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Top 5 Trends in Foreign Investment Review

The COVID-19 pandemic triggered a wave of reform amongst foreign investment regulators, as governments attempted to secure their economies for unprecedented fallout. In Canada, the pandemic and resulting economic crisis – which we have explored in our recent whitepaper, Business as Unusual: New Realities, New Possibilities – have reinforced the government’s approach to foreign investment review under the Investment Canada Act (“ICA”), while also giving rise to trends that increase scrutiny. However, unlike other jurisdictions, Canada has not explicitly lowered its thresholds for review. It has maintained that foreign investment is “essential in ensuring that Canadian businesses are able to invest in innovation and to compete in the global economy” and remains committed to encouraging investments that benefit Canada.[1] With this in mind, we have outlined five top trends in foreign investment review in Canada thus far in 2020, which we expect to continue for the duration of the year.

  1. Decline in the number of net benefit reviews

After the ICA was amended to introduce enterprise value thresholds in 2015, the number of transactions subject to review and approval has declined precipitously. Owing to the amendment, the review thresholds for direct acquisitions by foreign investors (who are not state-owned enterprises (“SOEs”)) from World Trade Organization countries of non-cultural businesses rose from $369 million in asset book value to $600 million in enterprise value – a threshold that has since risen to $1.075 billion. The equivalent threshold for investors from countries that have free trade agreements with Canada (e.g., US and EU) is even higher, at $1.613 billion. To illustrate the amendment’s impact, in 2007/2008, the government conducted 57 net benefit reviews. This figure fell over the next decade to just nine reviews in 2018/2019. These thresholds are subject to annual adjustment (typically increases), so this trend is expected to continue.

To the extent that there are reductions in enterprise value owing to the COVID-19 pandemic, the elevated thresholds for review may create opportunity for certain investors as there is increased opportunity to avoid mandatory review and approval.

  1. Increase in the number of national security reviews

As fewer transactions are reviewable under the ICA, there has been a pivot toward utilizing the ICA’s national security provisions. Since their introduction in 2009, the government’s reliance on the national security provisions has increased significantly. Prior to 2013, the government issued only one notice of a potential national security review. In 2013, however, the government issued three. In 2018/2019, nine such notices were issued, resulting in seven national security reviews and – ultimately – two divestitures. It is our expectation that this number will climb even higher during the pandemic.

The rise is in part attributable to the increasing range of areas where national security concerns have arisen. It has expanded beyond the traditional areas, defence and law enforcement, to include a wider swath of industries within its ambit. For example, the digital era has raised new concerns relating to cybersecurity, network security and the transfer of data and critical technology. The government has responded in turn by taking particular interest in foreign acquisitions in these industries. Recently, the government’s COVID-19 policy has further broadened the scope by stipulating that all foreign investments in Canadian businesses related to “public health” or the “supply of critical goods and services” to Canadians or the government are now subject to “enhanced scrutiny” that may lead to a formal national security review.

  1. State-owned enterprises subject to increased scrutiny

The government has consistently imposed stricter review standards for investments involving SOEs. For example, when the ICA thresholds were amended in 2015, the government chose to maintain a lower asset-based threshold for acquisitions involving SOEs. The government’s COVID-19 policy has bolstered this long-standing approach, mandating that all investments by SOEs or by private investors merely suspected of being “closely tied” to foreign states will be subjected to enhanced scrutiny. In justifying this measure, the government explained that SOEs are more likely to be driven by “non-commercial imperatives”, especially in the current context. Accordingly, SOE investors should anticipate deeper probing into their governance and ownership, in addition to their commercial motivations for the transaction.

  1. Extended review timelines

As a result of the COVID-19 policy, investors should prepare for the possibility of extended review timelines. If a national security review is triggered, the entire process can take up to 200 days (or longer if extensions are agreed upon). Even if a national security review is not ordered in the end, the government can still take 90 days to consider its options.

Moreover, where a net benefit review is required, a national security review suspends the net benefit review for the duration of the national security review, necessarily extending the timeline for approval. As the number of national security reviews increases, the average length of net benefit reviews is likely to increase accordingly.

  1. Implications for transaction structures and agreements

The increased risk of enhanced scrutiny under the COVID-19 policy raises a number of strategic considerations for transaction agreements, such as the use of investment structures exempt from the ICA (e.g., debt investments) and the inclusion of contractual protections (e.g., through covenants or reverse termination fees) where an ICA review is expected. Investors may also consider whether to discharge the risk of a national security review, including by making closing contingent upon the government’s jurisdiction to launch such a review having expired uneventfully. Absent an explicit covenant to that effect, an investor may still choose to protect itself by engaging with the government early and notifying at least 45 days before the anticipated closing to benefit from early feedback on any national security concerns. Such measures may be especially critical in global deals, where a Canadian review could jeopardize the timing of the broader deal unless contingency plans are made.


In light of the foregoing, parties contemplating a foreign investment in a Canadian business should consult counsel to assess the investment’s potential national security risk and to determine a strategy to navigate the ICA process.

[1] Government of Canada’s “Policy Statement on Foreign Investment Review and COVID-19", available here: COVID-19 policy. For further information about the policy’s implications for investors, please refer to our previous article on the subject.