment levels in order to obtain regulatory approvals pursuant to the ICA. While these undertakings are legally binding, the Canadian government has traditionally steered clear of strictly enforcing them when a foreign investor is unable to meet its undertakings as a result of adverse economic circumstances. The recent enforcement activities in relation to Vale Inco and, in particular, US Steel, appear to indicate a departure from past practice.

In the case of Vale Inco, Companhia Vale do Rio Doce's acquisition of Inco in 2006 required the newly formed company to maintain certain employment levels. When the company announced in April 2009 that it would be idling its operations in Sudbury, the Minister demanded that Vale Inco respect its 2006 commitments and if it failed to do so, Industry Canada would consider all options to redress the situation. Subsequently, in June 2009, after further review, the Minister stated that he was satisfied that Vale Inco had lived up to its commitments. The situation in the case of US Steel is


1. Investment Canada Act, R.S., 1985, c. 28 (1st Supp.).

2. Bill C-10, An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and related fiscal measures, 2nd Sess., 40th Parl., 2009 (as passed by the House of Commons on March 12, 2009).

3. Regulations Amending the Investment Canada Regulations, C. Gaz. 2009, I. 2064, online: Gazette ; National Security Review of Investments Regulations, C. Gaz. 2009, I. 2077, online: Gazette

4. Investment Canada Act, supra note 1 at Part IV.1

5. Canada, Competition Policy Review Panel, Compete to Win – Final Report (Ottawa: Communications and Marketing Branch, 2008) at 31 (Chair: L.R. Wilson).

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.

Adam Kalbfleisch
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.