Archive for the 'Investment Canada' Category
Earlier today, the Federal Government announced that the Minister of Industry has approved the acquisition of Viterra Inc. by Glencore International plc., a transaction announced last March. The Competition Bureau had already issued a no action letter in the transaction on May 4, 2012 (see: Competition Bureau Issues No Action Letter in Glencore/Viterra Merger).
In making the announcement, the Industry Minister made very brief comments saying only that he was “satisfied that the investment [was] likely to be of net benefit to Canada”, that he carefully considered Glencore’s proposed undertakings and referred to Glencore’s press release for details regarding commitments provided by Glencore. According to media reports, Glencore has agreed to increase capital expenditures in Canada by more than $100 million, contribute to Manitoba “grain industry initiatives” and maintain Viterra’s Regina head office.
The CBA’s National Competition Law Section has posted its letter to the Parliamentary and Senate Standing Committees on Finance and National Finance commenting on the proposed amendments to the Investment Canada Act (ICA) contained in Bill C-38 (for our previous posts on the proposed Investment Canada Act changes see: here and here).
Bill C-38 would, if passed, introduce two changes to the ICA: first, the Federal Government would be authorized to accept security for payment for certain penalties under the ICA, including where undertakings had been breached; second, it would broaden the exceptions to the existing privilege protections under the ICA to allow the Minister of Industry or Canadian Heritage to publicly explain why an investor had been sent a notice under subsection 23(1) of the ICA (a preliminary notice that the Minister was not satisfied that an investment was likely to be of net benefit to Canada, the relevant substantive test under the ICA).
The Section is generally critical of Bill C-38’s “omnibus style” of legislation and lack of “meaningful comment or debate”. The Section also questions whether security payments would increase compliance with undertakings, expresses a concern about the absence of limitations or guidance in the Bill on the circumstances when security may be taken (or the nature or amount) and takes the position that the additional disclosure powers for the responsible Minister under the ICA represents an “inadequate improvement on the status quo” (a criticism echoed by many other observers). In particular, the Section is critical of the permissive nature of disclosure and recommends a requirement to give reasons for Ministerial decisions (and make them public where the Minister approves or rejects an investment).
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A few interesting competition and regulatory law developments caught my eye today including:
The Federal Privacy Commissioner announced that she would be tabling the annual PIPEDA Report in Parliament tomorrow: Media Advisory – Commissioner’s annual report on private-sector privacy issues expected to be tabled in Parliament, Privacy Commissioner news release.
Late last week the Federal Attorney General appointed a new Competition Bureau Chairman: Competition Tribunal Appointment Announced.
Gus Van Harten of Osgoode Hall Law School has published an interesting, if critical, note on Canada’s foreign investment rules (thanks to our friend Harpinder Mangat at Carswell who Tweeted this): Not all foreign takeovers are good for Canada.
On May 25, 2012, the Federal Minister of Industry Christian Paradis announced that the Government had issued a Mediation Guideline to introduce formal mediation procedures under the Investment Canada Act (ICA). The Industry Minister also announced that the ICA Regulations would be amended to: (i) gradually increase the threshold for review of investments involving WTO investors to C $1 billion (increased from the current C $330 million) and (ii) introduce (or more accurately reintroduce) a new enterprise value test for the valuation of Canadian companies being acquired, both to implement amendments to the ICA passed on March 12, 2009 (see our earlier posts here and here).
Draft Regulations were first published for public comment in July, 2009 (see: Canada Gazette (July 11, 2009)).
Revised draft Regulations have now been published in the Canada Gazette for public comment (see: Regulations Amending the Investment Canada Regulations).
According to the Government, the proposed changes would “improve Canada’s foreign investment review framework, while maintaining the Government of Canada’s commitment to examine significant foreign investment transactions to determine whether they are likely to be of net benefit to Canada.” The shift to an enterprise test from the current book value of assets test is meant to better reflect the value of businesses as going concerns and importance of intangible assets in service and knowledge-based industries.
