On July 31, 2020, the Minister of Innovation, Science and Industry (the “Minister”) issued a Ministerial Order (the “Order”) under the Time Limits and Other Periods Act (COVID-19), extending certain periods relating to the national security review process under the Investment Canada Act (“ICA”). 

By way of background, the following classes of investments by non-Canadians may be subjected to a national security review under the ICA:

• acquisition of control of a Canadian business (“Scenario 1”),

• establishment of a new Canadian business (“Scenario 2”), or

• any investment (including non-controlling, minority investments) in, or establishment of, a Canadian trust, corporation, joint venture or partnership with business activities in Canada (if not otherwise captured in Scenario 1 or 2) (“Scenario 3”).

Scenario 1 and 2 transactions require a filing under the ICA, which triggers a clock for the Government to either issue a notice indicating its belief that the investment may be injurious to national security but more time is needed to decide whether to order a national security review (under ss. 25.2(1)) (a “National Security Notice”), or to order a national security review (under ss. 25.3(1)) (a “National Security Order”).

Scenario 3 transactions do not require a filing under the ICA.

As a result of the Order:

• The Government now has 60 days (increased from 45 days) to decide whether to issue a National Security Notice or to make a National Security Order without first issuing a National Security Notice.

• If the Government issues a National Security Notice in respect of an investment, the Government now has a subsequent 90 days (increased from 45 days) to determine whether to make a National Security Order.

• In the case of Scenario 3, the Government has 180 days (increased from 45 days) from closing of the investment to issue a National Security Notice or, if no National Security Notice is issued, 180 days from closing to make a National Security Order.

These updated timelines do not apply retroactively (i.e. do not apply to any investment for which an existing period had expired prior to July 31, 2020). Investments under Scenarios 1 or 2 that were certified prior to or after July 31, 2020, or investments under Scenario 3 that closed prior to July 31, 2020, but which are currently within an existing statutory period, or have not yet closed will be subject to the extensions.

Where a National Security Notice or National Security Order is issued prior to closing, it is suspensory. Ultimately, after the national security review is completed, the Government may prohibit the investment or approve the investment with conditions imposed on the investor; where an investment is closed prior to a national security review, the Government may order the divestiture of the Canadian business or implement restrictions on the investor’s operation of the business. Notably, the Order does not extend the statutory periods applicable to the national security review itself, which total a maximum of 110 days, subject to extension on agreement with the investor.

Key Takeaways

• This Order is further to the Minister’s previous Policy Statement on Foreign Investment Review and COVID-19, which provided that the Minister would apply enhanced scrutiny to certain investments during the COVID-19 pandemic, in particular those involving Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians or to the Government, and those involving state-owned investors. (For more information, please see our article on the Policy Statement.) The Order reflects the continued impact of the COVID-19 pandemic on the Government’s ability to review and assess foreign investments on national security grounds. 

• Taking into account the enumerated extensions and the December 31, 2020 extension cap, a national security review now may take up to 260 days for investments covered by Scenarios 1 or 2. The statutory maximum prior to the extensions was 200 days (in each case subject to further extension on consent of the investor).

• Foreign investors that wish to make pre-closing notifications and condition closing on expiry of the period within which the Government can issue a National Security Notice or a National Security Order should take into account the extended periods for taking those steps.

• Foreign investors in transactions that are subject to pre-closing review and approval under the ICA should build provisions for extended national security screening and/or review into transaction agreements.

• Foreign investors engaging in the classes of investments covered by Scenario 3 are not required under the ICA to make a filing to the government; however, the government has the power to engage in a national security review in respect of these transactions. The significant extension of the deadline to make a national security notice or order for these investments increases the risk that the government will become aware of the investment before the deadline to make an order expires. 

If you have any questions about foreign investment in Canada, please contact a member of our Competition/Antitrust and Foreign Investment Group.