House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)

Chapter 3: Notification process and suspensory rule

Detailed explanation of new law

Commission must be notified of certain acquisitions

3.1 The Commission must be notified of certain acquisitions.

3.2 A person contravenes the requirement to notify the Commission of an acquisition if:

•

the person is a principal party to an acquisition, and

•

the acquisition is required to be notified, and

•

the acquisition is put into effect, and

•

when the acquisition is put into effect:

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the acquisition is not a notified acquisition; or

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no notification of the acquisition has an effective notification date; or

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the latest notification of the acquisition that has an effective notification is stale.

[Schedule 1, item 27, section 45AW of the CCA]

3.3 Putting an acquisition into effect includes purportedly putting the acquisition into effect. A person purportedly puts an acquisition into effect if they engage in conduct that would, apart from Division 1A, constitute putting the acquisition into effect.

[Schedule 1, item 27, section 45AV of the CCA]

3.4 The intent of this notification obligation is to ensure that a corporation or person who is a party to an acquisition provides a notification to the Commission if the acquisition is required to be notified.

3.5 The types of acquisitions that must be notified to the Commission will be determined via legislative instrument.

3.6 Notification by one of the parties or proposed parties to the acquisition is sufficient to satisfy the notification obligation.

Notified acquisition

3.7 An acquisition is a notified acquisition if the Commission is notified of a proposed acquisition, regardless of whether or not the acquisition is required to be notified, and whether or not a previous notification of the acquisition has been made. Acquisitions voluntarily notified become subject to the requirements of the new system.

[Schedule 1, item 35, subsections 51ABW(1) and (2) of the CCA]

3.8 For a notified acquisition, the principal party that makes the notification, or each of the principal parties that jointly make the notification, is a notifying party in relation to the notification.

[Schedule 1, item 35, subsection 51ABW(3) of the CCA]

3.9 Acquisitions are time sensitive transactions. As such, the legislation sets specific times within which the Commission must take various actions. To ensure it is clear when the determination period starts, the amendments introduce the concept of effective notification date. The effective notification date is the day the notification is made. This basic rule is modified by:

•

paragraph 51ABZ(1)(a): for notifications that are materially incomplete or misleading, the notification is taken never to have had an effective notification date;

•

subsection 51ABZA(5): for notifications that are incomplete or misleading but additional information and documents are provided, the effective notification date is the day additional information or documents are given;

•

subparagraph 51ABZB(2)(a)(i): for material changes of fact, the effective notification may be changed by the Commission to the date on which the Commission becomes aware of the change of fact.

[Schedule 1, item 35, subsection 51ABW(4) of the CCA]

3.10 The Commission's deadline for the acquisition determination is tied to the effective notification date. The parties are made aware of these timeframes as the Commission must give each notifying party, or at least one of the notifying parties, written notice that the Commission has received the notification, including confirmation of the effective notification date.

[Schedule 1, item 35, subsection 51ABW(5) of the CCA]

3.11 A notification of a proposed acquisition must be made in writing by the principal party or parties. See below for further information about the requirement for the information to be provided in a notification of a proposed acquisition and the impact on the effective notification date if information required by the form is not provided.

[Schedule 1, item 35, paragraphs 51ABX(1)(a) and (c) of the CCA]

3.12 A notification must be accompanied by the prescribed fee (if any). If there is a prescribed fee, the notification is taken not to be made until such time as the fee is paid. The fees will be set out in legislative instruments.

3.13 The setting of fees in legislative instruments is consistent with other parts of the CCA, in particular the provisions governing merger authorisations and notifications, where detailed operational matters, including fees, are delegated to subordinate legislation, enabling timely adjustments without the need for frequent amendments to the primary legislation.

3.14 Cost recovery principles prescribe that, as an identifiable group creating a specific demand for a specific regulatory activity, notifying parties should pay fees. The fees should reflect the resources required by the Commission to efficiently carry out the review of an acquisition. The fees will ensure the Commission is properly resourced to undertake its expert administrative decision-making role.

[Schedule 1, item 35, paragraph 51ABX(1)(b), and subsections 51ABX(2) and (3) of the CCA]

3.15 For the notification to be made in accordance with subsection 51ABX(1), at least one of the following must apply:

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the acquisition is to take place pursuant to a contract, arrangement or understanding that has been entered into,

•

the proposed contract, arrangement or understanding has not been entered into, but the proposed parties intend to enter into it;

•

the acquisition will be a takeover acquisition in relation to a takeover bid. The bid must have been publicly proposed or must have been already made. Alternatively, the parties must

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intend that the bid meets certain criteria in the Corporations Act (essentially, that it be comprehensive and non-discriminatory, certain and fair) and

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intend to make a request under the surprise hostile takeover provisions of this Act (paragraph 51ABZZL(1)(d)).

