Key insights into Australia's draft merger reform legislation

Exposure draft released for consultation

What you need to know

• Exposure draft legislation released on 24 July 2024 outlines key aspects of forthcoming reforms to Australia's merger control regime.
• The draft bill includes significant maximum penalties for failure to file a notification and gun-jumping.
• The notification thresholds will be set by regulation determined by the Treasurer and have not yet been released.

What you need to do

• Review the changes and consider the impact on your business. Submissions are open until 13 August 2024.
• If you are intending to utilise the existing merger authorisation process, you will need to make your application before 1 July 2025, as this process will be phased out before the new regime commences on 1 January 2026.

The Federal Government is consulting on exposure draft legislation to implement its proposed significant changes to Australia's merger control regime. The exposure draft bill released on 24 July 2024 entitled "Treasury Laws Amendment Bill 2024: Acquisitions" (Draft Bill), is open for consultation for only a short period (until 13 August 2024), indicating that the Government is likely to seek to progress the amendments through Parliament soon thereafter. In this article, we outline our key insights into the changes intended to be brought about by the amendments.

Single mandatory and suspensory administrative regime

• The Draft Bill introduces the previously-announced single mandatory and suspensory administrative merger control regime through detailed amendments to the Competition and Consumer Act 2010 (CCA).
• Parties to acquisitions above certain (yet to be specified) thresholds will be required to notify the ACCC of the acquisition and the acquisition must not be put into effect unless the ACCC has determined that it may be put into effect.
• Acquisitions below that threshold will not require merger review under the CCA.

The acquirer(s) must notify the ACCC

• If the acquisition meets the thresholds, the acquirer(s) (referred to as the principal party or parties) must notify the ACCC of the acquisition. If there are multiple acquirers, this is to be done jointly, in writing, accompanied by the prescribed fee.

Thresholds to be set by regulation

• The thresholds will be set by regulation and determined by the Minister. The details of the thresholds themselves do not form part of the Draft Bill.
• The thresholds may be based on metrics including transaction value, turnover and market concentration.
• The Minister may set targeted thresholds in particular industries or sectors with high market concentration or high barriers to entry or expansion.
• All acquisitions by the parties in the previous three years may be aggregated for determining if the notification thresholds are met.
• The thresholds will be regularly reviewed.

Types of acquisitions to which the provisions will apply

• Unlike many international regimes, the Draft Bill does not define the concept of a "merger" as the basis for what will and will not be covered by the regime.
• Instead, the Draft Bill simply provides that direct or indirect acquisitions of shares or assets will be subject to the regime. Under existing subsection 4(4) of the CCA, this includes acquisitions made alone or jointly with another person.
• Assets are defined to include any kind of property, a legal or equitable right that is not property, including an interest in an asset, goodwill, or a partnership.
• For an acquisition of shares, if the acquiring person's voting power is 20% or more, the person is presumed to control the body corporate and will be subject to the regime (although this presumption is rebuttable).
• The brief description of the types of transactions to which the regime will apply is one of the more surprising aspects of the Draft Bill and raises some issues that will need careful consideration. In many international regimes, the question of what constitutes a merger is contemplated in some detail. We expect this aspect to be heavily scrutinised as part of the consultation process.

New concept of "control" a critical element

• The Draft Bill introduces two rebuttable presumptions and a new concept of "control" of a body corporate, which (together with the thresholds) will be crucial to determining whether a given transaction will trigger a notification requirement. This is because acquisitions of shares that do not give control will not be subject to the regime.
• In relation to acquisitions of shares, if a person's voting power in the target is less than 20% there is a rebuttable presumption that the person does not control the target. Conversely, if the person's voting power in the target is 20% or more, there is a rebuttable presumption that the person does control the target.
• Control of a body corporate is defined as "the capacity to directly or indirectly determine the policy of the body corporate in relation to one or more matters". In determining this, the practical influence the person can exert is to be considered (rather than the rights it can enforce), and any practice or pattern of behaviour affecting the policies of the body corporate is to be taken into account (even if it is in breach of an agreement or trust).
• While the concept of "directly determining the policy of the body corporate" is one that is similar to that used in some other international merger regimes, it is slightly surprising that Treasury has opted not to import the concept of "decisive influence" from the EU regime.
• Interestingly, unlike other international regimes where the existence of control is a positive integer required in order to trigger a notification, this is not how the Draft Bill has been prepared. Rather than the existence of control placing a transaction in the regime, under the Draft Bill the absence of control following an acquisition of shares will take it out of the regime.

