Submissions on MED discussion paper

This submission is made by Lindsey Jones and Gary Hughes, to convey views and themes expressed by a number of corporate parties (some as clients of the firm, some who are not) who are recent users or participants in the Commerce Act merger clearance processes.  This submission does not necessarily represent the views of Chapman Tripp as a whole.


We welcome the opportunity to participate in the MED’s Review of the Commerce Act clearance and authorisation provisions (Review).  As part of our process of responding to the Review we hosted a roundtable discussion attended by executives of major New Zealand businesses representing a diverse range of industries.  These companies have direct experience with, and are regularly affected by the merger clearance process administered by the New Zealand Commerce Commission (NZCC), whether as an applicant, target or affected third party.

In this submission we put forward some suggestions for improvements in the clearance process that resulted from the roundtable discussion.  These suggestions are presented in the context of our clients’ concerns with the current process, and the broader consequences of the existing regime for the business community.  The suggestions do not all fall neatly into the list of questions posed by the MED in the Review (although some do) – but we believe they should appropriately be considered by MED under: 

  • Question 31:  “Do you have any other comments”, and
  • the page 5 note that MED welcomes “broader comment on the issues”.

We trust that this submission will add to the debate and we would be happy to discuss its suggestions further with MED officials.   While clients have expressed concerns with restrictive trade practices and joint legal processes as well, this submission focuses just on Issues A to E dealing with merger clearance processes.  While we have strived to be moderate in the tone of this submission, the depth of feeling about the current clearance process should not be underestimated.   It would be fair to say that there is a considerable degree of anger in parts of the business community about the process, even amongst those who have ultimately had clearance outcomes favourable to them. 

We believe the shortcomings with the current process can be addressed by making legislative change that will enable the NZCC to be more facilitative.   At present, the NZCC seems so shackled either by the threat of litigation (judicial review or appeal), fear of political attack or some other procedural risk that the clearance process has become almost unworkable.  By making some adjustments to the process, the MED could enable the NZCC to better deliver on its stated values of “adopting a principled but pragmatic approach” to meeting its purpose, which is to promote dynamic and responsive New Zealand markets.

We now turn to highlight:

  • the concerns with the current processes
  • the consequences and costs to the economy that results, and
  • some suggested solutions to the shortcomings of the current process.


As a voluntary process, the clearance regime is intended to be a facilitative tool to aid businesses looking to undertake mergers and acquisitions.  We do not mean "aid" in the sense of allowing mergers through when there are competition concerns, but in the sense of giving parties a view, in a timely and economical fashion, of whether there are legitimate competition concerns.  Some years ago that may have been the case, but an over-riding issue now raised by clients is the time and cost consequences of approaching the NZCC for clearance.  These problems might be summarised as:

  • excessive time delays and "time-drift" via extensions of time – even allowing for the complexity of some clearance applications, this complexity is often exaggerated by a failure to get the key issues set out for debate and argument clearly and early enough in the process
  • resort to large information requests that put a crushing burden on businesses, and often have no obvious correlation to the key competition issues
  • the role of third party objectors in occasionally "gaming" the system, and
  • a number of defensive and inflexible behavioural aspects of the NZCC’s implementation of the statutory processes that, from the perspective of users of the process, appear to cement in the cost and timing problems. 

Perhaps the most significant concern with the process is excessive time delays.  We agree with MED that the statutory default time for the NZCC to deal with a clearance application (10 working days) is impracticable and that modern competition analysis is not straightforward, but merely altering the 10-day rule will not address the issue of systemic time-drift in the current process.

The NZCC routinely asks applicants for their agreement to extensions to the statutory period, and not uncommonly multiple extension requests are made stretching over many months.

Applicants have no choice but to agree; if they disagree the NZCC is deemed to have declined the application.  While the need to request extensions of time might be overcome by amending the statutory time period, that is not going to address the problem if the NZCC still has the right to multiple extensions.  If a longer time frame is to be implemented, then the NZCC should be allowed one single extension of time and then have a fixed deadline for a determination. 

Executives need certainty of process above all else: they are asking why they would submit to a process that could take anything from one to six months with little or no indication of how long it will take – and with little dialogue along the way about the likely outcome, areas of concern or how any areas of concern could be addressed.

Another significant issue is information requests.  Despite the comprehensive nature of the clearance application form, the NZCC regularly issues lengthy and detailed information requests (often using its power under section 98 of the Commerce Act to require the applicant to produce copies of internal documents and communications).  The number, scope and timing of these information requests is of considerable concern. 

