Kathryn Edghill, Partner

On 10 April 2024 the Federal Treasurer announced a much-anticipated series of reforms to the laws governing the acquisition of shares in, or the assets of, Australian businesses. Those reforms, set to take effect from 1 January 2026, will have wide-ranging implications for parties involved in such transactions and will see the Australian Competition and Consumer Commission (ACCC) take on an expanded role in determining whether such transactions can proceed. In this article we examine why the reforms were necessary, what they will entail, what will be the likely effect and what business can expect in terms of the good, the bad and the unknown.

Why are the reforms necessary?

The answer to this question differs depending on whether you are considering the reforms from an economic policy perspective or from a process perspective. As the Treasurer recognised in his speech at the 10th annual Bannerman Competition Lecture, while “Most mergers aren’t bad – they’re an important feature of any healthy, open economy… some mergers can cause serious economic harm.”
With increasing market concentration and a desire to strengthen competition, the ability to distinguish between harmful and beneficial mergers has taken on increasing importance from an economic policy perspective. From a process perspective, Australia’s current voluntary notification process, with a choice of pathways to seek clearance for a merger, including the most commonly used process of seeking informal clearance from the ACCC, has not always made the ability to make that distinction clear. The reforms seek to marry economic policy objectives with the processes needed to provide clarity and certainty for those involved as to whether their merger will be harmful or beneficial.

What are the reforms?

From 1 January 2026:

1.Notification to the ACCC of mergers above yet to be specified thresholds will become mandatory. The current informal clearance process and the process for seeking authorisation from the ACCC will no longer be available.

It is not yet known the levels at which the thresholds will be set, nor whether they will be based on market shares, turnover, profitability, or the value of the transaction or any combination of the same. What is known is that special thresholds may be set for particular industries.

Given the Treasurer’s expressed concern in his Bannerman Lecture that “some businesses game the system to effectively avoid proper assessment” and the low numbers of mergers currently notified to the ACCC compared to the numbers which take place, it would be reasonable to expect that the thresholds will be set low enough to capture many more transactions than are currently notified to the ACCC.

It is also proposed that all mergers within the previous three years by either merger party will be aggregated for the purposes of assessing whether a merger meets the thresholds, irrespective of whether those mergers were individually notifiable. This is an attempt to address substantial lessening of competition through creeping acquisitions. It also means that merger parties trying to get their merger through before the reforms take effect, will be unable to avoid the effect of the reforms.

2. The process becomes “user pays” with the introduction of fees for notification. Treasury has indicated that the fees are likely to range from $50,000 to $100,000, depending on the complexity of the matter, with some exemptions for small businesses.

3. Information requirements will be prescribed and must be provided before a notification will be regarded as complete and time for a decision will start to run.

These requirements are yet to be prescribed. This is a significant unknown at this stage. Although it may be expected that information relevant to the current merger factors in section 50 of the Competition and Consumer Act 2010 will continue to be required, it is not known whether this will be extended or increased.

4. Introduction of specific timelines for the delivery of decisions on clearance by the ACCC, with a failure by the ACCC to deliver its decision by the specified timeline being an automatic clearance.

The timelines are yet to be set, with the government stating that it will consult with stakeholders before they are set. However, indicative timelines differ depending on complexity of the matter, with the suggestion that non-contentious mergers may be cleared in as little as 15 business days. It is important to note that timelines will likely be able to be controlled by the ACCC, whether by determining when it has received enough information to commence the process and by starting and stopping the clock during the process.

5. The ACCC must clear a transaction for a ‘change of control in a business or asset’ unless it has a ‘reasonable belief’ that the transaction would have the effect or likely effect of substantially lessen competition, including if the merger ‘creates, strengthens or entrenches a position of substantial market power’. It must do so subject to yet to be determined “principles”.

This represents a significant change to the current legislative provisions governing mergers. It extends the jurisdiction to matters where a change in control occurs without an acquisition of shares or assets and introduces an administrative test of “reasonable belief”, which is not the same as the burden of proof on the balance of probabilities. The principles are likely to mirror the current merger factors in section 50 of the Competition and Consumer Act, which the ACCC currently applies, but it is not known whether these will be added to or amended.

