ACCC's recent decision relaxes Competition Law in relation to acquiring assets of 'failing companies'

A recent announcement by the Australian Competition and Consumer Commission (ACCC) demonstrates a more flexible approach by the ACCC to acquisitions of a failing company's assets by a competitor, which in other circumstances may be challenged as anti-competitive. The ACCC will still need to be satisfied that there is no better alternative which is less damaging for competition in the market.

Background Facts

Hans Continental Smallgoods Pty Ltd (Hans) and P&M Smallgoods Pty Ltd (Primo) operated as independent competitors in the smallgoods market.

After a long, and eventually unsuccessful sales process, Hans was put into voluntary administration by its owners. Upon appointment, the administrator commenced a further sales process which resulted in Primo seeking ACCC approval to acquire Hans.

The ACCC's decision

The ACCC would usually object to any acquisition of assets which it considers will substantially lessen competition in the market. In this case the ACCC has decided not to oppose the acquisition because the proposed acquisition of the business by Primo was not likely to result in a reduction in competition in the market for smallgoods.

Reasons why the ACCC allowed the acquisition

The relaxation on enforcing competition in the market is based on the ACCC's conclusions:

• that it appears Hans would imminently cease to trade and would be liquidated by the administrator (unless acquired by Primo), and that Hans was likely to collapse without a purchaser, therefore the acquisition was not likely to lessen competition; and
  
  
• that there were no alternative bids for the Hans business which were capable of being finalised prior to the company being placed in liquidation.

The ACCC conducted detailed enquiries into the likely affect on competition if the administrator were to close the business and auction its assets and found:

1. there was only a limited interest in the assets;
   
   
2. there was a likelihood that many of the assets would be lost to the industry permanently if sold at auction; and
   
   
3. those that did remain would be likely to be offline for an extended period of time before they could be redeployed, affecting their efficacy as a competitive constraint.

The ACCC concluded that it was unlikely the competitive situation would be much different with or without the acquisition by Primo.

ACCC still protecting competition

This case demonstrates a more flexible approach to the acquisition of assets by a competitor, however there must be valid reasons for the ACCC to allow corporations to take actions that may decrease competition in the market.

Effects for insolvency

Corporations that are in administration, and on the verge of becoming wound up, may be allowed to sell their assets to competitors prior to becoming insolvent. This will especially be the case where the circumstances do not significantly decrease competition.

If you have any queries in relation to this matter or any other insolvency matters, please do not hesitate to contact Alison Robertson on 9288 6872 or Darren Zusman on 9288 6734.