•

the acquisition is to take place pursuant to a proposed arrangement between a Part 5.1 body and its creditors or members or any class of them, under Part 5.1 of the Corporations Act, and the arrangement has been publicly proposed by the Part 5.1 body.

[Schedule 1, item 35, paragraph 51ABX(1)(d) and subsection 51ABX(4) of the CCA]

3.16 The form and requirements for information and documents will be set by legislative instrument so that these requirements can be modified from time to time. This will ensure the form and requirements for information and documents are appropriately calibrated to the likely potential harm arising from an acquisition, minimising the cost for businesses and enabling the Commission to review an acquisition in an efficient manner.

3.17 The exemption from disallowance is appropriate as it is important to provide commercial certainty to parties to an acquisition in relation to compliance with the form and accompanying requirements, particularly for time-critical transactions, that the instruments will not be disallowed. As the new system will operate in all States and Territories of Australia through the Competition Code, disallowance may also create uncertainty for the States and Territories about the application of the Competition Code under State and Territory law.

Notifications may cover multiple acquisitions

3.18 A proposal to put an acquisition into effect may include a proposal to put another related acquisition into effect. For such proposals, the proposed acquisitions may be notified in a single notification, and the acquisition provisions will apply in relation to such notifications as if:

•

those acquisitions together constituted a single acquisition; and

•

each party to those acquisitions were a party to that single acquisition; and

•

each principal party to those acquisitions was a principal party to that single acquisition.

3.19 For the avoidance of doubt, even if the parties do not notify together, the Commission may still have regard to the identity of the acquirers involved and the effect that all of their acquisitions may have on competition.

[Schedule 1, item 35, subsection 51ABX(5) of the CCA]

Multiple notifying parties

3.20 Where there is more than one notifying party in relation to the notification of an acquisition:

•

a reference to giving a notice to the notifying party is taken to refer to giving a notice to any of those notifying parties; and

•

a reference to the notifying party doing a thing (such as giving additional information or documents or making a request or application) is taken to refer to all of those notifying parties doing that thing together jointly.

3.21 This is intended to facilitate administrative efficiency and minimise the burden and cost on both the parties and the Commission by avoiding the lodgement and processing of multiple identical notices.

[Schedule 1, item 35, subsection 51ABX(6) of the CCA]

When acquisitions are stayed, subject to conditions, have not been finally considered or become stale

When acquisitions are stayed

3.22 An acquisition is stayed in each of the following circumstances:

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if the acquisition is required to be notified but has not been;

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if the acquisition has been notified, but has not been finally considered;

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if the Commission has determined that the notified acquisition must not be put into effect and the Commission has not subsequently determined that the acquisition is of public benefit (see subsection 51ABZE(1) and paragraph 51ABZW(1)(a));

•

if the acquisition has been notified and the most recent notification is stale.

[Schedule 1, item 35, section 51ABE of the CCA]

3.23 A stayed acquisition cannot be put into effect. If the stayed acquisition is put into effect, the acquisition will be void.

When acquisitions are subject to conditions

3.24 These amendments allow the Commission to make a determination that an acquisition may be put into effect subject to conditions, if it considers that any competition concerns can be addressed, or that there would be a public benefit, if the parties to the acquisition complied with certain conditions. The Commission may determine the nature, form and scope of the conditions, and may also have regard to its effect on consumers and any resulting consumer benefits. The notifying party may offer conditions to the Commission during Phase 1 or Phase 2 or during the public benefits review.

3.25 An acquisition will be subject to a condition if:

•

the most recent determination under subsection 51ABZE(1) includes that condition (the determination condition). Since making that determination, the Commission must not have made a determination on a public benefit application in respect of the notification, or

•

the most recent determination under subsection 51ABZW(1) includes that condition (the public benefit condition). Since making that determination, the Commission has not made a determination in respect of a notification of the acquisition.

3.26 This provides for situations in which the Federal Court might require the Commission to remake its competition decision (under subsection 51ABZE(1)) due to an error of law. It is therefore possible that a public benefit determination made by the Commission may be superseded by a competition decision under subsection 51ABZE(1).

[Schedule 1, item 35, section 51ABH of the CCA]

Specific conditions for acquisitions must be complied with

3.27 A person who puts an acquisition into effect that is subject to specified conditions must comply with those conditions. A failure to comply with any of the conditions constitutes is a contravention of the Act.

