Overview: National Security Review and Net Benefit Review
The ICA establishes two frameworks: national security review (NSR) and net benefit review (NBR).
Under the NSR framework, the Canadian government has broad discretion to review an investment by a non-Canadian on grounds that it could be injurious to Canadian national security. The NSR process may be invoked with respect to either: (i) a controlling or a minority investment in, or an acquisition of assets of, a Canadian business, or (ii) the acquisition of any portion of an entity that has a place of operations in Canada, employees in Canada or assets in Canada used in carrying on its Canadian operations. No minimum financial threshold applies for an investment to be subject to an NSR. The Canadian government has prescribed time periods (described below) within which it must initiate an NSR process. These time periods may be initiated with the filing of a notification or the implementation of the investment, permitting the government to undertake an NSR on a post-closing basis. Pending regulations will implement a new mandatory preclosing notification regime for certain types of investments in specified sensitive sectors that may raise national security concerns. Under the NBR framework, an acquisition of control of a Canadian business by a non-Canadian is either notifiable or reviewable. This will depend on the value of the Canadian business being acquired, who owns the non-Canadian investor prior to the acquisition, and whether the Canadian business is a “cultural business.” As monetary thresholds for NBRs of most types of transactions have substantially increased over time, relatively few transactions have been subject to preclosing NBRs in recent years. An NBR notification , when required, may be made either prior to closing or within 30 days of closing. It requires basic information concerning the acquisition, the investor and the acquired Canadian business. Notification does not itself represent an impediment to closing an acquisition and, apart from cultural businesses, the government does not currently have the ability to “call in” notifiable investments for review under the NBR framework. However, except in very limited circumstances, an acquisition that is subject to preclosing review under the NBR framework may not be completed until and unless the Minister of Industry or, in the case of an acquisition of a cultural business, the Minister of Canadian Identity and Culture (the Minister, as applicable), is satisfied that the acquisition is likely to be of net benefit to Canada. The ICA also requires non-Canadians to file a notification of an investment to establish a new Canadian business. Any such establishment may be subjected to an NSR and, in certain limited circumstances, the establishment of a new Canadian cultural business (or an acquisition of a Canadian cultural business below the applicable NBR threshold) may also be subject to an NBR.
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