In general, the proposed new Regulations would: (i) gradually raise the review threshold for investments involving WTO entities to C $1 billion based on enterprise value over four years (to $600 million for two years, $800 million for the next two years, $1 billion after four years, and then indexed annually based on Canadian GDP), (ii) establish the methodology to calculate the enterprise value of a Canadian business, (iii) make conforming changes to remove references to transportation, financial services and uranium production sectors (lower thresholds for which sectors have been eliminated) and (iv) formalize the process for collecting information relevant to the net benefit and national security foreign investment review processes.
The Canadian Council of Chief Executives (CCCE) recently launched a new initiative entitled “Canada in the Pacific Century” which will include the publication of papers and a conference in Ottawa from September 24-25, 2012.
According to the CCCE, this Canada/Asia initiative is intended to: identify and promote key policy solutions that would enhance Canada’s ability to succeed in a transforming global economy; raise awareness among Canadians of the significance of Asia’s growing economic power and influence; and improve Canadians’ understanding of the resulting challenges and opportunities for Canadians.
On May 25th Industry Canada announced it was introducing a new Investment Canada Act (ICA) mediation guideline and would be finalizing Regulations introduced in 2009 to incrementally increase Canada’s ICA review threshold to C $1 billion over four years (see our earlier post).
Industry Canada also issued an annual report discussing the administration of the ICA in 2009 and 2010, recent policy changes and summarizing recent investment activity, the first such report in about twenty years. The following are a few interesting aspects of the Report:
High level trends. The Report states that some of the recent policy changes are intended to address the rise of sovereign investors, need to safeguard Canada’s national security and the market for foreign investment (the “growing global competition for foreign investment”).
Filings. Between April 1, 2009 and March 31, 2010, 437 ICA filings were received (23 applications for review were approved, with a total asset value of $30.8 billion; and 414 notifications were received: 109 for the establishment of new Canadian businesses and 305 relating to acquisitions of control, with a combined asset value of $30.1 billion).
Withdrawn filings. Between June 30, 1985 and March 31, 2010, 172 applications for review and 637 notifications were withdrawn. Two applications (of a total of twelve) were withdrawn following notice to the investors that the Minister was not satisfied that the proposed investments were likely to be of net benefit to Canada. The Report also discusses the blocked Alliant-MacDonald Dettwiler transaction.
Approved applications. In the 2009-10 fiscal year, 23 applications for review were approved, with an average review time of 69 days.
Net benefit to Canada methodology. The Report provides some insight into the Investment Review Division’s methodology for determining whether an investment will be approved (i.e., be found to be of net benefit to Canada, the relevant test), including considering the business’ “likely prospects” of success on a stand-alone basis, what the investor brings to the investment (e.g., capital or expertise not otherwise accessible by the Canadian business being acquired) and potential undertakings. The Report also describes how relevant factors are weighed during a review and states that reviews do not compare competing proposed investments. This discussion is consistent with recent statements by the Government that it would take steps to add increased transparency to Canada’s foreign investment review process. The new report does not, unfortunately, shed much light on the content of the existing net benefit to Canada factors set out in the ICA or how, for example, considerations with no apparent statutory basis (e.g., whether businesses are “strategic assets”, a much used phrase in the BHP/Potash transaction) squares with Investment Canada’s foreign investment review process.
Increased investment activity. In 2009-10, investment activity rose considerably with the total asset value of ICA transactions (applications for review and notifications) almost doubling to $61 billion (increased from $33 billion in 2008-09). The average asset value for reviewable investments increased from $766 million in 2008-09 to $1.34 billion in 2009-10 and the average asset value of notifiable investments increasing from $30 million to $73 million.
Source of investment. U.S. investors represented the largest number of ICA investors over the past five years, followed by EU investors (with U.K. investors representing a large percentage by asset value).