Applicants understand that the NZCC often will require further information to enable it to come to a view on the impact of a transaction and needs to be able to test data provided to it.   There is a sense, though, that the NZCC is often "fishing" for information because staff wish to know – rather than need to know. The NZCC is often unwilling to articulate the reason for a particular request or its relevance to the competition analysis other than in the broadest of terms. 

Vast amounts of executive and employee time are consumed in meeting these requests.  A better understanding of what is driving the NZCC could well short-circuit the process by ensuring the NZCC had the most relevant information possible.  It would also enable the applicant to respond to the NZCC’s concerns at an earlier stage in the process.   This could save both the applicant and the NZCC time, money and resources that may be better used elsewhere.

There is also a concern that the NZCC may be using information obtained using section 98 powers exercised in the context of a firm’s voluntary submission to the clearance process to investigate other unrelated aspects of the applicant’s business.

The role of third party objectors in the clearance process was also raised as a concern.  For a full-scale clearance process which gives a transaction immunity from later NZCC or third party attack, the NZCC clearly needs to obtain the feedback of market players.  However, the process is at risk of being distorted if the NZCC routinely gives more credence to the views of self-interested third parties than to those of the applicant which is bound by a declaration that the information it has provided is complete and accurate.

Lying behind many of these issues are concerns that the commercial community has with the NZCC’s approach to implementation of the clearance process.  Certain institutional behaviours or mechanisms appear to be entrenching inflexibility and unnecessary defensiveness at the NZCC.  This is manifested in the following ways:

  • a perception that the NZCC’s starting point is to view mergers and acquisitions as more likely to be harmful than not
  • a perception that the NZCC views company executives of the applicant (and their advisors) to be less likely to be honest and forthcoming than other parties in the process
  • a defensive attitude about the issues the NZCC is focused on or sees as problematic, and an unwillingness to engage in open dialogue with an applicant.  This means that applicants are often only able to understand the NZCC’s real underlying concerns about a transaction some considerable time into the process – often only at the end, once the Commission’s written reasons are available
  • refusal to keep the fact of a transaction confidential for any period after a clearance application has been filed – albeit that the Commerce Act expressly allows this
  • an "all or nothing" approach to dealing with applications, which displays no desire to facilitate transactions.  A clearance, as filed, is either declined or granted (or withdrawn).  The NZCC treats itself as unable to assist applicants in amending clearance applications, isolating areas of concern at an early stage, or identifying divestments that might enable a transaction to proceed
  • a desire to attempt to make the written reasons “appeal proof” before releasing reasons to the applicant, and
  • making the outcome of a clearance application known to the public at the same time as the applicant is advised (or perhaps a few minutes before). 


Significant consequences flow from the manner in which the clearance process is currently being operated.

The consequence of the NZCC’s implementation of the process is that despite the voluntary nature of the clearance process, applicants feel that they are engaging in a hostile, adversarial process.  Having experienced this process it seems inevitable that some parties will, in the future, either choose not to proceed with a transaction or avoid the need for exposure to the NZCC by entering into a “dumbed down” version of the original proposal or reconstructing their affairs in a sub-optimal manner.  Either way, there is a cost from:

  • potential efficiencies flowing from a welfare-enhancing transaction being lost to the economy, and
  • loss of confidence in the clearance process (and perhaps the rule of law) if businesses shy away from applying to the NZCC.

The consequences of time delays for business are significant.  They include:

  • the risk that the opportunity to do the deal is lost as other bidders which do not need to, or have chosen not to, lodge an application have a huge advantage in what are increasingly contested bidding processes
  • uncertainty, instability and anguish for employees who know they will be affected by a potential rationalisation – but not when or how
  • paralysis in the target business as it waits to find out whether it has a new owner and what its direction might be
  • the loss of share value as the market reacts to uncertainty as to whether the transaction will proceed or not.

The consequence of information requests is the imposition of a very heavy burden on companies and a consequential diversion of executive and staff resources into a process with limited benefit to the company, the NZCC or the economy as a whole.  This is particularly the case when the information request is overly onerous in terms of its scope or the timetable involved, and when a low threshold of "relevance" is all that the Commission must meet in making the request.

In a macro-economic sense, the cumulative effect of the NZCC’s current operation of the clearance process is that it is hard to deal with the New Zealand competition regulator.   Nobody expects a regulator to be a "friendly face", but equally a consequence is that transactions may be lost to New Zealand as a whole if investors choose to invest in jurisdictions with more transparent, business-focused (or at least neutral) regimes.  The range of investors may be reduced to private equity firms, which often lack specific experience or knowledge of an industry.

