Significan changes to Investment Canada Act: Review threshold increased, additional information required in notification and review forms, national security review timelines extended.

On March 25, 2015, the federal government announced the implementation of three important changes to the Investment Canada Act, each of which is summarized below.

By way of general background, the acquisition of control of a Canadian business by a non‐Canadian, or the establishment of a new Canadian business by a non‐Canadian, is subject to notification or review under the Investment Canada Act. Notification is not an impediment to closing, and is typically done within 30 days after closing.

At present, the notification form requires very basic information about the foreign investor and the acquired Canadian business, and can often be prepared in as little as an hour. Where review is required, detailed information about the foreign investor and the Canadian business and the investor’s plans for the Canadian business must be submitted before closing, and closing can only occur if the government determines the transaction to be of “net benefit” to Canada.

Different thresholds apply to the determination of whether a transaction is reviewable or merely notifiable, including whether the foreign investor is controlled by residents of a World Trade Organization member state, whether the target Canadian business is being acquired directly or indirectly (as a result of the acquisition of a foreign parent) and/or whether the target Canadian business is a defined “cultural business.” The government also has a number of discretionary powers to review transactions that would otherwise not be reviewable, including on national security grounds.

At present, the vast majority of transactions are merely notifiable. Typically, there are less than 20 reviewable transactions per year (and last year there were only 12), whereas there are several hundred notifiable transactions each year.

While the increased review threshold, which takes effect April 24, 2015, will reduce the number of transactions that are subject to review, the much more important practical implication of the recently announced changes is that for the vast majority of transactions, where only notification is required, the notification form will require substantially more information, including a substantial amount of information that most businesses consider to be highly sensitive, and, in many cases, will take substantially more time to prepare.

1. The nature of the review threshold that applies to most transactions/investors will be changed and the amount of the threshold will be substantially increased. At present, the review threshold applicable to the direct acquisition of control of a Canadian business (other than a defined cultural business) by a foreign investor that is ultimately controlled by residents of a WTO member state is C$369 million, and is based on the book value of the assets of the acquired Canadian business. Effective April 24, 2015, the review threshold for this type of transaction will be C$600 million, based on the enterprise value of the acquired Canadian business. For more detail, please click here.

2. For the vast majority of transactions that are merely notifiable, the new notification form will require substantially more information and, in many cases, will take substantially more time to prepare. The goal of many of the new information requirements appears to be to enable the Canadian government to better determine whether the transaction raises potential national security concerns and/or the extent to which the investor is owned, controlled or influenced by an SOE. Much of the newly required information is also of a nature that most businesses consider to be highly sensitive. In this regard, it is worth noting that, like the Competition Act, theInvestment Canada Act contains a robust confidentiality provision that protects the investor’s information. The new notification form must be used for notifications submitted on or after April 24, 2015. A summary of the additional information required by the new notification form is available here.

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4. For more detail, please click here.