[Schedule 1, item 27, section 45AZ of the CCA]

When notifications have not been finally considered

3.28 An acquisition is stayed and cannot proceed if it has been notified, but has not been finally considered.

3.29 A notification of an acquisition will be finally considered in the following circumstances:

•

when the Commission has made a determination under subsection 51ABZE(1) in respect of the notification; and

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the determination is no longer subject to review.

3.30 Additionally, if the determination is subject to conditions, or is a determination that the acquisition must not be put into effect, the notification will be finally considered:

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if the determination includes conditions and a public benefit application has not been made;

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if the determination is that the acquisition must not be put into effect, once the period for making a public benefit application has ended and no such application has been made; or

•

if a public benefit application has been made, the Commission has made a determination or otherwise finished considering the application.

[Schedule 1, item 35, subsection 51ABF(1) of the CCA]

3.31 If an application has not been made under subsection 100C(1) for review of the determination and the period during which such an application could be made has ended, an application is no longer subject to review.

[Schedule 1, item 35, paragraph 51ABF(2)(a) of the CCA]

3.32 Where an application has been made under subsection 100C(1) for review of the determination, the application will be no longer subject to review in the following cases:

•

where the application has been withdrawn, or the reinstatement period has ended and no reinstatement application has been made; or

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the Tribunal has dismissed the application; or

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the Tribunal has made a determination affirming, setting aside or varying the acquisition determination under paragraph 100N(1)(a).

[Schedule 1, item 35, paragraph 51ABF(2)(b) of the CCA]

3.33 A notified acquisition that is not finally considered is stayed and cannot be put into effect. If the stayed acquisition is put into effect, the acquisition will be void.

When notifications become stale

3.34 A notification of an acquisition becomes stale (and cannot be put into effect) 12 months after the time (if any) at which the Commission either:

•

makes a determination that the acquisition may be put into effect (either subject or not subject to specified conditions); or

•

if a public benefit application relates to the notification-makes a determination that the acquisition would be of public benefit (including a determination that the acquisition would be of public benefit if specified conditions were complied with).

[Schedule 1, item 35, section 51ABG of the CCA]

3.35 There are many reasons why a notification of an acquisition should become stale after 12 months. Market conditions can materially change a year after the determination, meaning the Commission's assessment that the acquisition is not likely to substantially lessen competition, or would be of public benefit, may no longer be accurate, in which case, it is appropriate that the acquisition should be re-notified to the Commission and assessed again before it may be put into effect.

3.36 Market conditions may change over time which could mean that an acquisition which may have substantially lessened competition at a point in time no longer does so. Where the Commission has made a determination that an acquisition must not be put into effect, the parties to the acquisition may re-notify at a later date.

Powers of the Commission in response to incomplete and misleading notifications and changes of fact

Notifications that are materially incomplete or misleading

3.37 The Commission may decide, in writing, that a notification of an acquisition has no effective notification date.

3.38 The Commission may make this decision if the Commission is satisfied that the notification is materially incomplete or misleading, or contains false information in a material particular, and

•

the notification is not subject to a Phase 2 review; or

•

the Commission has not made a determination in respect of the notification under subsection 51ABZE(1) (that the acquisition may be put into effect (with or without conditions) or must not be put into effect).

3.39 This is intended to incentivise and encourage notifying parties to provide all relevant, accurate and required information to the Commission with the notification in the first instance. This ensures the Commission has sufficient information to conduct reviews efficiently and effectively.

3.40 The decision (that there is no effective notification date) must be made within a reasonable period after the Commission determines that the information is incomplete or misleading, or contains false information.

[Schedule 1, item 35, subsections 51ABY(1), (2) and (3) of the CCA]

3.41 Subsection 172(3) of the CCA provides that strict compliance with a prescribed form is not required for the purposes of the CCA and that substantial compliance is sufficient. However, in considering whether a notification is materially incomplete or misleading or contains false information, the Commission may have regard to:

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the extent to which the notification is in the form determined by the Minister;

•

the extent to which the notification includes, or is accompanied by, any information or document determined by the Minister; or

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any additional information or documents given to the Commission in response to any previous determination that the notification does not have an effective notification date; or

•

any change of facts that the Commission becomes aware of after the notification is made and that are material to the Commission making a determination under Division 3 of Part IVA.

