The Government has announced wide-ranging reforms to the Commerce Act and the Commerce Commission's structure. The reforms are aimed at promoting competition to achieve the Government's goal of Going for Growth.
Key new reforms
These reforms include:
- A new definition of a substantial lessening of competition that includes conduct which "creates, strengthens, or entrenches market power." This reform will be in line with recent merger reforms undertaken in Australia, and is intended to prevent "killer acquisitions".
- Empowering the Commission to assess the competitive effects of serial acquisitions over a three-year period. This is targeted at preventing "creeping acquisitions".
- Empowering the Commission to accept "behavioural undertakings" in assessing mergers (the Commission can currently only consider "divestment undertakings", which makes it an outlier internationally).
- Strengthening the Commission's ability to address non-notified mergers by granting it a power to suspend the completion of a merger for up to 40 working days. Additionally, granting a "call-in" power to grant the Commission the ability to require the parties to seek clearance.
- Introducing an extended statutory timeframe of 100 days for the Commission to consider complex merger decisions (in addition to the existing initial 40-day clearance and 60-day authorisation period).
- Clarification that existing prohibitions (such as the cartel prohibition) apply equally to actions carried out using AI or algorithmic tools.
- Introduction of an objective cost-based test for when conduct is predatory pricing in breach of section 36 of the Commerce Act.
The reforms also include authorising targeted regulations in relation to specific industries with high barriers to entry, subject to constraints and sunset clauses. These regulations would not be able to control prices but could, for example, require transparency about pricing practices and regulate other conduct. The regulation making power will only be able to be exercised following a recommendation by the Commission.
The reforms announced today also provide further clarification on the initial reforms announced last month including:
- The facilitation of beneficial collaboration by proposing a new statutory notification regime and class exemption powers, allowing for these collaborative activities to process unless the Commission objects.
- Introducing stronger protections for confidential information supplied to the Commission.
- Permitting the Commission to seek Court orders requiring firms to take corrective action (not just to cease unlawful conduct).
Key changes to the Commerce Commission
In addition, the following changes to the Commission's governance and structure were announced:
- Structural reforms to separate governance of the Commission (which will sit in a new board structure) from regulatory decisions (which will sit in specialist committees). This will bring the Commission in line with the UK's Competition and Markets Authority and the Reserve Bank of New Zealand.
- Requiring the Commission to publish an annual state of competition report.
Dr John Small, Chair of the Commission, has welcomed the reforms, highlighting that the changes will allow them to "accelerate and deepened the direction we are taking to enhance competition." The Commission is already implementing these changes.
Concluding comments
The reforms represent some of the most significant changes to the Commerce Act, and the Commission, in decades. There could be major implications (some positive, some negative) for M&A activity, discounting by large businesses, and collaboration with competitors.
If you have any questions about how these reforms may impact your business, please contact one of the authors.