Canada: The Investment Canada Act: Paper Tiger No More

This year has seen several significant developments related to the Investment Canada Act (the Act). These include the enhancement of the enforcement powers of the Minister of Industry (the Minister) and the expansion of the Minister's power to now also review transactions on the grounds they may be injurious to Canada's national security. The Act was amended in March 2009 and draft regulations to implement those amendments were published in July 2009. Not only has the Minister flexed his muscles by using - for the first time - the preamendment provisions to require a non-Canadian investor to fulfill its undertakings, but it also appears that he may have used the new national security powers to delay at least one transaction.

Overview Of Amendments

The legislation that implemented Canada's 2009 federal budget (Bill C-10) also included significant changes to the Act.1 The important amendments, some of which are not yet in force, are the following:

  • Increased Threshold For Investments Made By A WTO Investor. The review threshold for acquisitions of control of a Canadian business (other than a cultural business) will be increased to $1 billion over five years, and the measurement standard will be changed from a gross assets test to an "enterprise value" of the acquired assets. These changes will only come into force when implementing regulations (described further below) are enacted.
  • National Security Test And Review Procedure. The amendments introduced a broad national security test and review process, authorizing the Minister to review investments that "could be injurious to national security," regardless of the size of transaction. These changes are now in force, although regulations (described further below) must be enacted to implement the timeline for the national security review.
  • Elimination Of Lower Threshold For Transactions In Non-Cultural Sectors. The lower thresholds for the review of transactions in the transportation, uranium production and financial services sectors have been repealed. Only cultural businesses remain subject to the lower threshold of $5 million.
  • Written Reasons For Not Approving An Investment. Where the Minister is not satisfied an investment is of net benefit to Canada, the Minister is now required to provide reasons for the decision to block the investment.
  • New Undertakings. If the Minister believes a non-Canadian has failed to comply with a written undertaking relating to an investment the Minister is satisfied or is deemed to be satisfied is likely to be of net benefit to Canada, the Minister would be able to accept a new undertaking from the non-Canadian after the investment has been implemented.

On July 11, 2009, Industry Canada published proposed new National Security Review of Investments Regulations and amendments to the Investment Canada Regulations (collectively, the Draft Regulations). The Draft regulations set out the process for national security reviews and establish the basis for calculating the new investment review threshold. They also increase the informational requirements for non-Canadians in applications for review and notification forms for net benefit and national security review purposes. It is expected the Draft Regulations will come into force sometime in the fall of 2009, with the national security regulations enacted first.

National Security Review Process

Bill C-10 added a national security test and review process to the Act that authorizes the government to take any measures in respect of an investment that threatens national security. Following the Minister's review and consultations with the Minister of Public Safety and Emergency Preparedness, the Minister is required to refer transactions of concern to national security to the Governor in Council, which has the ability to take any measures in respect of the investment that the Governor in Council considers advisable to protect national security, including prohibiting investments made by non-Canadians. Bill C-10 set out a framework for such reviews but did not include any details on the time periods for such reviews.

The Draft Regulations prescribe the time periods that will apply to the various steps in the national security review process. The duration of a review can vary depending on several factors, such as whether the transaction is notifiable or reviewable, the seriousness of the potential security threat, the imminence of such security threat and the complexity of the review. That being said, it seems unavoidable that parties to transactions subject to a national security review will often incur significant delays (which, in some cases, might be as long as 130 days) before obtaining regulatory approval.

The Draft Regulations also list the investigative bodies with which pertinent information concerning investments that have raised national security concerns can be shared, including the Department of Public Safety and Emergency Preparedness, the Canadian Security Intelligence Service, the Royal Canadian Mounted Police, the Communications Security Establishment, and the Department of National Defence. Although the initial draft of the national security regulations did not include a pre-clearance mechanism, it is expected that the final version will, at least for notifiable transactions. Despite providing some guidance on the review process, the Draft Regulations remain silent on the definition of "national security" or the existence of criteria to judge whether a proposed investment may constitute a national security threat.2 They also lack any mechanism for pre-clearing transactions that do not give rise to national security concerns. The Governor in Council therefore retains broad discretion in making such determinations. It is hoped the Minister will publish some guidelines on this topic in order to increase transparency and assist foreign investors in understanding the potential for a national security review.

New Investment Review Threshold

The Act requires investments meet certain monetary thresholds be approved by the Minister and be deemed to be of "net benefit" to Canada before they can be implemented. The current investment review threshold for WTO investors is $312 million in book value of assets, although an exception is made for acquisitions of Canadian cultural businesses, for which a lower threshold applies ($5 million or $50 million depending on whether the investment is direct or indirect). The amendments to the Act have increased this threshold to $600 million in "enterprise value" (this figure will rise to $1 billion over the next four years). However, the new thresholds will only come into force once the Draft Regulations defining the "enterprise value" of a corporation's assets have been finalized.