Some acquisitions excluded from the regime

• A number of acquisitions are excluded from the regime, including, as mentioned above, acquisitions of shares that do not give control.
• Acquisitions of assets in the ordinary course of business are also excluded from the regime, so long as they are not acquisitions of land or patents.
• Limited exclusions also apply for temporary holding of shares by a financial institution or insurance company (for example if they are held with a view to reselling them), internal restructures and reorganisations by related bodies corporate and other acquisitions as an administrator, receiver, etc.

Foreign acquisitions

• Despite the reference to a "single" mandatory regime, foreign acquisitions will continue to also be subject to the Foreign Acquisitions and Takeovers Act 1975.

ACCC will have significant powers where a notification is incomplete or misleading

• It is contemplated that the Minister will determine the form for notification and/or information or documents that must be provided with the notification (by legislative instrument).
• If a notification (including a public benefit application) is materially incomplete, materially misleading or false in any material respect, the ACCC will have significant powers to determine that the notification does not have an effective notification date.
• This decision may be made at any time, including where the ACCC review is underway. Although parties can provide additional information and documents in response to the ACCC's concerns, and (if accepted) the notification date becomes the day those were provided, the decision to nullify the original notification date would likely have very serious consequences for the transaction.
• While this may be more understandable for false or misleading concerns, it seems unreasonable for the ACCC to have such significant powers in relation to the question of completeness, when this issue should already have been considered at the outset of deciding whether to accept the notification.
• The ACCC will have similar powers to change a notification date where it becomes aware of a material change of fact. The notifying party is obliged to notify the ACCC of any material changes of fact in the notification until the ACCC makes a determination. This includes a major competitor exiting a market or the destruction of assets relevant to the ACCC's assessment.

Timeframes for ACCC decisions

• The Draft Bill provides for a Phase 1 review period of up to 30 business days, or "fast-track" if no concerns are identified after 15 business days.
• If the ACCC reasonably suspects that the acquisition would have the effect or be likely to have the effect of substantially lessening competition in any market, the ACCC may decide that the notification be subject to a Phase 2 review.
• The Phase 2 "in depth" review period is up to 90 business days, starting immediately after the end of the Phase 1 review. In this case, the ACCC may give the notifying party a "notice of competition concerns" no later than the 25th business day after the start of Phase 2, or as if not practicable, as soon as practicable thereafter. This document will set out the ACCC's preliminary assessment of the acquisition and the grounds on which the ACCC makes that assessment, including facts and evidence.
• If the ACCC determines that the acquisition must not be put into effect (or only with specified conditions), the notifying party may make an application under the substantial public benefit process. This process is effectively an optional Phase 3, though not described as such in the Draft Bill.
• A substantial public benefit application must be determined within 50 business days from the date of application.
• The ACCC may only make a determination permitting an otherwise anti-competitive acquisition if it considers that the acquisition is of public benefit and that this benefit would substantially outweigh any anti-competitive detriment.
• The ACCC can stop the clock in any determination period if it requests information by a specified date and the notifying party does not meet that date, or if it issues a s155 notice. The ACCC can also extend the time for making a determination upon request of the notifying party.

Stricter timeframes for offering undertakings

• The Draft Bill contemplates stricter requirements in relation to when undertakings must be offered in order for them to be considered by the ACCC in making its determination.
• The ACCC must not have regard to a commitment offered by a party to the acquisition if the commitment is offered later than 20 business days after the notification is made.
• However, if the notification is subject to a Phase 2 review, the Commission may have regard to a commitment or undertaking if it is offered no later than the 50th business day from the start of the Phase 2 period.

Substantial lessening of competition

• The ACCC will be required to allow a notified acquisition to be put into effect unless the ACCC reasonably believes, following a Phase 2 review, that the acquisition would have the effect or be likely to have the effect of substantially lessening competition in any market.
• For the purposes of making its determination on a notified acquisition, the ACCC may consider the combined effect of all acquisitions by the parties and their related bodies corporate within the previous three years that involve the same industry as the current acquisition. If the combined effect of the current acquisition and the previous acquisitions would be, or would be likely to substantially lessen competition, the current acquisition will be taken to have that effect.
• A new definition of "substantial lessening of competition" will be included, and will apply across the entire CCA, not just in relation to notified acquisitions.
• The new definition provides that substantially lessening competition includes "creating, strengthening or entrenching a substantial degree of power" in a particular market or any market.
• The Draft Explanatory Memorandum notes that these amendments are intended to increase focus on the market power of the parties and to clarify that even an incremental change in market power may still amount to a substantial lessening of competition if the acquisition strengthens the acquirer's market power or protects it in an enduring way. In addition, creating a position of market power in a separate new market may also constitute a substantial lessening of competition in certain circumstances.

