On July 31, the Minister of Innovation, Science and Industry issued a Ministerial Order (the Order) under the now-promulgated Time Limits and Other Periods Act (COVID-19) (the Time Limits Act) to temporarily extend the review periods of investments that are subject to the national security provisions of the Investment Canada Act (the ICA). This Order may affect the intended closings of transactions that have risk of a national security review.
Under the national security review provisions, the government has the ability to review the acquisition of an existing Canadian business and the establishment of a new Canadian business, regardless of whether the transaction exceeds the monetary thresholds set out under the ICA. Transactions which exceed the applicable monetary thresholds (and which result in an acquisition of control) require a filing under the ICA (either a notification or application for a pre-closing review). Transactions which are below the applicable thresholds (or do not result in an acquisition of control) do not require a filing, but are nevertheless subject to possibility of a national security review. The test applied in the case of such a review is whether the investment is injurious to Canada's national security.
The Order temporarily extends the initial review period for national security review of investments by non-Canadian as follows:
- for investments that require a filing (either a notification or an application for review): the initial review period has been extended from 45 days to 60 days from the date of certification; and
- for investments that do not require a filing: the initial review period has been extended from 45 days to 180 days following the implementation of the investment.
The Order also temporarily extends the review period for national security review of investments by non-Canadians that, upon the expiry of the initial review period, receive notice from the Minister that an order for a national security review may be made, from 45 days to 90 days.
This Order is made in furtherance of the pandemic-inspired federal policy statement issued in April (please see our summary here). There, the federal government made it clear that in these uncertain times it will more closely scrutinize investments of any value in Canadian businesses:
- by state-owned enterprises or private investors with close ties to foreign governments; and
- that are related to public health or the supply of critical goods and services.
The explanatory note issued concurrently with the Order acknowledges that the pandemic has caused operational restrictions for both the Government of Canada and investment parties. The impetus of these extensions is to allow "sufficient time for a rigorous scrutiny of proposed investments for potential national security harm to Canada". The Order gives officials breathing room to "ensure the integrity of all investments by non-Canadians into Canada."
The Time Limit Act grants ministers the discretion to further vary timelines by Ministerial order until the sunset provision kicks in on September 30, 2020, provided no time limits can be extended beyond December 31 of this year.
Although this Order was not issued retroactively (as is permitted under the Time Limits Act), the Investment Review Division-the responsible body under the ICA-has taken the position that these extensions apply to any notifications or reviews that are ongoing. In other words, if a filing review window was still open on July 31, the review window has been extended in accordance with the Order.
If you had submitted a pre-closing notification and were intending to close the day after the expiry of your initial review period, your closing will be delayed by an additional 15 days. From a practical perspective, transactions that include pre-closing notifications and related closing conditions should consider these extended time periods when drafting the applicable transaction documents and setting transaction milestones. Foreign investors should also be aware that if their investment does not require a filing, it will remain subject to national security review for a period of six months following closing. As per the April policy statement, we can expect increased scrutiny of transactions that involve a state-owned enterprises or the sale of critical goods.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.