The definition of "enterprise value" provided in the Draft Regulations differs depending on the type of transaction contemplated:

  • For acquisitions of control of a publicly traded Canadian corporation, the enterprise value of the Canadian corporation's assets is equal to its market capitalization plus its total liabilities minus its cash and cash equivalents.
  • For acquisitions of control of non-publicly traded Canadian corporations, or acquisitions of control of all or substantially all the assets of a Canadian corporation, the enterprise value is calculated following the "book value of assets" method as currently set out in the Investment Canada Regulations.

The introduction of the "market capitalization" test for publicly traded Canadian corporations may prove problematic in certain cases. Market capitalization is calculated by multiplying the average daily closing price of each class of publicly traded equity securities by the average daily number of outstanding equity securities of that class over the last 20 days of trading in the entity's last fiscal quarter, then adding the results.

In addition, if there are unlisted equity securities, the same calculation is done and added to the results for the publicly traded shares, except the average daily closing price of the primary class of publicly traded shares is used as a proxy price. Because market capitalization can only be calculated at the end of the fiscal quarter, which immediately precedes the closing of a transaction, transactions that meet the investment review threshold at the time of their announcement may, in certain cases, no longer meet the threshold at the time of closing.

Conversely, if the share price increases between the time of announcement and closing, a transaction that was not reviewable when announced could be reviewable at the time of closing. Investors will therefore need to determine whether to undergo a review that may not ultimately be necessary, but that could prevent delays at closing.

Additional Information Requirements

Finally, the Draft Regulations introduce additional information requirements for non-Canadians in investment review applications and notification forms. Investors will be required to disclose the names and contact information of members of their boards of directors, the names of their five highest paid officers and any individual or entity that owns 10 per cent or more of the equity or voting rights of the investor. They will also need to provide a detailed description of the business activities that will be carried on by the Canadian business, including the products and services that will be manufactured sold or exported by the Canadian business and the code assigned to such products and services by the North American Industry Classification System (NAICS 2007) - Canada, 2007. Further, investors will need to indicate the source of funding for the investment and disclose any ownership interests held by a foreign government.

These disclosure requirements are aimed at clearly identifying who controls (or controls in fact) the foreign investor and what type of business activities will be conducted as a result of the foreign investment. The requirements with respect to state ownership are consistent with the government's guidelines on state-owned enterprises issued last year, which aim to give additional tools to the government to prevent investments by state-owned enterprises that are considered a national security threat.

Recent Enforcement Activities

The Draft Regulations were released the same week the Minister announced his intention to go to court to order that U.S. Steel Corp. comply with the employment and production-related undertakings it gave to the government in connection with its November 2007 acquisition of Stelco Inc. The Minister has also requested the court impose a penalty of $10,000 per day calculated from November 1, 2008. This is the first time the Minister has taken such an action and highlights the importance that the government places on investors fulfilling the commitments they make when negotiating approvals under the Act.

The Minister may also have used his new national security review powers to delay an acquisition of a Canadian publicly-traded company, the chief asset of which is a uranium mine in Namibia. On August 19, 2009, Forsys Metals Corp. announced the company that had agreed to purchase it, George Forrest International Afrique S.P.R.L. (GFI), claimed to have received a notification from Industry Canada advising GFI the company could not proceed with its acquisition of Forsys pending further notice from Industry Canada. The book value of Forsys' assets was below the $312 million review threshold, meaning the only basis for such a notice would have been the national security provisions of the Act. Press reports suggest GFI had difficulty securing financing to complete the transaction, and may have turned to entities with ties to Iran or North Korea. Unfortunately, we will never know how the review process would have unfolded, as Forsys terminated its transaction with GFI following the latter's failure to transfer funds in accordance with the transaction agreement.


The current Conservative government has demonstrated its willingness to use the full force of the Act. Following its unprecedented decision to block a proposed investment in 2008,3 the Minister has now taken steps to require an investor to honour the undertakings it provided in order to obtain approval. The Minister also appears to have used his new power to review investments on the grounds of national security. While obtaining approval under the Investment Canada Act was traditionally regarded as relatively routine, under the current enforcement climate, where the Minister has been given significantly greater discretion to intervene, investors are well served to exercise caution by planning for long lead times to secure approval if national security could be an issue and to take care in drafting undertakings to provide some latitude in the event they are subsequently challenged by the Minister.


1. See Canada's Budget Bill to Overhaul the Competition Act and Investment Canada Act.

2. The lack of guidelines regarding the meaning of national security means that interested parties or competitors may seek to interfere with or delay transactions that may not raise national security issues. For example, Research in Motion recently argued that it was in Canada's "national interest" to review the proposed sale of some of Nortel Networks' wireless assets to Ericsson. After considering the matter, the Minister concluded that there were no grounds to believe this transaction could be injurious to Canada's national security.

3. See Canada Uses Investment Canada Act to Block Acquisition of MDA by Alliant Techsystems.

About Ogilvy Renault

Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at

Voted best law firm in Canada two years in a row.
2008 and 2009 International Legal Alliance Summit & Awards.

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
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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions