The Canadian federal government (the Government) has announced that it is taking steps to protect Canadian businesses by tightening their enforcement of the rules around foreign takeovers as the Covid-19 pandemic continues to materially impact the health of the Canadian economy. On April 18, 2020, the Investment Review Division of Innovation, Science and Economic Development Canada issued a policy statement on foreign investment review during the COVID-19 pandemic. The statement announced that, under the current extraordinary circumstances, certain foreign investment transactions would be subject to enhanced scrutiny under the Investment Canada Act (the Act) until such time as the economy recovers from the effects of the pandemic.
In support of the Government’s stated goal of ensuring that inbound investment does not introduce new risks to Canada’s economy or national security, it will now scrutinize with particular attention foreign direct investment of any value, controlling or non-controlling, in Canadian business that are related to public health or involved in the supply of critical goods and services to Canadians or to the government. This new policy statement is being driven by the Government’s recognition of the importance of Canadian control over critical goods and services. For example, the Government wants to ensure that control over local production of items such as masks, gloves and ventilators is not compromised. In addition, the new policy statement is being driven by the recognition that certain Canadian businesses have recently suffered significant declines of value putting them at much greater risk of opportunistic foreign takeovers.
The policy statement does not set out exactly which goods or services are considered “critical goods and services” or which businesses fall within the scope of “public health”. It is anticipated that such concepts will be broadly interpreted by the Minister of Innovation, Science and Industry (the Minister) in the administration of the Act. It is worth noting that the Government has published documents relating to the COVID-19 pandemic that have described food and medicines as “critical” goods. Such documents also suggest that the Government considers services related to health, the supply of food and water, information and communication technologies, transportation, energy and utilities, finance, manufacturing, public safety and government to be “critical” services.
Further, the policy statement notes that investments made by state-owned enterprises or private investors assessed as being closely tied to, or subject to direction from, foreign governments will now receive enhanced scrutiny as well. Such enhanced scrutiny could include the Minister requesting additional information or extending the timelines for review under the Act to ensure that the Government has adequate time and information to properly assess these investments.
Under the national security review provisions of the Act, applicable to foreign investments of any size, the Government may block the proposed investment, allow the investment to proceed subject to certain conditions (which could be imposed either before or after the closing of the transaction) or order the divestiture of an implemented investment.
During these unique circumstances and the temporary application of enhanced regulatory scrutiny under the Act, foreign investors would be well advised to consider the Act’s review process in the early stages of their investment planning and consider engaging with the Minister before implementing an investment. The policy statement indicates that to obtain regulatory certainty, foreign investors must file a notification under the Act at least 45 days before the closing of the proposed investment.