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Publications

Regulator taking its time

19 April 2006

Friction has been created between the business community and the Commerce Commission in recent months over an increasingly aggressive enforcement approach, coupled with slow turnaround times in dealing with merger clearance applications.

The business press has talked of instances of "star-chamber" interrogations, and Commission Chair Paula Rebstock received an unprecedented grilling by Parliament’s Commerce Select Committee over perceived "bullying" enforcement tactics.

It is perhaps not surprising that businesses on the receiving end of a Commission probe may find it an uncomfortable experience.  But the problem of delays in merger decisions has the potential to seriously undermine business confidence and impede merger and acquisition activity.

An unworkable number of working days

The timeframe issue starts with the clearance provisions in the Commerce Act, where a statutory time limit for decision of 10 working days exists.  That proves an unrealistic timeframe in all but the most straightforward of cases, and is routinely extended by agreement between the Commission and the merger parties (the Commission holds the cards in getting such extensions because if a party doesn’t agree, its application is likely to be flatly turned down).  But in practice, the average time taken for a decision appears to have moved out from perhaps four weeks in years gone by to more than six or eight weeks in most cases at present.

The time limit was actually reviewed by Parliament in 1990, being the last substantial amendment to the merger clearance procedures.  In light of current difficulties, if the time limits are proving unreasonable then the law may need to be changed so that the Commission’s use of the extension procedure remains exceptional, not the norm.

To be fair to the Commission, there are explanations for this state of affairs.  Partly it has to do with resourcing levels, particularly when the Commission has some very complex, labour-intensive sector regulation matters on the boil.  And, as Commission Chair Paula Rebstock pointed out at a recent conference address, the Commission's mergers department had a very quiet few months at the start of 2005, but then was loaded up with 14 clearance applications in the six months to December 2005.

However, this does mean companies in a tense, possibly contested takeover situation may be in a difficult situation if left to wait two or three months to know the view the Commission will take.  The corporate world can move a long way in that time.  Some companies have chosen to withdraw their clearance applications, or do the deal without waiting for the Commission rather than be forced to let the commercial opportunity pass by in the meantime.  That can itself lead to further strife with the Commission and the threat of a court injunction.

Providing reasons for clearance decisions

A related (and frustrating) issue is the length of time taken to get detailed reasons for a decision out of the Commission.  A merger decision is usually announced by a short letter and Commission press release, containing a straightforward "grant" or "decline" message. 

If clearance to merge is granted, the parties are unlikely to be too concerned at a delay in seeing the detailed reasons for it (interesting though they may be).  But if clearance is declined, real and immediate problems arise in thinking about alternative transaction structures, possible divestment options or commencing an appeal to the High Court. The parties need to know the Commission’s reasoning to understand what their options are.

The Commission says that it has no statutory obligation to give any reasons at all for its decisions.  That may be so, but it ignores possible common law duties to give reasons, and the long-established practice of issuing a full reasoned decision. Ironically, at a time when Australia’s ACCC is moving towards more open publication of its decisions than has previously been the case, our Commission appears to be retreating into silence a little.