The latest shot across the bow of foreign investors looking to invest in Canadian businesses in 2020 came from a July 31 order1 temporarily extending review periods under the national security provisions of the Investment Canada Act (ICA) on COVID-19 grounds. These extensions may require adjustments to deal completion timelines where national security review presents a potential closing risk.
The order was made by Canada’s Minister of Innovation, Science and Industry (Minister) under the Time Limits and Other Periods Act (COVID-19) (Time Limits Act),2 which came into force on July 27 as part of a federal omnibus bill, Bill C-20.3 The Time Limits Act provides for temporary extensions to a range of time limits under federal law “in order to prevent any exceptional circumstances that may be produced by [COVID-19] from making it difficult or impossible to meet those time limits” and to prevent any “unfair or undesirable effects” resulting from their expiry.4
The Minister’s order, in addition to modifying other federal time limits or periods, affects the process for ICA national security reviews. Those reviews subject foreign investments to establish, acquire, or otherwise invest in a Canadian business of any size—especially those involving defence applications, critical technology and infrastructure and other sensitive assets—to an evaluation of whether such investments would be “injurious” to Canada’s national security.5 The order makes the following changes to the timing associated with the national security review process:
- For investments requiring an ICA notification or application for review filing, the order increases the period for an initial screening for national security concerns from 45 days to 60 days post-filing.
- For investments that do not require an ICA filing, the order increases the period for an initial screening from 45 days to 180 days post-closing.
- For all investments, the order increases the period of any extended initial review of the investment from 45 days to 90 days following the applicable screening period above.
- No time limit affected by the order will be extended beyond December 31, 2020.6
The swift passage of the Time Limits Act, and the subsequent issuance of the Minister’s order days later, follow on the heels of a federal policy statement issued at the outset of the COVID-19 crisis indicating heightened scrutiny of investments relating to public health or certain “critical goods and services,” as well as investments by state-owned enterprises (SOEs) (see our previous April ICA update). In addition, a House of Commons committee review of the ICA in June 2020 featured significant discussion of national security risks—particularly in relation to certain foreign state investments.7 While an explanatory note released with the Minister’s order cites COVID-19-related “operational restrictions” affecting both the government and investment parties as justification for the order’s ICA extensions,8 those extensions will equally facilitate a more probing examination of the classes of investment flagged in the government’s earlier policy statement.
It should also be noted that the Time Limits Act allows further orders to be issued extending timelines relevant to the national security review process9 by or before September 30, 2020.10 Such further orders may not be necessary or practical in light of the Minister’s July 31 order. Notwithstanding, there remains a risk that relevant time limits (including limits not affected by the July 31 order) could be further or newly extended to expire as late as December 31, 2020.11 Any further order can also provide for the retroactive application of those extended limits back to March 13, 2020, including with respect to expired review periods.12 While the Minister did not rely upon the retroactivity provision of the Time Limits Act in extending ICA-related timelines in the July 31 order,13 the government’s Investment Review Division is of the view that the order applies to ongoing reviews of investments whose ICA filings were certified before July 31 (i.e., where relevant time limits have not expired prior to that date).14
As a practical matter, the Minister’s order will require parties to transactions that are higher risk from a national security perspective to take the extended timing of ICA processes (as well as the risk of any further extensions noted above) into account when deciding on closing dates and other transactional milestones. In this regard, we stress the importance of developing a legal and government relations strategy as early as possible in transaction planning—especially in the case of SOEs. Doing so can help to mitigate the risk of an investment encountering significant delays, facing onerous government-imposed conditions or being blocked outright in the ICA’s national security process.
Dentons’ Competition and Foreign Investment Review group has extensive experience with the ICA, including reviews based on national security, for both private-sector entities and SOEs. For more information, please contact a member of our group listed in the “Key Contacts” sidebar to the right of this article.
1 Order respecting Time Limits and Other Periods Established by or Under Certain Acts and Regulations for which the Minister of Industry is Responsible (COVID-19) (31 July 2020) [“Order”].
2 SC 2020, c 11, s 11.
3 Bill C-20, An Act respecting further COVID-19 measures, 1st Sess, 43rd Parl, 2020, SC 2020, c 11.
4 Time Limits Act, supra note 2, s 5.
6 See Order, supra note 1, s 13.
9 These timelines include both those noted above in this update as well as those applicable to later stages of the national security review process not covered by the July 31 order. See the Time Limits Act, supra note 2, ss 7(1) and (2) and the ICA row listed in its Schedule providing, among other things, that timelines established by or under s 25.3 of the ICA and the National Security Review of Investments Regulations, SOR/2009-271, are subject to extension by order.
10 Time Limits Act, ibid, s 9.
11 Ibid, s 7(4).
12 Ibid, s 7(5).
13 The Minister did rely upon the retroactivity provision in the parts of the order relating to other federal statutes. See Order, supra note 1, ss 4, 7, 11.
14 See also Government of Canada, “Temporary Extension of Certain Timelines in the National Security Review Process Due to COVID-19” (4 August 2020).