Suggested solutions

As outlined above, a number of the concerns identified flow from the approach taken by the NZCC in applying the clearance provisions of the Commerce Act.  To some degree, the NZCC’s approach may be understandable as it seeks to protect itself from litigation or political interference – although it has to be recognised that New Zealand does not have a particularly litigious culture and the clearance regime as it operated in the past was not characterised by bad decisions or significant litigation.  Whatever the reason for the current process, from a business perspective it is not working well.

The process might be more effective if the NZCC’s starting point were that entrepreneurial activity is good for the economy (or at least neutral) rather than that any acquisition ought to be approached with suspicion.  It is not clear that the NZCC’s culture can be easily changed.  However, certain statutory changes could be made to re-orient the NZCC’s processes in a way which:

  • facilitates the transaction-testing process without compromising its effectiveness
  • enables free and frank "informal" discussions, alongside the more formal procedural steps, and
  • assists applicants to decide, at an earlier stage, whether to proceed with a transaction, modify it or abandon it.

The range of specific suggestions raised include:

  1. Making specific provision in the Commerce Act for the NZCC to engage in protected discussions – that is, enable it to express views on a transaction that cannot later be held against it in court.  This could be structured along the lines of the “without prejudice” discussion concept used when litigation is contemplated. Specifically, this could be achieved by making an addition to the variety of matters covered in s106 of the Act, or could be better located in a change or extension to s68(5).
  2. Adopting a draft decision stage into the clearance process, similar to that used in the authorisation process.  Once initial clarifying information requests were dealt with, the NZCC would issue – perhaps at working day 20 – an outline draft decision (or at least a statement of key issues) setting out the NZCC’s initial view of the transaction and isolating any key concerns.   This could be in much less detail than the present lengthy written reasons for decisions, to avoid further delaying the process. Within a further, perhaps 10 working days the applicant could seek to meet with the NZCC for a without prejudice discussion in response to the statement of key issues.  Specifically, this could be achieved by introducing a “statement of issues” step into s66 or s68.Both the above suggestions would enable the NZCC to present its concerns frankly and for the applicant to get a real sense of whether it could overcome these concerns or not.  The applicant would then be able, at an early stage, to make a commercial decision about the appropriateness of continuing with a transaction or whether there are variations of the transaction which might more readily be granted clearance. This could be accommodated without at all undermining the nature of the formal, transparent clearance process.If the applicant decided not to proceed with the clearance, the resources of the NZCC, the applicant and any third parties would not be unnecessarily expended.  But if the applicant did wish to proceed it would do so far better informed about the issues it would need to address to overcome the NZCC’s concerns.
  3. Adopting the letter of comfort process.  It is understood that any letter of comfort could only be an indication that, based on the information available to it, the NZCC did not intend to challenge the proposed transaction, and that such indication was not binding on third parties.  It would not suit all circumstances, nor would it be likely to lead to a flood of applications.  However, businesses still see this process as providing one alternative means of obtaining guidance from the regulator at an early stage, even if it was qualified or limited guidance, without the expensive full-blown process they currently face. The actual statutory changes would require further thinking to design the optimal process, to be added into s66 and possibly s68 and s69.
  4. Permitting behavioural undertakings.  While it is acknowledged that the ongoing monitoring of behavioural undertakings would result in further cost and utilisation of resources for the NZCC, that should not be a reason to eliminate the option.   We would expect that in many instances, companies would choose not to fetter their futures by behavioural undertakings.  Equally, it could allow flexibility in the minority of cases which may benefit from it: for instance, this may be suitable for situations where the sticking point is control of an monopoly asset by a vertically integrated firm.Specifically, this could be achieved by amending s69A to allow the Commission to accept undertakings of any type (as per MED’s “option (a)”).
  5. Establish an independent review panel. The panel could work with the parties to provide guidance on or mediate a solution to certain process issues along the way – whether they be the NZCC’s approach to information requests, excessive time delays or where the NZCC is simply finding an application difficult to decide.  Some variant of the ‘Cease and Desist Commissioners’ panel could be employed, but it should not evolve into the NZCC’s current practice of using external consultants to simply ‘appeal-proof’ its decisions. Specifically, this could be achieved by expanding the role of Commissioners appointed under s74AA, and linking that role to the provisions of s66 and s68.
  6. Adopt a statutory divestment mechanism.  As the Commerce Act currently stands, the NZCC has the power to accept undertakings to divest assets only in the context of a clearance application.   If a transaction proceeds without clearance and the acquisition would result in a substantial lessening of competition in only one market amongst several, the parties will have breached the Commerce Act even if the acquirer proposes to divest the asset(s) that will give rise to the breach.   Amending the Commerce Act to exempt a transaction from the application of section 47 where the acquirer provides a statutory, directly enforceable undertaking to divest the particular asset(s) that give rise to the breach would remove the need for the acquirer to seek clearance.  Specifically, this could be achieved by an addition to s47, linked to changes to s69A and the proposed new ‘direct enforcement of undertakings’ provisions.
  7. Amend the remedies for a breach of section 47 so that the primary remedy is divestment (where divestment is possible) of the assets or part of the transaction that substantially lessens competition.  The court’s goal should be to excise the aspect of the transaction that infringes section 47, rather than simply allow pursuit of more punitive sanctions.  Specifically, this could be achieved by making amendments to s83 and s85 of the Act.