Relevant principles to guide the ACCC's decision on SLC

• The Draft Bill sets out various matters to which the ACCC may and must have regard when making its decision.
• These principles are intended to guide the ACCC's decision-making towards outcomes that "promote competition and protect consumers", based on economic and legal analysis of evidence, information and data.
• The Draft Bill requires that in making its decision, the ACCC must have regard to the object of the CCA, which is to enhance the welfare of Australians through the promotion of competition and fair trading and provision of consumer protection. The ACCC must also have regard to all relevant matters, including the interests of consumers.
• The matters to which the ACCC may have regard (and which will guide the ACCC's decision) include some elements which are familiar from the current s50(3) "factors", but others that represent a shift towards a new approach. For instance, the ACCC may consider "the need to maintain and develop effective competition in markets". This entails "consideration of the competitive performance of markets, and within that framework promoting competition by maintaining and developing effective competition".

Transparency

• The ACCC must keep a public register of notified acquisitions on its website, which must include the ACCC's determination and statement of reasons for making the determination, and any decision that a notification be subject to Phase 2 review.
• Regulations will set out what other information or documents are to be included on the register. It remains to be seen whether this will include the notification form and supporting documents and third party submissions (as is currently the case for merger authorisations).
• The register is intended to ensure transparency of the ACCC's process and enable stakeholder engagement, as well as help guide stakeholders in future transactions through access to economic and legal reasoning.
• The Draft Bill does not, however, set out the timing of when the ACCC will publish details of a notified acquisition on its website. This aspect will be important for confidential transactions and hostile takeovers.

Penalties and other orders

• Penalties will apply for failure to notify (commonly known as "failure to file").
• Where a person has failed to notify (but not yet completed), the ACCC may apply to the Federal Court for an order that the person be required to notify.
• Penalties will also apply for breach of the requirement to suspend completion of an acquisition pending the ACCC's decision (also known as gun-jumping).
• Maximum penalties for each of failure to notify and gun jumping will be consistent with other CCA penalties – ie, the greater of $50 million, 3 times the benefit obtained, or if that cannot be determined, 30% of the body corporate's adjusted turnover during the breach turnover period.
• An acquisition that is put into effect when it must not be will be considered void. However, the Federal Court may order that the voiding does not apply (for example, where the failure to notify was inadvertent, done in good faith and/or could not have been foreseen by the parties).
• On application by the ACCC, the Federal Court will also have power to grant injunctions to prevent mergers from being put into effect in certain circumstances, including where the ACCC made a decision based on false or misleading information and where a person engaged or is proposing to engage in conduct in contravention of the new requirements to notify and to suspend completion.
• If the Federal Court is satisfied that an acquisition has been put into effect based on materially false or misleading information provided to the ACCC, or in breach of conditions in the ACCC's determination, on application of the ACCC it may order divestiture or declare the acquisition void. An application for a divestiture order must be made within 3 years after the acquisition was put into effect.
• The Draft Bill also introduces a new prohibition on giving false or misleading information to the ACCC in connection with merger reviews. The prohibition applies where a person gives information to the ACCC and is negligent as whether the information is false or misleading in a material particular. Proof the person knew or was reckless as to whether the information was false or misleading is taken to be proof of negligence. The same maximum penalties outlined above will also apply to this prohibition. These penalties are huge and are in stark contrast to the amounts that will apply for providing false or misleading information in response to a section 155 notice ($66,000 penalty units for individuals and $330,000 per contravention for corporations).

Review of ACCC decisions by Tribunal

• ACCC determinations on acquisitions will be subject to limited merits review by the Australian Competition Tribunal, provided the applicant has sufficient interest, similar to the current process applicable to merger authorisations. The Tribunal process is not a re-hearing of the matter. Rather, the Tribunal will stand in the shoes of the ACCC and re-make the original decision.
• The Tribunal may only have regard to the information, documents and evidence given to the ACCC in connection with the decision, although there is limited ability to provide new information and documents not in existence at the time the ACCC made its determination.
• A fast track review (with no new information or documents) must be completed in 60 days. A standard review must be completed in 90 days, or longer if the Tribunal allows new information or documents, or the matter is extended due to complexity or special circumstances.

Role of Federal Court

• Judicial review of decisions by the Competition Tribunal (and ACCC) will be available in the Federal Court.
• The Federal Court may also order the ACCC to remake its decision due to an error of law.
• The opportunity to seek review under the Administrative Decisions Judicial Review Act 1977 has been limited. For example, a decision by the ACCC that the notification is subject to a Phase 2 review is not capable of review under the ADJR Act.

Transitional matters

• Despite the new regime not commencing until January 2026, merger authorisation will no longer be available to parties from 1 July 2025.
• Informal clearance will continue until 31 December 2025.
• Businesses can start to voluntarily notify under the new system from 1 December 2025.
• The new system will commence from 1 January 2026.