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Legislation

Trade Practices Amendment (Material Lessening of Competition - Richmond Amendment) Bill 2009

 

Overview

The Bill was introduced by Senator Xenophon and was drafted by Assoc Prof Frank Zumbo. In his second reading speech, Xenophon stated that the purpose of the bill was "to strengthen the Trade Practices Act to protect competition in Australia by tightening the test for proposed mergers or acquisitions, and to prevent so-called ‘creeping acquisitions’." He relied on his claim that the ACCC approved approximately 97% of mergers as evidence that the current merger threshold test (substantial lessening of competition) is too high.

The bill proposed two changes to Australia's merger laws:

1. Replacing 'substantial lessening of competition' with 'material lessening of competition'.

2. Providing that mergers by companies holding substantial market share should be prohibited whenever they 'lessen' competition (the 'creeping acquisitions' amendment)

A Senate Inquiry recommended against passage of the bill, finding alteration of the merger test would generate uncertainty when there was no sound evidence suggesting a problem with the current bill. The Committee also rejected the proposal to set a percentage market share threshold for mergers involving firms with an existing substantial market share - the so-called 'creeping acquistion' provision - noting that such a change would be 'arbitrary and contentious'.

 

Key provisions

Schedule 1 of the Bill provided:

1 Subsection 50(1)

Repeal the subsection (but not the note), substitute:

(1) A corporation must not directly or indirectly:

(a) acquire shares in the capital of a body corporate; or

(b) acquire any assets of a person; if the acquisition would have the effect, or be likely to have the effect, of materially lessening competition in a market.

2 After subsection 50(1)

Insert:

(1A) A corporation that has a substantial share of a market must not directly or indirectly:

(a) acquire shares in the capital of a body corporate; or

(b) acquire any assets of a person;

if the acquisition would have the effect, or be likely to have the effect, of lessening competition in a market.

 

Comment

The Bill was heavily criticised on several grounds, including

(1) its premise (the rate of merger approval and reliance on an anecdotal incident which had little to do with mergers);

(2) the unlikelihood that changing the test from 'substantially lessening competition' to 'materially lessening competition' would in fact lower the threshold (as claimed), the likelihood being that it would simply generate uncertainty in the law; and

(3) that the insertion of ss (1A) would create an effective (and arbitrary) 'market cap', above which all mergers would be prohibited.

The majority of the Senate Economics Committee recommended that the Senate reject the bill. Senator Xenophon offered a dissenting report.