Our 30 June 2020 alert, Foreign Investments in Canada: Still Open for Business, but Caveat Emptor, discussed the possibility that the Canadian government would extend certain timelines relating to the national security review process under the ICA to allow the government greater flexibility to scrutinize foreign investments on national security grounds. These investments include those with deemed national security importance during the COVID-19 pandemic, such as investments implemented by state-owned enterprises and those related to public health or to the supply of critical goods and services.
The legislation allowing these timeline extensions, Bill C-20, the Time Limits and Other Periods Act (COVID-19), was proposed on 19 May 2020 and received Royal Assent on 27 July, becoming law. Subsequently, the Minister of Innovation, Science and Industry (the minister responsible for the administration of the ICA) issued an Order temporarily lengthening three key time periods related to the national security review process:
- The initial national security screening period that applies to all investments requiring a filing under the ICA (i.e., either an application for review or a notification) has been extended from 45 to up to 60 days from the certification date of the notification or application for review.
- The initial screening period for investments subject to the ICA that do not require a filing (e.g., minority investments) has been extended from 45 days to a total of up to 180 days after the date of implementation.
- The extended screening period following a determination that there is a potential national security concern resulting in a notice under section 25.2 of the ICA (i.e., notice of potential national security review) has been extended from 45 days to up to 90 days following the date of the notice.
The Order applies to all investments either implemented (for investments not requiring a filing), or for which an application for review or notification is certified as complete, between 31 July 2020 and 31 December 2020.
The government has already taken steps to put investors on notice regarding the extended time periods, including through publishing a statement explaining the changes and providing information about the temporary extensions in staff’s email signature lines.
Taken together, under the temporary extended timelines, the full national security review process for investments requiring a filing under the ICA could now take up to 260 days (or longer, if the investor agrees to a further extension).
It could take even longer for investments subject to the ICA that do not require a filing, as the Order provides a significantly longer post-implementation period in which a national security review could be initiated. Because these investments do not have an associated filing, there is no formal mechanism to shorten this period by pre-clearing them.
While the temporary extensions of the national security time periods may introduce uncertainty for some investors, in most cases, risk can be significantly mitigated by meeting with counsel early to evaluate the level of risk and develop a strategy. Early engagement with the Canadian government where an investment may present national security concerns, as well as factoring the latest potential extensions into deal timelines, will continue to be important in transactions involving Canadian businesses and assets.
Notably, other than these limited time extensions, the ICA framework itself remains unchanged. The existing net benefit (economic) review thresholds and the general processes under the ICA for both net benefit and national security review remain the same. In addition, while investments in certain industries have been called out as potentially subject to greater scrutiny (i.e., investments in Canadian businesses that are related to public health or to the supply of critical goods and services to Canadians or to the government), the government has not declared any particular industries as “prohibited” or stated that investments into these industries (or any others) will automatically trigger a national security review.
Overall, while the time required for the national security periods to elapse or to obtain clearance for transactions subject to national security review may now be longer, the Canadian foreign investment regime remains one that most foreign investors can successfully navigate with advance planning and early assessment of potential issues.