STANDARD FOR NET BENEFIT REVIEW – The test that is applied to assess transactions under the ICA is whether the transaction is likely to result in “net benefit to Canada.” The factors that the relevant Minister considers in assessing “net benefit” include the effect of the investment on (i) the level and nature of economic activity in Canada; (ii) participation by Canadians in the business; (iii) competition, research and development, efficiency and productivity in Canada; and (iv) federal and provincial government policies. It is customary for the Minister to seek input from affected provinces and other governmental departments. STATE-OWNED ENTERPRISES AND NET BENEFIT REVIEW – A “state-owned enterprise” includes an entity that is controlled or influenced, either directly or indirectly, by a government of a foreign state (whether federal, state or local) or an agency of such a government and an individual who is acting under the direction or the influence, directly or indirectly, of a government or agency of a foreign state. – Special considerations apply if the investor is a state-owned enterprise. – As discussed above, lower net benefit review thresholds apply to direct acquisitions of control by state-owned enterprises. – The ICA may also apply more broadly to certain investments involving state-owned enterprise investors. > The relevant Minister may deem any entity that otherwise qualifies as Canadian to be a non-Canadian if the Minister considers that the entity is controlled in fact by a state-owned enterprise. > The Minister may also override the acquisition of control rules (discussed above) and deem a transaction to be an acquisition of control if the Minister considers there to have been an acquisition of control in fact of a Canadian business by a state-owned enterprise. – In addition to general net benefit review factors, if the investor is a foreign state-owned enterprise, the net benefit review will focus on whether the investor adheres to Canadian standards of corporate governance and whether the Canadian business will continue to operate on a commercial basis. – Government policy statements have indicated that investments by foreign state-owned enterprises to acquire control of a Canadian oil sands business or a Canadian critical minerals business will be found to be of net benefit on an exceptional basis only. In addition, as a result of the conflict in Ukraine, the government has issued a policy statement that acquisitions of Canadian businesses (in any sector) by direct or indirect Russian investors will also only exceptionally be found to be of net benefit to Canada. – More generally, recent ministerial statements have clearly stated that all foreign investments by state-owned investors or private investors assessed as being closely tied to or subject to direction from foreign governments will undergo enhanced scrutiny under the ICA, whether on net benefit grounds or in relation to potential national security concerns (discussed below).
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Canadian Mergers & Acquisitions
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