In an April 18, 2020 policy statement, the Government of Canada (“GOC”) announced that, in light of the COVID-19 pandemic, investments by non-Canadians “related to public health or involved in the supply of critical goods and services to Canadians or to the Government” would be subject to “enhanced scrutiny” under the Investment Canada Act (“ICA”).
In yet another pandemic-related initiative, the GOC on May 19, 2020, published for comment draft legislation, the Time Limits and other Periods Act (COVID-19) (the “TLPA”) that, if enacted in its current form, would create uncertainty with respect to, and may result in material extensions of, time periods for national security reviews under the ICA.
In a nutshell, the TLPA, which is meant to apply to a wide range of federal legislation, will, if enacted in its current form, have the effect of permitting the Minister under the ICA to issue orders extending by up to six months the time period within which the Minister may issue a notice that an order for a national security review may be made, and by a further period of up to six months the time period within which the Governor in Council may issue an order for a national security review. Extensions of up to six months for other aspects of the process also appear to be available. All of this is in addition to already generous time periods for national security reviews in the ICA that collectively amount to a period of up to 155 days, subject to Ministerial extensions or extensions on consent of the Minister and the investor.
The extension power proposed in the TLPA may be invoked up to September 30, 2020 and may have retroactive effect to March 13, 2020. Retroactive effect creates material uncertainty and establishes a bad precedent – something that the Canadian Bar Association commented on in a recent submission to the Minister of Justice and Attorney General of Canada.
We think the GOC (or at least the Minister under the ICA) should reconsider the application of the TLPA to the ICA. Investors (and sellers) already have to deal with markets subjected to pandemic-related distress, and the challenges of securing financing and establishing valuations in the midst of the pandemic, not to mention the logistical challenges attached to negotiating and implementing transactions while working remotely. Before adding the potential for uncertain and substantially lengthened national security review clearance time periods, the GOC (or at least the Minister) should assess whether the GOC can’t accomplish what needs to be accomplished within the already substantial clearance period. Also, the GOC ought to consider the national security investment review regimes of other jurisdictions with which Canada is in a competition for capital, to ensure Canada remains competitive.
In the meantime, those involved in transactions must take the TLPA into account when negotiating and implementing investments. Sellers may wish to reassess completion risk posed by a non-Canadian investor, and non-Canadian investors should reassess outside dates specified in merger agreements to ensure they allow for possible extensions under the TLPA.