To the extent not already covered in these comments above, we briefly address the MED’s specific “merger issues” questions as follows:

  • Q1 What should the default number of working days for Commission consideration of merger clearance applications be?In principle, the MED’s longer timeframe of 30 days would be sensible (or 40 days as with the Australian process) but only if the NZCC is then allowed one single extension of time (of, say, 20 days) and then has a firm deadline for a determination.  This should be linked to a draft determination or simple statement of key issues published at, say, day 20 in the investigation.
  • Q2 Is there a need to amend the Act in relation to the publication of written merger clearance decisions? Yes, in our view there is.  In relation to the view that the NZCC at present has no legal obligation to publish written reasons, we would disagree.  While there is no statutory requirement, the need for a tribunal to give reasons goes beyond mere voluntary “policy” and accords with established common law principles of administrative law. Failing to publish reasons would leave the NZCC open to judicial review on those principles. Therefore, putting that requirement into the statute would be little more than a technical change and, in our view, a sensible one.  On the related issue of timeframe for an appeal, it is true that the NZCC routinely agrees not to object to late appeals being lodged, but that does not provide a complete safeguard from the point of view of an appellant waiting on reasons for determination. That is because section 91(2) is a statutory time limit subject only to the discretion of the High Court, and such discretion may or may not always turn upon whether the NZCC objects to the extension of time.  Hence, to ensure complete certainty appellants frequently apply in advance for an extension of the 20-day period, usually by joint consent documents filed with the Court and signed by the NZCC.  The cost and inconvenience of that step could be avoided by a simple amendment to s91(2) along the lines of the MED’s “option (b)”.
  • Q3 Should the Act provide for the enforcement of undertakings to dispose of assets or shares? Yes, it should, ideally subsumed into the new statutory divestment process proposed above.
  • Q4 Should the original applicant be able to ask the Commission to make minor variations to undertakings to divest assets or shares? Yes, with any difficulties able to be referred to the proposed independent review panel, if necessary.
  • Q5 Should the commission be able to accept behavioral undertakings? Yes, as discussed above.
  • Q6 Should the Commission consider introducing an informal pre-merger letter of comfort system? Yes, as discussed above.


We applaud the focus of the Review on improving the effectiveness of the clearance process. 

Feedback from clients and others (and our own experience) confirms that the current regime imposes significant costs on parties for questionable gain. We appreciate that with increasing economic rationalisation over the last few years, markets have become more concentrated and the assessment of the competition effect of mergers and acquisition has become harder for the NZCC.  However, that does not justify the shortcomings in a process that is intended to be facilitative for business.  If anything, it suggests that the process needs to adapt to the changed environment, to ensure the "hard" issues are identified, debated and addressed earlier in the process.  It will be apparent from the comments above that we think a "two-track" system containing both formal and informal elements may better achieve this.

As an observation, it is fair to say that if commercial parties are currently "hesitant" about using the clearance process, they are definitely "shying away" from the more lengthy, costly authorisation process.  In the scope of this submission, we have limited our comments to the clearance process, but if improvements can be made there as a priority, we would then support a further work programme to introduce a trade practices "clearance".

We hope that this submission is helpful.  Clearly, the suggestions listed above need further refinement.  We would be happy to be involved in a working party to review these and other suggestions that will no doubt come out of the Review.  We expect also that some of our clients would be willing be involved.  We would suggest that engagement with the business sector, as primary users of the system, should be a given, and more than a token.

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