Following the highly publicised Harper review into Australian competition law, the long awaited reforms to the Competition and Consumer Act 2010 (Cth) (“the Act”) were passed in Parliament on 18 October 2017.
Amongst the myriad of changes, significant amendments have been made to how mergers and acquisitions are reviewed and authorised by the Australian Competition and Consumer Commission (“the ACCC”). The changes, which are due to come into effect in the coming weeks, will provide a clearer pathway for businesses to have their merger authorised directly by the ACCC, bypassing the Australian Competition Tribunal.
The ACCC’s new found power to authorise mergers provides businesses with a strong alternative option to confirm that their proposed merger does not substantially lessen competition and give them peace of mind.
In this update, Moulis Legal senior associate Emily Jennings outlines the new process to obtain a merger authorisation from the ACCC and what these changes mean for businesses considering a merger or acquisition.
In Australia, parties to a merger are not required to notify or seek clearance from the ACCC before the transaction is completed. However, it has been common practice for parties to approach the ACCC seeking an informal review of the proposed merger and obtain an informal merger clearance.
The informal clearance is a statement by the ACCC that effectively says that they ‘do not oppose’ the merger or acquisition. It does not provide the business with legal immunity from any future action if the merger is later considered to have substantially lessened competition. A merger that substantially lessens competition is in breach of section 50 of the Act and can result in the merger being reversed.
For more information about the informal merger review process and why the ACCC is concerned with mergers that substantially lessen competition, see our earlier article.
If parties were concerned that their merger may substantially lessen competition, there were previously two options available to obtain legal immunity from future actions – obtain formal clearance from the ACCC or seek formal authorisation from the Australian Competition Tribunal. Both of these options have seldom been used, despite being in operation since 2007.
The underutilisation of these formal options has been one of the key drivers behind the current reforms. The new provisions will change the formal clearance process, but the existing informal merger review process will remain available to parties in its current form.
The option to obtain formal clearance from the ACCC has now been removed under the new laws. In addition, businesses can apply directly to the ACCC for formal authorisation rather than applying to the Australian Competition Tribunal.
Streamlining the formal clearance process provides a clear pathway for parties who want greater certainty that their merger does not substantially lessen competition. Mergers that obtain authorisation will also benefit from the ACCC’s knowledge and expertise in considering and applying section 50 of the Act. In addition, the new process eliminates the time, cost and pressure of obtaining authorisation from the Australian Competition Tribunal.
The draft Merger Authorisation Guidelines 2017, released by the ACCC this week, provide an overview of the new authorisation process. It includes the following steps.
Further details on each of these steps can be found in the draft guidelines. These guidelines will be finalised once the ACCC has completed its public consultation.
Under the new provisions, the ACCC must not authorise a merger unless it is satisfied that:
Previously, there were multiple tests and interpretations that were applied when determining whether a merger should be authorised. The new requirements provide parties to a merger with more clarity and streamline the test to be applied by the ACCC.
The commencement date for the new merger review process is expected to be announced in the coming weeks. Under the new process, the ACCC will only be able to grant authorisation to proposed or future mergers. The ACCC will not be able to grant authorisation for a merger that has already been completed.
Authorisation provides parties to a merger with peace of mind. To ensure that parties do not miss the opportunity to seek authorisation, they should turn their mind to competition issues early on in the merger process. Parties should obtain tailored legal advice to ensure they select the most efficient and effective merger review process for their specific transaction.
Whether a business seeks an informal review or a formal authorisation for their merger, these competition reforms are sure to help parties navigate the merger review process and will give much welcome clarity.
Moulis Legal’s dispute resolution team guides businesses across Australia and Asia in the management and resolution of cross-border and domestic commercial disputes in a way that is commercially focused and business-centric. We represent Australian and international organisations in various domestic and international jurisdictions on matters including contractual disputes, cross-border intellectual property disputes, competition law issues and managing and responding to regulatory investigations.
For more information, please contact Emily Jennings on +61 7 3367 6900 or firstname.lastname@example.org.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2017