Voluntary national security notifications now permitted under the Investment Canada Act

Overview

On August 2, 2022, the Canadian government amended the National Security Review of Investments Regulations (the "National Security Regulations") under the Investment Canada Act (the "Act") to:

• permit non-Canadians to voluntarily submit a non-controlling or minority interest investment (or proposed investment) in a Canadian business ("Non-Controlling Investment") to an initial 45-day national security review of their Non-Controlling Investment;
  

• allow the Canadian government, if such voluntary filing is not made, to initiate a national security review of the Non-Controlling Investment for up to 5 years after its date of implementation; and
  
  
• prescribe the information required to be provided to the Minister to commence a national security review of a Non-Controlling Investment

(the "Amendments").

Background

Under the Act, notification and review application requirements apply when non-Canadian investors either acquire control of a Canadian business or establish a new Canadian business. Once a notification or a review application has been submitted, an initial 45-day period is triggered under which the Canadian government must conduct an initial review of the investment, and determine whether it is reasonable to believe that the investment may be "injurious" to Canada's national security. Usually, this is not the case.  However, if such a determination is made, then the government must notify the investor that further review is required under the Act's national security review process (or, in certain circumstances, the government may also immediately order a Cabinet-level review). Ultimately, the Act provides the Canadian government with broad authority to place certain conditions and restrictions on investments—or even order divesture—depending on the results of the national security review.

Prior to August 2, 2022, a non-Canadian making an investment in a Canadian business that is not subject to the notification or review application requirements of the Act, such as a Non-Controlling Investment, could not voluntarily trigger the national security review process. Instead, the process would only be triggered after the implementation of the investment, and only once the Minister of Industry became aware of the investment. This meant that non-Canadian investors making Non-Controlling Investments had no pre-closing mechanism for gaining regulatory certainty for their investment.

New voluntary notification

Going forward, the Amendments permit non-Canadian investors to file a voluntary notification of their Non-Controlling Investment, by supplying the information prescribed under the National Security Regulations, even when the Act does not otherwise require them to do so.  Once a voluntary notification has been filed, the government has an initial 45-day period to determine whether the Non-Controlling Investment will be subject to further review. 

New timeline

As noted above, the Amendments also implement a new timeline for Non-Controlling Investments where no voluntary notification has been filed. In these cases, the government now has five years after the day on which the Non-Controlling Investment was implemented to provide the investor with notice that additional review is required. This is a considerable increase from the current timeline of 45 days, and could potentially result in conditions being placed on investments years later if no voluntary notification is filed. Most significantly, it also exposes a Non-Controlling Investment to the very real possibility that the review will include national security concerns that arose after the investment was implemented and that may not have been relevant or of concern at the time of implementation.

Practical considerations

The stated purpose of the voluntary notification is to provide regulatory certainty. Accordingly, non-Canadian investors should consider filing voluntary notifications for Non-Controlling Investments—such as acquiring a minority stake in a Canadian company—prior to implementing those investments. This will help ensure that the Non-Controlling Investment is not subject to evolving future national security concerns or to the subsequent imposition of conditions or an order for divestiture.