On March 22, Invoice C-34, An Act to amend the Funding Canada Act, obtained royal assent. The invoice amends the Funding Canada Act (ICA) with a give attention to strengthening Canada’s nationwide safety assessment regime.
Whereas the invoice is not but in power, in a news release on March 27, Innovation, Science and Financial Growth Canada (ISED) indicated the federal government will set a “near-term coming-into-force date” for many of the new provisions. Different important parts of the brand new regime will come into power following the enactment of relevant laws.
New necessary pre-closing notification regime for “prescribed” actions
As mentioned in our update when the invoice was first tabled, one of the important modifications to the ICA is the introduction of a compulsory pre-closing notification regime for investments in prescribed sectors which have but to be specified. Particularly, the brand new regime would require pre-closing notification when non-Canadians suggest to amass – in entire or partly – a Canadian enterprise that carries on a “prescribed enterprise exercise” the place the non-Canadian would, because of the funding have:
- entry to, or direct the usage of, materials personal technical data or materials belongings, and
- both the ability to nominate or nominate any one who has the capability to direct the enterprise and affairs of the entity or prescribed particular rights with respect to the entity.
What constitutes a “prescribed enterprise exercise” or “materials belongings” aren’t contained within the invoice and might be set out through regulation. The main focus will probably be on delicate sectors that will increase nationwide safety issues and that ISED has subjected to enhanced scrutiny of late, together with critical minerals and the interactive digital media sector.
Overseas buyers will be unable to implement investments which can be topic to the brand new necessary pre-closing notification regime till both the related assessment durations for nationwide safety assessment have elapsed and not using a assessment having been triggered or they’ve efficiently navigated the assessment course of.
Further assessment powers for investments by state-owned enterprises
A notable change to the invoice because it progressed via the legislative course of was the addition of elevated powers for the federal government to assessment investments by international state-owned enterprises (SOEs). That is in line with the final pattern in direction of further scrutiny for SOE investments over the previous couple of years, in each web profit and nationwide safety evaluations.
These new provisions give the federal government the ability to order web profit evaluations of investments by SOE buyers that aren’t commerce settlement buyers – no matter whether or not the online profit assessment thresholds are exceeded – if the federal government believes it might be within the public curiosity.
The amendments additionally lengthen the scope of the nationwide safety assessment regime to use to acquisitions by SOEs of any belongings of a Canadian enterprise. This can improve the vary of SOE investments topic to the nationwide safety regime, as it is going to apply to any asset acquisitions whatever the worth of the belongings concerned, their significance to the Canadian enterprise and, probably, whether or not the belongings are positioned in Canada.
Different measures
Further amendments included in Invoice C-34 embody:
- codifying the safety of mental property developed or funded by the federal government and the use and safety of non-public data of Canadians as new components which can be related to web profit assessment assessments, in line with the federal government’s growing give attention to these facets;
- extending the time interval by which the federal government might provoke post-closing web profit evaluations of acquisitions of Canadian cultural companies for which a notification has been filed from 21 days to 45 days after certification of the notification;
- authorizing the Minister of Trade to impose interim circumstances whereas nationwide safety evaluations are pending (offered this doesn’t introduce important new dangers to nationwide safety);
- permitting the minister to just accept written undertakings to handle dangers of harm to nationwide safety;
- allowing data sharing between the federal government and its worldwide counterparts and between authorities businesses relating to nationwide safety evaluations;
- establishing {that a} prior conviction of a non-Canadian inside or exterior Canada for a corruption offence by itself constitutes cheap grounds for the minister to imagine an funding by that non-Canadian may very well be injurious to nationwide safety; and
- introducing new penalties and growing present penalties for non-compliance with the ICA.
Key takeaways
These amendments clearly sign that Canada:
- intends to extra carefully scrutinize a broader vary of investments than has traditionally been the case; and
- is more likely to take a extra interventionist strategy the place an funding might increase potential nationwide safety issues.
Given the extent of those modifications, it’s essential that international buyers and Canadian companies contemplate the ICA implications for his or her transactions with skilled counsel early on within the course of so firms can each assess potential dangers and proactively implement mitigation methods.
