Never before have foreign investors faced the same level of scrutiny or uncertainty
Bill C-20 has passed Canada’s Senate and received Royal Assent, becoming law on July 27, 2020. Part 3 of the Bill becomes the Time Limits and Other Periods Act (COVID-19) and will be of particular and urgent interest to non-Canadians contemplating the purchase of an interest in a Canadian business or the establishment of a new business in Canada.
The effect of the new law is to provide the Minister of Innovation, Science and Industry (the Minister chiefly responsible for the administration of the Investment Canada Act (ICA)) with authority to, among other things, temporarily extend time periods under the National Security Review (NSR) provisions of the ICA. The purpose of such an extension, according to the new law is to, “prevent any exceptional circumstances that may be produced by coronavirus disease 2019 (COVID-19) from making it difficult or impossible to meet … time limits… and …prevent any unfair or undesirable effects that may result from the expiry of those periods due to … exceptional circumstances.”
While the new statute says that, “this Act is to be interpreted in a manner that provides certainty in relation to proceedings and that respects the rule of law…” it is difficult to view the Act as anything other than a significant complicating factor for deal-makers. There are two primary reasons for taking this view:
- NSRs become most difficult for transaction proponents –especially in regard to publicly-traded corporations– when timelines become such that politicians and marketplace competitors become involved in a public debate about the transaction. Longer approval horizons propel controversy and will tend to override reasoned discussion about the actual security underpinnings of a deal; and
- Extensions may be applied retroactively to March 13, 2020. Any instance of retroactivity in a law creates uncertainty, making marketplace predictably more difficult to achieve. This will make Canada a less attractive destination for nervous capital, simply because investors can no longer be certain that once a deal is closed, it is truly closed — this is the nature of a law that purports to turn back the clock.
Luckily, the new law contains limits that some will find comforting: no timeline can be extended beyond December 31, 2020, and any decision on the extension of timelines –including on a retroactive basis– must occur by September 30, 2020. Investors and target companies would be well advised to seek both regulatory and government relations counsel as they contemplate deals during this period of unprecedented uncertainty created by the Government’s reaction to COVID-19.