On April 18, 2020,the Investment Review Division ("IRD") of Science and Economic Development Canada released a policy statement announcing that the Government of Canada will be subjecting certain foreign investments into Canada to enhanced scrutiny.

This enhanced scrutiny is a COVID-19 response measure meant to protect Canadian businesses that have seen a recent decline in valuation from opportunistic investment behavior (i.e. the takeover of Canadian companies by foreign investors).

Under the Investment Act Canada (the "Act"), the Government can review investments where the Minister of Science and Economic Development believes the investment could be harmful to Canada's economic or security interests. In its statement, the IRD announced that the government will be paying particular attention to foreign direct investments in Canadian businesses that are related to public health or are involved in the supply of critical goods or services. Neither the Act nor the policy statement specify what is considered a critical good or service; however, existing guidelines from the IRD point to the National Strategy for Critical Infrastructure which lists the following as critical industries:

  • energy and utilities;
  • finance;
  • food;
  • transportation;
  • government;
  • information and communication technology;
  • health;
  • water;
  • safety; and
  • manufacturing

The Government will also be subjecting all foreign investments by state-owned investors (or private investors with close ties to foreign governments) to enhanced scrutiny under the Act. According to the IRD, this "enhanced scrutiny" may involve the Minister requesting more information or extending timelines for review.

Under the Act, the Government can take any of the following actions:

  • block a proposed investment;
  • allow an investment to go ahead with conditions; or
  • order the divestiture of an implemented investment.

As stated in the IRD's guidelines, in assessing proposed or implemented investments under the national security provisions of the Act, the Minister or Governor in Council will consider the nature of the asset or business activities and the parties involved in the transaction, including the potential for third party influence.

The IRD recommends that foreign investors engage with Innovation, Science and Economic Development Canada in the preliminary stages of their investment planning and certainly before the implementation of an investment.

The enhanced scrutiny of foreign investments is here to stay for the foreseeable future given that the IRD says these new measures will apply until "the economy recovers from the effects of the COVID-19 pandemic."

Originally published 23 April, 2020

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