3.42 A notification could be materially incomplete, materially misleading or contain information that is false in a material particular at the time it is made (for example because it does not include upfront information which may be required by the form) or it can become (for example, because of a change of fact) materially incomplete, materially misleading or contain information that is false in a material particular after the notification is made - even if it was complete, not misleading and did not contain false information at the time the notification was made.

[Schedule 1, item 35, subsections 51ABY(4) and (8) of the CCA]

3.43 For the purpose of the Commission's consideration of whether or not a notification is materially incomplete or misleading, or contains information that is false in a material particular, the Minister may determine in writing information or documents for the purpose of the Commission's consideration in relation to the notification and the form of the notification.

3.44 Such a Ministerial determination is a legislative instrument but is not disallowable. It may include a requirement that information about goodwill protection provisions in the contract pursuant to which the acquisition would take place is specified in the notification.

[Schedule 1, item 35, subsections 51ABY(5), (6) and (7) of the CCA]

3.45 If the Commission decides that a notification should be taken never to have had an effective notification date, the Commission must give the notifying party written notice of both the decision and the grounds on which the Commission is satisfied that the notification is materially incomplete or misleading or contains information that is false in a material particular.

[Schedule 1, item 35, subsection 51ABZ(1) of the CCA]

3.46 If the Commission has determined that the notification does not have an effective notification date, the Commission cannot make a determination in respect of the notification under subsection 51ABZE(1).

[Schedule 1, item 35, subsection 51ABZ(2) of the CCA]

Providing additional information and documents in relation to notifications that are incomplete or misleading

3.47 The following applies if the Commission decides, in writing, that there is no effective notification date under subsection 51ABY(1) and the notifying party gives the Commission additional information or documents in response to the Commission's decision:

•

The additional information or documents must be given in writing and accompanied by the fee (if any).

•

Any additional information or documents are taken not to be given until the requisite fee (if any) is paid.

•

The effective notification date of the notification of the acquisition is the day that the additional information or documents are given to the Commission.

•

The Commission must give the notifying party written notice of the effective notification date.

[Schedule 1, item 35, section 51ABZA of the CCA]

3.48 This situation should be distinguished from the requirement to provide the Commission with additional information during the Commission's information gathering and consultation process.

Material changes of fact

3.49 The notifying party is under an ongoing obligation to notify the Commission of any material changes of fact in the notification until the Commission makes a determination under subsection 51ABZE(1), to ensure the determination is made on correct and up-to-date information.

[Schedule 1, item 27, section 45AX of the CCA]

3.50 If the Commission becomes aware of a change of fact relating to a notification, and it is satisfied that the change is material to the Commission's determination, the Commission may (in writing):

•

if the notification is not subject to Phase 2 review,

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decide that the effective notification date of the notification of the acquisition is the date on which the Commission becomes aware of the change of fact; or

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extend the Phase 1 determination period for the notification; or

•

if the notification is subject to Phase 2 review, extend the Phase 2 determination period for the notification.

3.51 The extension for either determination period starts when the Commission decides on the extension and includes:

•

each day that the Commission is not given the relevant information or documents; and

•

the day the notifying party gave the Commission the relevant information or documents.

[Schedule 1, item 35, subsections 51ABZB(1), (2) and (3) of the CCA]

3.52 Examples of a material change of fact include the immediate or short-term exit of a major competitor, the destruction of assets which are relevant to the Commission's assessment of the notified acquisition or significant regulatory change.

3.53 The Commission has the option to continue its review on the extended statutory timeline. The Commission will consider when it is appropriate to reset the effective notification date pursuant to subsection 51ABZB(2)(a) or extend the timeline. It is expected that notifying parties will comply such that this will only be used by the Commission in rare cases.

3.54 The Commission's decision must be made within a reasonable period after it becomes aware of the change of fact, and it must give the notifying party written notice of its decision.

[Schedule 1, item 35, subsections 51ABZB(4) and (5) of the CCA]

3.55 If the Commission extends the Phase 1 or Phase 2 determination period as outlined above, the period for making an acquisition determination is extended by the same period of time.

Schedule 1, item 35, subsections 51ABZB(6) and (7) of the CCA]

3.56 If the Commission extends either determination period because of a material change of fact and additional information or documents are provided to the Commission, the information or documents must be accompanied by the applicable fee (if any). Information and documents are taken not to be given before the fee (if any) is paid. Information must also be given in writing.

[Schedule 1, item 35, section 51ABZC of the CCA]

When the Commission may cease considering a notified acquisition

3.57 The Commission may cease considering a notified acquisition if the Commission is satisfied that the parties to the acquisition no longer intend to put the acquisition into effect.

