> In the absence of a pre-closing review for net benefit to Canada, parties seeking greater regulatory certainty with respect to a potential national security review increasingly choose to file a notification or engage with the government well in advance of closing. If a transaction is not technically subject to a notification requirement under the ICA (e.g., certain minority acquisitions), investors may voluntarily file a notification to trigger the ICA’s national security screening and review process. > While the decision to file a notification pre- or post-closing currently rests with the investor, a bill currently before Parliament would introduce a mandatory pre-closing notification and screening regime for investments in Canadian businesses falling within (yet to be defined) sensitive sectors. – Once the Minister issues a notice that an investment may be subject to a national security review (or once a national security review has been ordered if no such notice was first sent), if the investment has not yet been implemented, it cannot be implemented unless the investor receives notice of a discontinuance of the national security review or, following a national security review, it is determined that the investment will not be injurious to national security. – If, following a national security review, the Minister is satisfied that the investment would be injurious to national security, the federal Cabinet may take any measures that it considers advisable to protect national security, including imposing conditions on the investment or prohibiting a proposed investment outright (or ordering a divestiture in the case of a completed investment). The entire review process can take up to 200 days or more. – Since the national security review regime was introduced in 2009, the Canadian government has initiated more than fifty formal national security reviews. The number of national security reviews and the number of notices of potential national security reviews have increased steadily in recent years (reaching a total of 24 in 2021/22). While the government has used its authority to block or unwind transactions because of national security concerns in only relatively few instances, these instances have been increasing. In some cases, transactions have been permitted to proceed subject to divestitures or the investor agreeing to meet certain conditions. In yet other cases, transactions were apparently discontinued or never proceeded because of national security concerns, although formal proceedings were never taken. – The discretionary nature of the national security review provisions, including the lack of definition of “national security” and the potentially long time frames for review, has introduced uncertainty into the application of the ICA to certain foreign investments in Canada. The Guidelines on National Security Review of Investments (National Security Guidelines) provide some public information on how the national security review provisions are administered and include a non-exhaustive list of factors that may give rise to a national security order, such as whether the investment is likely to > impact national defence capabilities; > enable espionage; > impact critical infrastructure or the delivery of critical goods and services to Canadians; or > involve access to sensitive personal data, sensitive technologies or critical minerals.
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Canadian Mergers & Acquisitions
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