Sept. 24 (Bloomberg) -- Nortel Networks Corp.’s sale of its phone-equipment unit to Avaya Inc. will be reviewed by the Canadian government under the country’s foreign investment legislation, Industry Minister Tony Clement said.

“We will be applying the net benefit to Canada test for the Avaya transaction,” Clement told reporters in Toronto today.

Avaya Inc., the U.S. maker of corporate phone systems, agreed on Sept. 14 to buy the Nortel unit for $915 million. Nortel, once North America’s biggest maker of communications equipment, filed for bankruptcy protection in January after losses of almost $7 billion over two years.

Under Canadian law, the government can review a sale to a foreign company if it considers it a threat to national security, or if the value exceeds C$312 million ($287 million). In this case, the review was automatically triggered because of the value, Clement said.

Canada will review the sale three days after the country’s main opposition leader said he would change foreign investment rules to protect “flagship” companies such as Nortel.

Michael Ignatieff, head of the Liberal Party, is seeking to force a national election and said the sales of Nortel assets are a threat to jobs, which he said he would try to protect.

Clement said last week the government would not review Ericsson AB’s purchase of some of Nortel’s assets because that transaction isn’t large enough and doesn’t pose a national security risk.

While Nortel is aware the sale is subject to a review, the Toronto-based company is undergoing a “a thorough integration planning process with Avaya,” Nortel spokesman Jay Barta said in an e-mail.

Avaya respects the review process and looks forward to working with the government to complete the transaction, Lynn Newman, a spokeswoman for the Basking Ridge, New Jersey-based company, said in an e-mail.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

Last Updated: September 24, 2009 12:50 EDT