Law Times

PAGE 12 FOCUS September 28, 2009 • Law timeS Details fuzzy on Investment Canada Act amendments 'It's difficult to know whether you have to make a filing or not,' lawyer says BY DARYL-LYNN CARLSON For Law Times and now lawyers want details on what they'll mean. In July, the government initiated a 30-day public comment period on its draft regulations. That closed in August, but results have yet to come out. The draft regulations set out the T process for national security reviews of foreign investments in Canada and enhance the reporting requirements for non-Canadians applying to acquire an interest in a domestic company. While the intent of the amendments isn't controversial, lawyers say the chang- es could put some potential transactions on ice until the details become public. "It has come under a bit of criticism in that it doesn't really offer any cer- tainty to foreign investors and in certain cases, it's difficult to know whether you have to make a filing or not," says Kevin Ackhurst, a lawyer with Ogilvy Renault LLP who, with colleague Paul Beaudry, authored a paper reviewing the pros and the cons of the package of amendments. The review process has expanded to prevent any acquisitions that could be harmful to national security and, de- pending on the deal, federal authorities are now empowered to arbitrarily block an investment they deem to be a threat. "In the midst of 9-11 and what fol- lowed afterwards raised many concerns he federal government passed a series of amendments to the In- vestment Canada Act this year, about our laws being adequately equipped to address national security matters," says Beaudry. The concerns have a particular focus on Canadian natural resources. Uranium, for example, can have dangerous applica- tions in areas such as nuclear energy. While parts of the amendments were included in the Competition Act revi- sions under Bill C-10, those changes didn't specify the time frames within which the review process would happen. The changes aim to ensure full trans- parency and an investor's willingness to to prohibit state-owned entities from ac- quiring a company through a purchase that could threaten national security. Beaudry points to a proposed transac- tion by China's Minmetals Corp. to buy Noranda Inc. in late 2007 as an example where such concerns arise. The deal never happened but it did prompt discussion about the extent to which Parliament would or should be able to block it. "That alerted a lot of people in gov- ernment mainly because of China's hu- man rights practices," he says. "It came to a point where the government ac- A party that's caught into this national security test can face significant delays. The government can decide to intervene in any transaction. comply with Canadian laws and stan- dards, says Beaudry. Under the government review, a company seeking to make an acquisi- tion must disclose its five highest-paid officers, state whether it owns any other company interests, and agree to certain conditions regarding employees, he says. They will also have to submit a de- tailed description of the business activi- ties to be carried out in Canada, includ- ing all products and services offered by the Canadian operation and the code as- signed to them under the North Ameri- can Industry Classification System. The purchaser will also have to dis- close the source of its funding. In particular, the government wants knowledged that if a takeover bid were filed, they would be considering the human rights issues relating to the Chi- nese investment in Noranda. That was unprecedented." The amendments provide the governor in council with broad discretion in ap- proving or rejecting acquisitions. There is no mechanism to speed up the process. "A party that's caught into this national security test can face significant delays," Beaudry says. "The government can de- cide to intervene in any transaction." The U.S. government has also pres- sured Canada to review any investments by Chinese state-owned companies into oilsands projects. Still, Beaudry and Ackhurst say while the amendments are welcome, they'd like the government to release more details so lawyers can facilitate transac- tions that don't pose a threat. Under the changes, assessing the value of a company to determine whether it re- quires a review by federal authorities has become more complex. That's because they entail the consideration of a com- pany's market capitalization to calculate its enterprise value, says Ackhurst. The amendments, subject to the fi- nalized draft regulations, increase the threshold to mandate a national secu- rity review to apply to any company whose enterprise value is worth more than $600 million, he says. The enterprise value is based on the average daily closing price of its shares for the last 20 days of the last fiscal quarter. But for a company worth $500 mil- lion that suddenly experiences a boost in its share price, it will be hard to de- termine whether it should file an appli- cation for a review or not. The reviews would be done in con- fidence for the most part, although the federal government recently made a public statement when it cleared the way for Swedish telecommunications firm Ericsson to buy Nortel Networks' two wireless divisions. 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