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Canada | Publication | April 3, 2024
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.
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:
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.
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.
Additional amendments included in Bill C-34 include:
These amendments clearly signal that Canada:
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.
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