The Federal Review Clause Missing From a $65 Million Sale

The situation

Simran and Jasleen had run their industrial parts distribution company out of Markham for eleven years, building it from a two-person operation into a business with roughly $65 million in annual revenue and a client list that included several municipal and utility accounts. Simran also owned a small chain of franchise locations on the side, and Jasleen split her week between the company and a dental practice she owned, but the distribution business was the asset the two of them had built together and, together, decided to sell.

The buyer was an offshore private investment group looking to expand into the Ontario logistics market, represented locally by a principal named Eitan who handled the negotiations on the ground. The two sides moved quickly. Within six weeks of first contact, they had agreed on a purchase price of roughly $65 million and signed a share purchase agreement with a closing date set 45 days out. Simran and Jasleen's general business lawyer, who had handled their contracts and leases for years, drafted and reviewed the agreement. It covered the usual ground — price, adjustments, representations about the company's finances, a modest holdback against undisclosed liabilities — and set a firm closing date with no conditions tied to any regulatory step.

Two weeks before that closing date, Simran and Jasleen came to Treadstone Law to handle the final closing mechanics: registering the share transfer, releasing the holdback structure, coordinating funds. It was meant to be a straightforward handoff. It did not stay that way.

What the closing review turned up

Any acquisition of a Canadian business by a non-Canadian buyer falls under the Investment Canada Act, a federal law that gives the government oversight of foreign investment into Canada. For most transactions, that oversight is light — the buyer simply files a notification after closing, a formality that does not delay anything. Larger transactions, above a financial threshold that varies by sector and by the nationality of the buyer, require an application for review before closing, with the government needing to be satisfied the investment is of net benefit to Canada. At roughly $65 million, this deal sat comfortably below that review threshold, and everyone involved had reasonably assumed a routine post-closing notification would be the end of it.

What the agreement did not account for is a separate, distinct power under the same Act: the federal government can order a national security review of an investment by a non-Canadian regardless of the transaction's size, if the target business raises national security concerns. Size is not the trigger for this power — the nature of the business is. When Treadstone's team reviewed the company's client contracts as part of standard closing due diligence, several of them stood out: long-standing service agreements with municipal and utility clients that touched physical infrastructure. That kind of client base is exactly the profile that can put an otherwise unremarkable, mid-sized business into national security review territory, even when nothing about the deal itself looks sensitive.

This mattered because the notification the buyer had already filed did not stop the clock. After a notification is filed, the government has a window in which it can still order a national security review if it chooses to. Nothing in the signed agreement addressed what would happen if that window remained open past the scheduled closing date, or what either side's rights were if a review were ordered. Simran and Jasleen had a binding agreement to sell, a closing date ten business days away, and no contractual mechanism to pause, extend, or protect themselves if the government decided to look more closely at a buyer they otherwise had no ability to control or predict.

What we did

1. Mapped the exposure before raising it with the buyer. Before contacting Eitan, our team confirmed which specific client contracts created the national security review profile and estimated, based on the government's typical review timelines, how long the exposure window was likely to remain open. Raising the issue with a clear picture in hand, rather than a vague warning, made the conversation with the buyer's side far more productive.
2. Approached the buyer's representative to propose a joint pause. Closing on schedule while a review remained possible would have left both sides exposed — the buyer to a possible forced-divestiture order months or years later that would unwind the very sale it had just completed, and the sellers to a buyer who might come back seeking to unwind the deal or claim against them. We proposed delaying closing rather than proceeding blind, and Eitan, once the risk was explained plainly, agreed it served neither side to close under a cloud.
3. Negotiated an amendment adding a real regulatory condition. The original agreement was amended to make closing conditional on the expiry of the government's review window without a national security review being ordered, with a defined outside date after which either party could walk away without penalty. This is the clause that should have been in the agreement from the start, drafted properly by counsel with Investment Canada Act experience rather than assumed unnecessary because the deal size fell under the separate net-benefit threshold.
4. Negotiated compensation for the delay. Because the delay originated from the buyer's regulatory profile rather than anything within the sellers' control, we negotiated a term requiring the buyer to pay interest on the purchase price for every day closing was pushed past the original date, up to a cap. It did not make Simran and Jasleen whole, but it meant the cost of the government's timeline was shared rather than absorbed entirely by the sellers.
5. Tracked the review window to closing. Our team stayed in regular contact with the buyer's counsel to monitor the review period as it ran, so that closing could proceed the moment the window lawfully closed rather than sitting on an indefinite hold longer than necessary.

The outcome

The review window ran its course without the government ordering a national security review. Roughly four months after the original closing date, the deal closed at the full agreed price of $65 million, with the share transfer, funds, and holdback release all proceeding as originally planned. The company sold, on the terms the parties had struck, to the buyer they had chosen. In that sense, the sale was a success.

But the delay was not free. The interest payments negotiated into the amendment came to roughly $380,000 over the four extra months — real money, but well short of what Simran and Jasleen estimated they lost by not having that $65 million available to invest or redeploy four months earlier, which they put closer to $600,000. On top of that, the amendment negotiations, the additional legal work coordinating with the buyer's side, and the extended closing process added roughly $45,000 in costs beyond what a routine closing would have run. Taken together, the four-month delay cost the sellers somewhere in the range of $260,000 net of what they recovered — a real, quantifiable loss, even though the deal itself closed on the terms they wanted.

The lesson sat squarely on the front end of the file. Had a lawyer with Investment Canada Act experience reviewed the buyer's profile and the target company's client base before the share purchase agreement was signed, the review condition and the interest provision could have been built into the original deal at no cost to anyone, rather than negotiated under time pressure with ten business days left before a closing date that was no longer realistic. The general business lawyer who drafted the original agreement was not at fault for missing a specialized area outside routine commercial practice — but the gap cost real money once it surfaced. For Simran and Jasleen, the sale they had worked eleven years to be ready for still closed. It simply closed later, and for less net proceeds, than it needed to.

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