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Federal Government to Significantly Increase Foreign Investment Review Threshold, Require Additional Information and Formality in Notification and Review Forms

June 2012
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By Mark Nicholson & Ian Macdonald

Federal Government to Significantly Increase Foreign Investment Review Threshold, Require Additional Information and Formality in Notification and Review Forms

On June 1, 2012 the government published regulations that would significantly change the general review threshold and disclosure requirements under the Investment Canada Act.

The key amendments include:

  • Changing the basis of the general net benefit review threshold calculation from book value of assets to “enterprise value”.
    • The enterprise value of a publicly traded entity will equal its market capitalization, plus its liabilities, minus its cash and cash equivalents.
    • The enterprise value of a privately held company will equal its acquisition value, plus its liabilities, minus its cash and cash equivalents.
    • The draft regulations set out detailed provisions for determining enterprise value, including in situations where assets or less than 100% of equity securities are acquired.  A summary of those provisions is available here.
  • Setting the enterprise value threshold at $600 million for two years, then at $800 million for two years, then at $1 billion for one year, and thereafter indexed to Canada’s GDP.
  • Requiring foreign investors to disclose additional information, including information about their directors, officers, and investors.  The government’s stated purpose for requiring this information is to enable it to assess potential national security related concerns raised by a foreign acquisition.  A summary of the specific additional information required is available here.

The key results of the amendments will be that:

  • Fewer foreign acquisitions will be subject to net benefit review.  It is worth noting, however, that some acquisitions that would be below the existing C$330 million asset value threshold may exceed the enterprise value threshold, particularly when it is at the C$600 million level, due to differences in calculation methodology.
  • The process of determining whether a proposed acquisition exceeds the review threshold will be more complicated, and the preparation of notification and application for review forms will generally involve more work by the parties and their counsel.

The regulations are open for public comment for 30 days.  It is possible that they will be amended as a result.  However, we do not anticipate significant, if any, amendments.  We also anticipate that the government will finalize the regulations and implement the amendments contemplated by them fairly quickly.  The regulations relate to the implementation of amendments to the Investment Canada Act that were made more than three years ago, in March 2009.  The government initially issued draft regulations to implement these amendments in July 2009, but withdrew them due to stakeholder criticism of the formula for calculating enterprise value.  The regulations published on June 1, 2012 already reflect one round of stakeholder comments.

We will provide a further update to confirm the date on which the amendments contemplated by the regulations take effect.

A brief overview of the Investment Canada Act, additional background on the 2009 amendments, and additional detail about the regulations is available here.

NOT LEGAL ADVICE. Information made available on the Web site in any form is for information purposes only. It is not, and should not be taken as legal advice. You should not rely on, or take or fail to take any action, based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this Web site. Gowlings professionals will be pleased to discuss resolutions to specific legal concerns you may have.
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