state-owned enterprises (soes) & the investment canada act
TRANSCRIPT
State-Owned Enterprises (SOEs) and the Investment
Canada Act
Woods, LaFortune LLP
Woods, LaFortune LLP is an innovative, flexible and proactively cost-effective boutique lawfirm that focuses on international trade and business, investment, customs, governmentprocurement and government relations. We provide a wide range of services to our clientsincluding advocacy before domestic and international courts and tribunals, strategic adviceand analysis, business planning and analytical research.
Michael Woods Catherine Walsh
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“Whoever is first in the field and awaits the coming of the enemy, will be fresh for the fight; whoever is second in the
field and has to hasten to battle will arrive exhausted.”
– Sun Tzu
The Investment Canada Act (ICA)
• The Government of Canada has tightened the review process vis-à-vis SOEs, pursuant to Bill C-60:
• New provisions now in force:• Expanding the definition of SOE• Allowing the Minister to designate Canadian investors as non-Canadian where there
may be some foreign government influence• Declaring an acquisition of control in fact where Minister is satisfied that the entity is
controlled in fact by an SOE
• Provisions that will come into force when a date is established by order of theGovernor in Council• Creating a lower review threshold for SOE investors versus non-SOE investors• Extending the review timelines for investments where there is a national security
concern
The ICA
Purpose:
• Governs the acquisition of control of Canadian businesses by non-Canadians
• Subjects investments to Government review
• Prescribes the legal responsibilities of non-Canadians investing in Canada
Investment Review Process Under ICA
• Current thresholds triggering review• For WTO member investors: $344 million• Proposed acquisitions exceeding 33.3%
• ‘Net benefit to Canada’ assessment• Effect on economic activity in Canada• Effect on competition within the industry• Compatibility of investment with national policies• Degree of participation by Canadians in the business
• 45 day review• Can extend 30 days• Can extend further if investor agrees
• If not approved• Investor can make additional representations and undertakings to demonstrate “net benefit”
Amendments to the ICA: June 2013• Expanded definition of SOE (in force)
• “Any entity that is controlled or influenced, directly or indirectly, by agovernment or agency… of a foreign state…”
• “An individual who is acting under the direction of a government or agency…or who is acting under the influence, directly or indirectly, of a government oragency”
• Proposed investors found to be SOEs will be subject to greaterscrutiny
Amendments to the ICA: June 2013
• Minister may deem an otherwise “Canadian” business as “non-Canadian” (inforce)
• This would subject the “non-Canadian” investor to review under the ICA
• Minister may consider “any information and evidence” before him
• This power may be exercised retroactively
Amendments to the ICA: June 2013
• “Acquisition of control in fact” test (in force)
• The Minister may deem a proposed investment an “acquisition of control in fact,” if theMinister is satisfied the investor is controlled by an SOE, even where the “acquisition ofcontrol” threshold is not met
• Thus, an otherwise non-reviewable transaction will be reviewable
• Minister can consider “any information and evidence” before him
• This power may be exercised retroactively
Amendments to the ICA: June 2013
• Review threshold (will come into force on a date to be set by order of the Governor in Council)
• Will gradually increase to $1 billion enterprise value for non-SOE investmentsover six years
• Will remain at $344 million asset value for SOEs
• Consequence is that SOE investments will be subject to review at a muchlower threshold than non-SOEs
• The Government can review any proposed investments on national securitygrounds
Amendments to the ICA: June 2013
• Extension of time for national security reviews (will come into force on adate to be set by order of the Governor in Council)
• Government announced it will amend ICA to give greater flexibility
• Currently, Minister has 130 days
• No guidance regarding changes, but policy indicates extensions will only beused in exceptional circumstances
Implications and Options for Chinese SOEs
• Greater power for Government to deem foreign investors as SOEs
• SOEs will be subject to lower review threshold
• Pursuant to the December 2012 Statement, the “Minister of Industrywill find the acquisition of control of a Canadian oil sands business bya foreign SOE to be of net benefit to Canada on an exceptional basisonly.”
Implications and Options for Chinese SOEs
• Greater uncertainty associate with the review process
• Investors need greater guidance on what will constitute an SOE to knowwhich review threshold will be engaged and where new restrictive reviewswill be applied• i.e. where an investment can be deemed an acquisition of control in fact
Implications and Options for Chinese SOEs
“You can ensure the safety of your defence if you only hold positions that cannot be attacked.”
- Sun Tzu