CHAPTER 07 Competition Act, Investment Canada Act and Other Restrictions on Foreign Ownership
> Avoid using the word “market” in favour of terms such as “business,” “segment” or “industry.” > Avoid speculating on possible “competition law” or “antitrust” problems or potential divestiture scenarios to address such problems.
Investment Canada Act
APPLICABILITY – In general, any acquisition by a “non-Canadian” of control of a business carried on in Canada is either notifiable or reviewable under the Investment Canada Act (ICA), Canada’s foreign investment review legislation. – Whether an acquisition is reviewable depends on a number of factors, including the type of transaction, the country of origin of the investor’s ultimate controller(s), the value of the Canadian business being acquired and its industry sector, and whether the investor is considered a “state-owned enterprise.” – The ICA applies whether or not the target business is currently controlled by Canadians and also applies when a Canadian business is acquired indirectly by the acquisition of a foreign entity with a Canadian subsidiary. – Acquisitions may be reviewed under the ICA on the basis of a “net benefit to Canada” test and “national security.” Investments reviewable for net benefit to Canada are now relatively infrequent due to the Canadian government’s decision to apply in most cases relatively high target enterprise value thresholds for such a review. At the same time, however, an increasing number of investments are being screened and reviewed for potential national security concerns. – If an acquisition is subject to review under the ICA, the investor may be prohibited from acquiring or be required to divest the Canadian business unless the acquisition is approved by the relevant Minister or the federal cabinet in the case of national security reviews. – The Minister of Canadian Heritage reviews all cultural sector investments, and the Minister of Innovation, Science and Industry is responsible for all other matters. ACQUISITION OF CONTROL – The net benefit review provisions of the ICA may apply when there is an “acquisition of control.” > The acquisition of a majority of the voting interests of an entity is deemed to be an “acquisition of control.” > The acquisition of less than a majority of the voting interests of an entity other than a corporation (e.g., a trust or partnership) is deemed not to be an acquisition of control. > The acquisition of less than a majority but 1/3 or more of the voting shares of a corporation is presumed to be an acquisition of control unless it can be established that the corporation will not be controlled in fact by the investor through the ownership of voting shares.
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