Buyer beware: Major changes to Canada’s foreign investment review regime passed

On March 22, Bill C-34, An Act to amend the Investment Canada Act, received royal assent. The bill amends the Investment Canada Act (ICA) with a focus on strengthening Canada’s national security review regime. 

While the bill is not yet in force, in a news release on March 27, Innovation, Science and Economic Development Canada (ISED) indicated the government will set a “near-term coming-into-force date” for most of the new provisions. Other significant portions of the new regime will come into force following the enactment of applicable regulations. 

New mandatory pre-closing notification regime for “prescribed” activities

As discussed in our update when the bill was first tabled, one of the most significant changes to the ICA is the introduction of a mandatory pre-closing notification regime for investments in prescribed sectors that have yet to be specified. Specifically, the new regime will require pre-closing notification when non-Canadians propose to acquire – in whole or in part – a Canadian business that carries on a “prescribed business activity” where the non-Canadian would, as a result of the investment have:

• access to, or direct the use of, material non-public technical information or material assets, and 
• either the power to appoint or nominate any person who has the capacity to direct the business and affairs of the entity or prescribed special rights with respect to the entity.

What constitutes a “prescribed business activity” or “material assets" are not contained in the bill and will be set out via regulation. The focus will likely be on sensitive sectors that may raise national security concerns and that ISED has subjected to enhanced scrutiny of late, including critical minerals and the interactive digital media sector.

Foreign investors will not be able to implement investments that are subject to the new mandatory pre-closing notification regime until either the relevant review periods for national security review have elapsed without a review having been triggered or they have successfully navigated the review process. 

Additional review powers for investments by state-owned enterprises 

A notable change to the bill as it progressed through the legislative process was the addition of increased powers for the government to review investments by foreign state-owned enterprises (SOEs). This is consistent with the general trend towards additional scrutiny for SOE investments over the last few years, in both net benefit and national security reviews.  

These new provisions give the government the power to order net benefit reviews of investments by SOE investors that are not trade agreement investors – regardless of whether the net benefit review thresholds are exceeded – if the government believes it would be in the public interest.  

The amendments also extend the scope of the national security review regime to apply to acquisitions by SOEs of any assets of a Canadian business. This will increase the range of SOE investments subject to the national security regime, as it will apply to any asset acquisitions regardless of the value of the assets involved, their importance to the Canadian business and, possibly, whether the assets are located in Canada. 

Other measures

Additional amendments included in Bill C-34 include: 

• codifying the protection of intellectual property developed or funded by the government and the use and protection of personal information of Canadians as new factors that are relevant to net benefit review assessments, consistent with the government’s increasing focus on these aspects;
• extending the time period in which the government may initiate post-closing net benefit reviews of acquisitions of Canadian cultural businesses for which a notification has been filed from 21 days to 45 days after certification of the notification;
• authorizing the Minister of Industry to impose interim conditions while national security reviews are pending (provided this does not introduce significant new risks to national security); 
• allowing the minister to accept written undertakings to address risks of injury to national security; 
• permitting information sharing between the government and its international counterparts and between government agencies regarding national security reviews; 
• establishing that a prior conviction of a non-Canadian within or outside Canada for a corruption offence by itself constitutes reasonable grounds for the minister to believe an investment by that non-Canadian could be injurious to national security; and
• introducing new penalties and increasing existing penalties for non-compliance with the ICA. 

Key takeaways

These amendments clearly signal that Canada:

• intends to more closely scrutinize a broader range of investments than has historically been the case; and 
• is likely to take a more interventionist approach where an investment may raise potential national security concerns. 

Given the extent of these changes, it is critical that foreign investors and Canadian businesses consider the ICA implications for their transactions with experienced counsel early on in the process so companies can both assess potential risks and proactively implement mitigation strategies.