The acquisition of every Canadian business by a non-Canadian requires careful analysis of the legal issues under the Investment Canada Act and its associated regulations and guidelines as well as a thorough knowledge of the ministerial approval process before both the Minister of Industry and, in the case of certain culturally sensitive sectors, the Minister of Heritage. Foreign investors should also be aware of additional rules that apply to investments in financial services, telecom, transportation undertakings, broadcasting and radio, and other protected and sensitive industries.
Blakes lawyers have significant experience with assisting clients in navigating the complex maze of regulations and rules governing investments by non-Canadians, including state-owned enterprises and sovereign wealth funds.
Direct and indirect investments by non-Canadians that result in the acquisition of control of an existing Canadian business or in the establishment of a new Canadian business are subject to a requirement to file either a notification or an application for review and approval of the foreign investment by the relevant minister.
Notification and Applications for Review
A notification is required to be filed each time a non-Canadian commences a new business activity in Canada or acquires control of a Canadian business. In cases where certain monetary thresholds are met, an investment is reviewable.
Investments by non-WTO (World Trade Organization) members are reviewable if there is a direct acquisition of a Canadian business and the asset value of the Canadian business being acquired is equal to or greater than C$5-million, or an indirect acquisition where the asset value of the Canadian business being acquired is equal to or greater than C$50-million, except if the asset value of the Canadian business exceeds 50 per cent of the asset value of the global business, in which case the threshold for an indirect acquisition is also C$5-million. These thresholds are also applicable to all investors, whether WTO members or not, for acquisitions of a Canadian business that is engaged in a cultural activity.
Investments by WTO members are reviewable only if there is a direct acquisition of a Canadian business with an asset value equal to or greater than a figure that is recalculated each year based on growth of the economy. For 2010, the monetary threshold is C$299-million. Indirect acquisitions by WTO members are not reviewable.
All applications for review, except for those relating to certain cultural industries, are to be filed with the Investment Review Division of Industry Canada. Applications for review relating to the cultural industries of (i) publication, distribution of books and magazines, (ii) production, distribution, sale or exhibition of film or video products, (iii) production, distribution, sale or exhibition of audio or video music recordings, and (iv) publication, distribution or sale of music in print or machine readable form, are to be made to the Department of Canadian Heritage.
In reviewing a proposed investment, the relevant minister determines whether the proposed investment is of “net benefit” to Canada and takes into account a number of factors in making this determination. These factors include: (i) the effect on the level of economic activity on Canada, on employment, etc.; (ii) the degree and significance of participation by Canadians in the Canadian business; (iii) the effect of the investment on productivity, industrial efficiency, technological development, product innovation; (iv) compatibility of the investment with national industrial, economic and cultural policies; and (v) the contribution of the investment to Canada’s ability to compete globally. If the relevant minister determines that the proposed investment is not of “net benefit” to Canada, the investment is prohibited. There is no provision for a judicial appeal from the decision of the relevant minister.
Scrutiny under International Agreements
In the event of a denial of the requisite approval under the Investment Canada Act, even though the Investment Canada Act does not provide for a judicial appeal, Blakes lawyers who have extensive experience in dealing with matters relating to international and bilateral agreements are able to guide clients through alternative options. The Investment Canada Act is tied to Canada’s obligations under the WTO, the North American Free Trade Agreement (NAFTA) and other bilateral investment treaties (BITs) and the reasons for denial of the approval may be subject to scrutiny under these international and bilateral agreements.
Recent Developments under the Investment Canada Act
The federal government has recently demonstrated its willingness to use the Investment Canada Act to closely screen acquisitions of Canadian businesses by foreign investors. For example, in May 2008, the Canadian Minister of Industry blocked the proposed sale of Macdonald, Dettwiler and Associates Ltd. (MDA) to Alliant Techsystems Inc. (ATK). MDA operates Radarsat-2, a satellite that is used to observe Canada’s Arctic, and is also the developer of the “Canadarm”, the robotic limb used on the space shuttle and International Space Station. The minister was not satisfied that ATK’s application to acquire control of the Information Systems and Geospatial Businesses of MDA was likely to be of net benefit to Canada, which is the statutory test for approval under the Investment Canada Act.
State-Owned Enterprises
State-owned enterprises (SOEs) and investments from certain parts of the globe are also under increased scrutiny. In December 2007, Industry Canada released guidelines on the review of investments by SOEs, such as sovereign wealth funds. The guidelines reflect the government’s policy that the governance and commercial orientation of SOEs will be considered in determining whether an investment subject to review under the Investment Canada Act is likely to be of net benefit to Canada.
Blakes lawyers have advised SOEs with structuring their investments in Canada and with respect to the application of the guidelines applicable to SOEs.
National Security Review
The Canadian government has also created a new review requirement for transactions that raise “national security” concerns, a move that was endorsed by the June 2008 report of the federally constituted Competition Policy Review Panel that was mandated to review Canada’s competition and foreign investment policy.
Blakes lawyers familiar with dealing with international agreements will be able to navigate clients through the available options in the event of a denial of approval on the grounds of “national security” concerns.
Representative Matters
Blakes lawyers have extensive experience in providing strategic legal advice to clients on complex foreign investment review matters and securing key approvals for investors under the Canadian law.
Blakes lawyers have represented foreign investors with respect to establishing a business in Canada and obtaining necessary approvals under the Investment Canada Act in the following transactions and matters:
- Russian steel maker Evraz Group S.A. in its acquisition of IPSCO Inc.'s Canadian plate and pipe business for US$2.9-billion from SSAB Svenskt Stal AB
- Kinder Morgan Inc. in connection with its bid to buy Terasen Inc. for C$3.1-billion
- ConocoPhillips Company in connection with its C$40-billion merger with Burlington Resources Inc.
- Galenica AG in connection with its acquisition of Aspreva Pharmaceuticals Corporation for US$943-million
- General Electric in connection with GE Water & Process Technologies’ acquisition of Zenon Environmental Inc.
- Enerplus Resources Fund on its C$7.6-billion strategic business combination with Focus Energy Trust
- Canetic Resources Trust on its C$15-billion merger with Penn West Energy Trust
- A foreign publisher of a globally circulated magazine on the establishment of a foreign-owned Canadian business publication
- GlaxoSmithKline plc in connection with the C$1.7-billion acquisition of ID Biomedical Corporation
Policy Advocacy
Blakes lawyers are also on the cutting edge of developing foreign investment review policy. Our lawyers have made submissions to, and have appeared before, the federally constituted Competition Policy Review Panel to make recommendations on how the Investment Canada Act should be changed to enhance Canadian productivity and competitiveness. One of our partners was also a member of the steering committee of the Canadian Chamber of Commerce (the Chamber)that provided input to the Competition Policy Review Panel and is currently the co-chair of the International Affairs Committee of the Chamber. In addition, one of our partners co-founded and was former chair of the Foreign Investment Review Committee, a committee established to foster dialogue with key government decision-makers and to analyze and make policy recommendations in the foreign investment area.
Publications
Blakes lawyers write and lecture extensively on foreign investment review issues and developments. Recent articles and bulletins of interest can be found here.
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