New thresholds, information requirements still
The National Security Review of Investments Regulations,
establishing the process for national security reviews under the
Investment Canada Act (ICA), came into force on September
17, 2009. While the new ability of the Canadian government to
screen foreign investment on the basis of national security
reflects similar legislation elsewhere (e.g., the
so-called Exon-Florio Act in the United States, pursuant
to which many investments in the United States are reviewed by the
Committee on Foreign Investment in the United States, or CFIUS),
the procedure and time-lines are quite different.
The National Security Review Regulations remain largely as
they were in the draft published in July. As before, a notice of
potential national security review must be issued within 45 days of
either the relevant Minister being notified of the transaction or
the filing of an application for review. That said, the range of
transactions potentially subject to national security review is
much broader than the "acquisitions of control" of
Canadian businesses that are required to file notifications or
applications for review under the "net benefit"
provisions. If no notification or application for review under the
"net benefit" provisions was filed, the Minister of
Industry can issue a national security notice within 45 days of the
transaction first coming to the Minister's attention. Once such
a notice is issued, the entire process (including Cabinet review,
if ordered by the Minister) can take up to a further 85 days. Of
note, there is no mechanism for pre-clearing transactions, nor are
voluntary filings possible.
The national security provisions may have been put to use even
before the Regulations were promulgated. Press reports
concerning the ill-fated bid of George Forrest International S.A.
for Forsys Metals Corp., a Canadian company with uranium mining
interests in Africa, indicated that a notice under the
Investment Canada Act had been issued in that case, after
press reports surfaced speculating that the financing for the
transaction was coming from everywhere from Iran to the Russian
Notable for their absence from the Regulations are provisions
implementing the new thresholds for the traditional review of large
investments to ensure that they will be of "net benefit"
to Canada. Amendments to the ICA in March, 2009 called for a new
and higher ($600 million in the first year, as opposed to the $312
million threshold for 2009) threshold for "net benefit"
reviews, to be measured on the basis of enterprise value as opposed
to the book value of the assets being acquired. The draft
regulations, published for public comment in July, had proposed to
measure "enterprise value" for interests in publicly
traded entities on the basis of market capitalization, plus total
liabilities, minus cash and cash equivalents. The measure of
"enterprise value" for asset acquisitions and
acquisitions of interests in privately-held entities would continue
to be based upon the book value of the assets in question. Some
comments received from the Canadian Bar Association and others were
critical of the practicality of the proposed measures of enterprise
value for publicly-traded entities - not least because of the
volatility of market capitalization and the requirement to update
market capitalization on a quarterly basis. The Government has not
indicated what, if any, changes it will make to the draft
Regulations on enterprise value (as well as new, more stringent
information requirements for notifications and traditional
applications for review).
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