UBC Faculty of Law will be hosting Ljiljana Biukovic, UBC law professor and Co-Director of the National Centre for Business Law at an event on June 21, 2012, from 5:30-7:00 at UBC Robson Square, where she will be speaking on “Legal Geography of Trade and Investment Agreements – New Practices”:
“The July 2011 World Trade Report published by the World Trade Organization (WTO) reveals two important trends in the development of the landscape of international trade negotiations: the first is the continuing increase in the number of signed preferential trade agreements (PTAs), and the second is that these PTAs are becoming broader in scope and deeper in regulatory detail. The Report finds that there are about 300 currently active PTAs and that Canada has a modest contribution to these trends on trade negotiations. This research maps the impact of bilateral and regional trade and investment arrangements on the multilateral world trading system, analyzes the legal and practical differences between and among different models of economic integration, and attempts to define Canada’s position in this new geography of international law.”
On May 25, 2012, the Minister of Industry Christian Paradis announced that the Government had issued a Mediation Guideline to “make formal mediation procedures available under the Investment Canada Act” (ICA) and that the ICA regulations would be amended to gradually increase the threshold for review of investments involving WTO investors to C $1 billion based on enterprise value (increased from the current threshold of C $330 million based on the book value of the Canadian target company’s assets).
In making the announcement, the Industry Minister said:
“Canada has a strong investment climate, and these targeted changes will ensure that our foreign investment review process continues to encourage investment and spur economic growth,” said Minister Paradis. ‘Foreign investment is vital to the Canadian economy. It helps Canadian companies find new capital and enables them to expand, innovate and create jobs for Canadians.’”
Increased Review Threshold
The announced increase to the WTO investor review threshold follows 2009 amendments to the ICA that had not come into force and that were based on suggestions by the Competition Policy Review Panel, which recommended in its final 2008 Report Compete to Win, among other things, that the ICA review threshold be raised to $1 billion (except for cultural businesses) for two reasons.
First, a higher threshold was, in the Review Panel’s view, consistent with an appropriately narrower and “exceptional” test for intervention under the ICA; and second, to align Canada’s foreign investment review regime with Canada’s position that foreign investment is, except in unique circumstances, beneficial to Canada.
The Review Panel also recommended that the test to calculate the review threshold be changed from the current test (based on the book value of the Canadian business’ assets) to an enterprise value test (to more appropriately reflect the growth of knowledge-based industries and intangible assets – e.g., know-how, IP and other intangible assets).
Once the new Regulations are in force (revised Regulations have not yet been published in the Canada Gazette), the WTO review threshold will initially rise to C $600 million (for two years), then to $800 million (for another two years) and then to $1 billion (and then be indexed going forward based on Canadian GDP as is the case currently).
Mediation Guideline
According to the Minister, the new Mediation Guideline is intended to provide a “voluntary means of resolving disputes when the Minister believes an investor has failed to comply with an undertaking”.
Some of the key features of the new Guideline (presumably based, at least in part, on the prolonged litigation relating to the alleged failure by U.S. Steel to comply with undertakings provided in connection with its acquisition of Stelco) include setting out a process for discussions to resolve concerns relating to the performance of undertakings, the discretion by the Minister to accept new undertakings (both within and independent of the new mediation process) and compliance demands (which may be followed by court proceedings).
The new Guideline also establishes a process for the agreed use of mediators as an alternative to “potentially lengthy and costly legal proceedings.”
Revised Regulations for Comment
Original Regulations that were first published when the ICA was amended in 2009 have been revised to reflect comments received and additional changes to the methodology to calculate enterprise value, and will be subject to a 30-day public comment period before final publication.
Report
Industry Canada has also issued a Report on the administration of the ICA in 2009 and 2010 and has announced that it will be resuming its earlier practice of annual reporting. The new Report, the first annual report relating to the administration of the ICA since 1993, includes an overview of the ICA and its administration, discussions of recent policy developments and a summary of activities under the ICA in 2009 and 2010.
For more see:
Industry Canada News Release
Minister Paradis Announces Additional Improvements to the Foreign Investment Review Process
Backgrounder
Proposed Amendments to the Investment Canada Regulations
Mediation Guideline
ICA Report
Competition Policy Review Panel Report (2008)
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For more information about our regulatory law services contact: contact
For more regulatory law updates follow us on Twitter: @CanadaAttorney
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