With the passage through Parliament of Bill C-34 on March 22, 2024, long contemplated changes to Canada’s foreign investment review regime are set to dramatically overhaul Canada’s FDI framework. As we have previously discussed, the most significant change (which will not come into effect for some time) is that acquisitions by non-Canadians of businesses (including certain minority investments) in certain prescribed sectors will eventually be required to obtain pre-closing national security approval. However, the amendments also introduce a series of further changes to the Investment Canada Act that could be proclaimed in force at any time. Businesses should take note of the following important points with respect to the rollout of the amendments.

The most anticipated element of Bill C-34 is the creation of new pre-closing notification obligations for investors in “sensitive sectors”. The amendments create a new, pre-closing national security review for acquisitions by non-Canadians (including certain minority investments) in prescribed sectors. There is no firm timeline for when this new regime will begin, as regulations must first be enacted that will list the “sensitive sectors,” and before that the government will consult with stakeholders in drafting the regulations. As a result, we do not expect the regulations to be adopted until late 2024 or 2025. Therefore, parties considering a transaction with a nexus to Canada and a non-Canadian buyer should consider Canada’s new FDI framework and how it could (potentially) impact their respective obligations. For an in-depth analysis of this new filing regime, please see our previous discussion.

Additional amendments to the Investment Canada Act are likely to come into force soon and could have a substantial impact on certain transactions. In addition to the pre-closing approval requirement discussed above, C-34 makes a number of other important changes to the Investment Canada Act that are set to come into force on an order from the Governor in Council, including the following:

• New “call-in” powers for net benefit reviews of investments by certain state-owned enterprises and expanded timelines for “call-in” reviews of cultural businesses. Currently, the ICA does not include a mechanism for the net benefit review of an indirect transaction or a transaction below the relevant financial thresholds. Bill C-34 creates new jurisdiction for the federal Cabinet to order a net benefit review of any investment by a state-affiliated investor whose country of origin is not party to a trade agreement with Canada, irrespective of the transaction structure and whether the relevant thresholds are exceeded. Separately, the post-closing “call-in” period for net benefit review of acquisitions of Canadian cultural businesses not otherwise requiring review has also been extended from 21 days to 45 days, which may indicate an intention to initiate such reviews more often.

• Expanded national security “call-in” powers for non-control acquisitions of assets by state-owned enterprises. C-34 will create greater scope for “call-in” national security reviews for non-control acquisitions of assets of a Canadian business by a state-owned enterprise. This is likely aimed at sensitive intellectual property, but could in principle apply to other assets too, including (possibly) inventory.

• Ministerial authority to accept national security undertakings. The Minister of Innovation, Science and Industry will be empowered to impose and accept interim undertakings and undertakings to resolve national security concerns without an order from Cabinet. While the current Minister has accepted informal “representations” regarding the investor’s intentions in order to resolve national security concerns, Bill C-34 gives him the jurisdiction to do so in a legally enforceable way.

• Relaxation of statutory confidentiality and privilege obligations. The Minister may now communicate information received from an investor to its international counterparts in connection with a national security review. Further, where a national security order has been made, the Minister will be entitled to disclose the identity of the non-Canadian and the Canadian business involved to the public. These changes increase the reputational risk associated with national security processes.

• New enumerated review criteria. The net benefit review criteria now explicitly include intellectual property and personal information, consistent with discussions at committee and potentially signaling a greater focus on obtaining undertakings in these areas. Similarly, a prior corruption conviction in Canada or abroad is now the first explicit factor constituting “reasonable grounds” for the Minister’s belief that an investment may be injurious to national security.

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