Anonymised, illustrative composite. A US private equity buyout of a New Brunswick fibre carrier would have dropped Canadian ownership and board control well below the Telecommunications Act's 80% thresholds — a rule about staying in business, not getting permission.
At a glance
Fundy Fibre Networks Inc., a facilities-based fibre carrier operating transmission facilities across New Brunswick and Nova Scotia, agreed to a majority buyout led by a US private equity fund. The fund's term sheet proposed acquiring 92% of the economics and, in the first draft of the structure, 92% of the voting shares as well, with a five-person board split three seats to the fund's own principals and two to existing Canadian management.
Fundy Fibre is a Canadian carrier within the meaning of the Telecommunications Act, and the Act does not treat foreign control of a carrier as something to be reviewed and approved. It treats it as something a carrier is simply not permitted to have and keep operating.
Under the proposed structure: Canadian beneficial ownership of voting interests, 8%. Canadian representation on the board, two of five directors, 40%. Both figures were a fraction of what the statute requires, and the fund's day-to-day control of the company was not in dispute either.
Section 16(2)(a) makes a Canadian carrier eligible to operate at all only if it “is Canadian-owned and controlled,” and s.16(3) defines that conjunctively, all three limbs required together: “(a) in the case of a corporation, not less than 80% of the members of the board of directors are individual Canadians; (b) Canadians beneficially own, directly or indirectly… not less than 80% of the entity's voting interests; and (c) the entity is not otherwise controlled by persons that are not Canadians.” The proposed structure failed (a) at 40% against a required 80%, failed (b) at 8% against a required 80%, and failed (c) on its face — a fund holding 92% of the votes and a board majority controls the company by any ordinary meaning of the word, regulatory definition or not.
The consequence is not a review to be sought. Section 16(4) is a flat prohibition: “No Canadian carrier shall operate as a telecommunications common carrier unless it is eligible under this section to operate as such.” That is the structural difference from the Investment Canada Act, which this deal would also need to clear separately as a foreign acquisition of a Canadian business: the Investment Canada Act reviews a proposed transaction and can approve it. Section 16 is not a gate the deal passes through once; it is a standing eligibility condition the carrier has to keep meeting every day it operates. Closing on the original cap table would not have produced a company waiting for permission — it would have produced a company no longer allowed to carry on the business it exists to carry on.
Fundy Fibre's counsel briefly explored acquiring through a limited partnership rather than a share purchase, on the theory that the 80% tests were corporate-share tests that a partnership structure might sit outside of. Section 16(1)'s own definitions close that route: “entity” is defined to mean “a corporation, partnership, trust or joint venture,” and “voting interest,” for a partnership, trust or joint venture, is defined as “an ownership interest in the assets… that entitles the owner to receive a share of the profits and to share in the assets on dissolution” — the same 80% test, applied to a different label for the same thing.
The structure was rebuilt to bifurcate economics from control. The US fund took the bulk of its 92% return through a class of non-voting, profit-participating shares; existing Canadian management and a group of Canadian co-investors held not less than 80% of the voting shares and not less than 80% of the board seats, satisfying s.16(3)(a) and (b) directly. The fund negotiated protective consent rights over major decisions through the shareholders' agreement rather than through board control — a real constraint on the company, but not one that made the fund a controller for the purposes of s.16(3)(c) on the facts as structured. Investment Canada Act clearance for the foreign investment itself proceeded as a separate, parallel step.
Closing on the original cap table would have made Fundy Fibre ineligible to operate as a telecommunications common carrier the moment the transaction completed — not a fine, not a compliance order to cure within a grace period, but a statutory bar on carrying on the business at all.
The tell was treating this like every other foreign-investment file: check the Investment Canada Act thresholds, get comfortable, close. A sector-eligibility rule that ends the business is not the same kind of problem as a review that can be applied for.
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