3.58 For example, the Commission may form this view if there is a public announcement by the parties, or other evidence of a good faith intention or agreement to no longer proceed with the acquisition.

[Schedule 1, item 35, subsections 51ABZD(1) and (3) of the CCA]

3.59 The Commission must also cease considering the notification if it is requested to do so, in writing, by the notifying party in relation to the notification. Where a hostile takeover has been proposed, it is expected that the Commission will have regard to the facts, practical circumstances and commercial realities before deciding to cease considering the notification and not simply cease to consider a notification solely at the request of the target company (unless they are also the notifying party).

3.60 A decision by the Commission to cease considering the notification must be made in writing and be given to the notifying party.

[Schedule 1, item 35, subsection 51ABZD(2) and paragraph 51ABZD(5)(a) of the CCA]

3.61 If the Commission decides to cease considering a notification under subsection 51ABZD(2) or (3) (which do not limit each other), Subdivision B (Commission considerations of incomplete and misleading notifications and changes of fact) and Division 4 (substantial lessening of competition) will not apply to the notification.

[Schedule 1, item 35, subsection 51ABZD(4) and paragraph 51ABZD(5)(b) of the CCA]

3.62 A decision by the Commission to cease considering the notification of an acquisition means that the acquisition is stayed and must not be put into effect.

[Schedule 1, item 35, note to subsection 51ABZD(5) of the CCA]

3.63 To avoid doubt, a decision to cease considering the notification of an acquisition does not have the effect that the acquisition ceases to be a notified acquisition.

[Schedule 1, item 35, subsection 51ABZD(6) of the CCA]

Commission must be notified of material changes of fact in relation to notified acquisitions

3.64 Notifying parties have an obligation to keep the Commission informed of material changes of fact relevant to notified acquisitions that are still being determined by the Commission.

3.65 This obligation is engaged if the notifying party becomes aware of a change in fact:

•

either on or after the effective date of the notification; and

•

when the Commission is considering the notification; and

•

while the Commission has not made a determination in respect of the notification; and

•

if the notification is subject to Phase 2 review- prior to 15 business days before the end of the Phase 2 determination period for the notification.

3.66 The change of fact must be material to the Commission's determination of the notified acquisition. An example of a material change of fact would be the immediate or short-term exit of a major competitor, the destruction of assets which are relevant to the Commission's assessment of the notified acquisition or significant regulatory change.

[Schedule 1, item 27, subsections 45AX(1) and (2) of the CCA]

3.67 The obligation also arises in circumstances where the notifying party has made a public benefit application in respect of the notification and the notifying party becomes aware of a change of fact that is material to the Commission's determination of the public benefit application.

[Schedule 1, item 27, subsection 45AX(3) of the CCA]

3.68 A person is taken to become aware of a change of fact at the earliest time when the person becomes aware of the change and that it is material to the Commission's determination in respect of the notification or public benefit application.

[Schedule 1, item 27, subsections 45AX(2) and (4)]

3.69 Material changes of fact must be reported to the Commission as soon as practicable after the person becomes aware of the change. If the person is the only notifying party, they are required to notify the Commission. If there are multiple notifying parties, then all the notifying parties must notify the Commission jointly.

[Schedule 1, item 27, subsection 45AX(5) of the CCA]

3.70 A person who ought reasonably to be aware of something is presumed to be aware of thing.

[Schedule 1, item 27, subsection 45AX(6) of the CCA]

3.71 What constitutes a material change of fact is left to the discretion of the Commission. It is intended that the Commission would have regard to market developments or other competitively significant events when considering whether there has been a material change of fact. For a change of fact to be material, it must be of meaningful significance to the Commission's determination of the notified acquisition or public benefit application.

Stayed acquisitions must not be put into effect

3.72 A person must not put an acquisition into effect if the acquisition is stayed. A person contravenes the Act if they put an acquisition into effect and the acquisition is stayed.

[Schedule 1, item 27, section 45AY of the CCA]

3.73 In determining whether an acquisition has been put into effect, regard should be had to the practical circumstances of each matter, however, it does not require legal ownership to have transferred. Examples of putting into effect an acquisition may include terminating the employment of key employees, closing key facilities or integrating IT systems.

Acquisitions void if put into effect while stayed

3.74 If an acquisition is put into effect, or purportedly put into effect, in circumstances where the acquisition is stayed, the acquisition is, and is taken always to have been, void.

[Schedule 1, item 27, subsections 45AZA(1) and (2) of the CCA]