6. The ACCC may clear a merger that it determines would be anti-competitive if it determines that the public benefits of the merger would outweigh the anti-competitive detriment.

This is expected to occur in a second stage (after a determination by the ACCC that it will not grant clearance), for which a new (and additional) timeline, anticipated to be 50 working days, will apply.

7. It will be an offence for a merger party to take any steps to bring a transaction into effect without notifying the ACCC, or doing so after notification but before the ACCC makes its decision, or to do so if the ACCC denies clearance.

Any such action by the merger parties will be punishable by a civil penalty. It will have a number of effects. The first will be to effectively prohibit gun-jumping. The second will be to remove the ability of a merger party to put the ACCC to the test by going ahead with a transaction and forcing the ACCC to seek an order from the Federal Court (in which the ACCC would be required to prove, on the balance of probabilities that the merger would or would be likely to substantially lessen competition).

It is not known what the quantum of penalties which may apply will be, but it may be reasonable to expect that it could be more than the current maximum penalties applying to other competition law breaches.

8. Merger parties will have limited rights of appeal to the Australian Competition Tribunal only.

Any such review will be limited to a review on the merits on the basis of the materials which were before the ACCC. Only a legal error in the decision of the Tribunal may be appealed to the Federal Court.

9. Creation by the ACCC of a register of all notified mergers

This will include the ACCC’s findings for every notified merger, and reference to the information on which the findings were based.

What is good about the reforms?

There can be little doubt that consolidation of the merger clearance process into a single process in which there is:

• transparency about who the process will apply to, through specific notification thresholds;
  details of how that process will apply, through prescribed information requirements and legal tests;
• clear guidelines about the timelines involved, when they commence and that they can be changed; and
• transparency about the decisions made and the basis upon which they are made, will provide a much-needed level of certainty for merger parties.

What is bad about the reforms?

The introduction of the “reasonable belief” test, which renders the ACCC’s decision making subject to an administrative test. When coupled with the fact that a merger party can no longer force the ACCC to prove (on the balance of probabilities) that a merger will or will be likely to substantially lessen competition, the test places enormous power in the hands of the ACCC, with, as yet, no real guidance as to how it will be applied. It leaves open many questions as to how that belief must be satisfied, and what information the ACCC may take into account when forming its belief, especially when it is considered that merger clearance by its very nature involves a degree of commercial crystal ball gazing when considering the future effects on competition.

It also remains to be seen how this “reasonable belief” test will be administered by the ACCC against a background of the government’s Statement of Expectations for the ACCC which includes the expectation that it will “deliver the Government’s merger reforms through… a risk-based approach with resources prioritised to managing or stopping mergers most likely to harm the community”.

A legitimate concern arises about whether the reforms will deliver the faster process which is one of its aims. That concern arises not just from the apparent ability of the ACCC to control the timeline (from when it starts to throughout the process), but also because of the separation of public benefit claims into a separate follow-on process, with its own additional timeline.

What is unknown about the reforms?

At this stage there is much which is unknown about the details of the reforms, including, importantly, the transactions to which they will apply. The consultation process which is to take place over the balance of this year and throughout 2025, will be significant in gaining an understanding of how the reforms will impact business and competition in Australia. Consultation is expected on what the thresholds will be and how they are based, what will be required to be included in a notification, the timelines to be applied and how they are to be managed and how appeals to the Australian Competition Tribunal will be run.

As with all legislative reform, the devil will be in the detail. There are many other issues to be addressed in addition to the matters foreshadowed for consultation. They include: questions about how confidential mergers are to be dealt with, the information gathering powers of the ACCC (including through market inquiries), the use of commercially sensitive information provided to the ACCC and protections for merger parties’ documents and information, whether clearance can only be granted or denied or whether clearance can be conditional. The role of prior mergers in assessment of thresholds also needs clarification.

Where to now?

Whether the reforms will be good or bad, or result in a successful marriage of economic policy objectives with the processes needed to provide clarity and certainty for those involved, at this stage, remains to be seen. It is too soon to say whether the marriage will be successful – but the next 20 months of courtship will be critical to the outcome.