Preferred Option
9. The following options were identified to address the problems outlined above.
Providing for the enforcement of undertakings that have been approved as part of a merger clearance or authorisation application
10. It is proposed to allow for the Commission to apply to the High Court to enforce undertakings given under section 69A to divest assets or shares if the Commission can show that the parties failed to comply with the undertaking. The objective of the proposal is to provide a strong incentive to comply with undertakings and reduce the administrative burden of enforcement.
Analysis
11. The proposed option strengthens the current incentives for firms to comply with an undertaking and will reduce the risk of potential gaming. It will also reduce the costs and improve the timeliness of enforcing undertakings and will enable the Commission to have greater confidence in accepting undertakings offered. This amendment is also consistent with other jurisdictions such as Australia, that provide for the separate enforcement of undertakings.6
12. As a general rule, law that includes provisions that cannot be easily enforced is unsatisfactory and ineffective. A requirement on the Commission to demonstrate to the Court that one or more orders should be made is also sound from a transparency and accountability perspective.
13. Under this option the affected parties would not be able to put forward the defence that the merger did not breach section 47 of the Commerce Act 1986 as the question for the court will be whether the parties complied with the agreed undertaking only. One submission identified the risk that the Commission may apply to the Court to enforce an undertaking in cases where non compliance has not led to an adverse effect on competition.
14. The risk outlined above is small. The Commission is unlikely to make an order to the Court to enforce an undertaking for an activity that clearly does not raise competition concerns. The proposal (outlined below) to provide for the Commission to accept minor variations to an undertaking will also alleviate this risk.
Allowing the Commission to approve minor variations of undertakings
15. It is proposed to amend the Act to allow the original applicant to seek a variation to an approved undertaking to divest shares or assets as part of a merger clearance or authorisation application. The Commission would be able to approve the variation if it were considered that the variation was minor or would not otherwise defeat the original decision, or the competition or public benefit objectives of the Act.
Analysis
16. Presently, an applicant who decides that compliance with an approved undertaking may be unnecessary or counterproductive has three choices. It could comply with the undertaking in full, although this may result in assets being divested unnecessarily. It could carry out a variation to the undertaking with the knowledge that the protection of the Commission's approval will not apply. This option does not rate well from a business or legal certainty standpoint. Lastly, the applicant could re-apply to the Commission for a clearance or authorisation with the proposed revised terms. This option rates poorly in terms of timeliness and cost effectiveness for a firm, and poorly in terms of the efficient use of the Commission's limited resources. Greater flexibility would provide the opportunity for minor variations to be made without losing the original protection.
17. The ability to vary undertakings after the event may encourage parties to make spurious applications in the hope that it will be impractical to sell the assets by the time the Commission has made a decision. This risk is considered to be minimal as long as the undertakings could be enforceable through correction, punitive and compensatory orders.
Removing the statutory timeframes for holding conferences for restrictive trade practice authorisation proceedings
18. It is proposed to remove the 20 day time limit within which the Commission would be required to hold a conference following a request for a conference to be held.
Analysis
19. The current timeframe is arbitrary, unnecessary and does not serve any purpose. There is a lack of consistency between the timeframes for the merger authorisation process (there are no interim timeframes within the merger authorisation process) and this can be problematic when both processes must be considered as part of one application.
Implementation and review
20. These amendments will be implemented through the Regulatory Improvement Omnibus Bill and will require changes to the Commerce Act. The Ministry of Economic Development is responsible for reviewing the effectiveness of the Commerce Act.
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