Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
As notification is voluntary, no sanctions apply for failure to file; however, mergers cannot be cleared or authorised retrospectively, and the New Zealand Commerce Commission (NZCC) may investigate non-notified mergers that it considers could negatively impact competition in New Zealand.
In the past few years, the NZCC has continued to investigate and take enforcement proceedings against non-notified mergers. In 2019, it challenged First Gas Limited’s acquisition of certain gas distribution assets in the High Court, and in 2020 it agreed to settle High Court proceedings against Wilson Parking for acquiring certain car park leases (with Wilson Parking agreeing to divest some car park leases as part of that settlement).
In January 2022, the NZCC filed proceedings in the High Court against software company Objective Corporation Limited in relation to its 2019 acquisition of Master Business Systems Limited, with the outcome of the penalty hearing still pending.
Which parties are responsible for filing and are filing fees required?
Applications for clearance or authorisation of a merger are made by the purchaser. The fee is NZ$3,680 to seek clearance or NZ$36,800 to seek authorisation (including goods and services tax).
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
The Commerce Act 1986 (the Act) provides the NZCC 40 working days to decide on clearance applications and 60 working days for authorisation applications, but in practice the NZCC can, and frequently does, seek extensions. If applicants do not agree to such an extension, the application is deemed to have been declined if the NZCC has not made a decision by the deadline. This means, in practice, merging parties always agree to extensions sought by the NZCC.
For the NZCC's financial year ending June 2022, the NZCC took an average of 69 days to make a clearance determination. There is more variability with respect to how long the NZCC takes to reach an authorisation application decision. The last five merger authorisation applications decided by the NZCC have taken between 45 and 252 working days.
As the NZCC cannot grant clearance or authorisation retrospectively, any proposed merger that might give rise to competition issues should be made conditional on NZCC approval and should not complete until approval is obtained.Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
Mergers cannot be cleared or authorised retrospectively, so a transaction agreement must remain conditional on regulatory approval until clearance or authorisation is obtained.
If the NZCC believes a merger (that is no longer conditional) may breach the Act, it can investigate and, if necessary, take proceedings. As of 5 May 2022, the maximum penalty for mergers that breach the Act has increased from NZ$5 million to the greater of NZ$10 million, three times the commercial gain of the contravention or (if that cannot be ascertained) 10 per cent of the group turnover (or NZ$500,000 for individuals). The Court can also impose injunctions and make divestiture (and other) orders. If the NZCC was considering a clearance or authorisation application at the time of completion, it would close that clearance investigation and open an investigation into a potential breach.
In 2008, the Court of Appeal upheld penalties for breach of the merger provisions of the Act (New Zealand Bus Ltd v Commerce Commission  3 NZLR 433). The purchaser had filed for clearance but subsequently withdrew its application and completed the acquisition. The NZCC brought proceedings alleging the acquisition was likely to substantially lessen competition, and the High Court ordered the purchaser to pay a penalty of NZ$500,000. Two directors of the vendor were found liable as accessories for agreeing to waive the clearance condition.
Accordingly, both acquirers and vendors need to be aware that, while merger clearance remains voluntary:
- seeking clearance may be the safest option for potentially problematic mergers; and
- withdrawing a clearance application and completing a transaction is likely to be high risk.
Until closing, merger parties are treated as separate businesses for the purposes of the Act’s restrictive trade practices prohibitions; therefore, any integration between parties prior to closing gives rise to gun-jumping risks under the restrictive trade practices prohibitions.
In 2010, the NZCC successfully prosecuted two pathology businesses for agreeing not to compete pending a proposed merger (Commerce Commission v New Zealand Diagnostic Group Ltd and Ors HC Auckland CIV 2008-404-4321, 19 July 2010). The Court imposed penalties of $65,000 and $35,000, respectively. Those penalties would likely be significantly higher in today’s context (and intentional cartel conduct has since become a criminal offence).
As of 5 May 2022, the maximum penalties for breaching the merger control prohibition have increased.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
Foreign-to-foreign mergers that close before obtaining clearance are subject to the same potential sanctions as domestic mergers. However, in practice, there are limits on the ability of New Zealand authorities to enforce orders made against offshore companies; therefore, there is an additional process for the NZCC to seek remedies in respect of acquisitions by ‘overseas persons’.
While the NZCC has not, to date, used these new overseas persons powers, it has opened investigations into foreign-to-foreign mergers since then.
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
The NZCC does not have jurisdiction to clear any merger after closing. Accordingly, the New Zealand aspect of the merger would need to remain conditional until clearance is obtained if clearance is required.Public takeovers
Are there any special merger control rules applicable to public takeover bids?
No; however, in practice, the NZCC applies lower thresholds for finding a ‘substantial degree of influence' for public companies than for private companies (for a public company, the NZCC normally examines shareholdings of 15 per cent or more but concerns could also potentially arise at lower shareholdings, depending on other factors).
The Takeovers Code (the Code) also applies to listed companies. The Code is administered by the Takeovers Panel, separate from the NZCC. The Code is far-reaching and should be considered carefully in relation to public company acquisitions.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
There are prescribed application forms for both clearances and authorisations. The forms require information concerning the transaction, the parties, the rationale, the markets, etc. Economic evidence is often advisable for more complex clearance cases. For authorisation applications, economic analysis of public benefits and detriments is invariably required.
The applicant must also provide the documents bringing about the merger and ancillary agreements, and documentation prepared for or considered by senior management and directors that sets out the rationale for the merger, analyses the merger or competitive conditions, and includes the business plans, annual reports and management accounts.
While there are no sanctions for not providing all required information, until the NZCC is satisfied it has received all required information, it will not register the application.
There are sanctions for deliberately providing incorrect information, including deliberately misleading the NZCC about the existence of requested information as it is an offence under the Act to deceive or knowingly mislead the NZCC. Companies found in breach can be fined up to NZ$300,000, and individuals up to NZ$100,000.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
There are no phases to a clearance process mandated by statute; however, the NZCC has published guidance setting out its expected process and timelines for clearance applications.
Prior to formal filing, merger parties are encouraged to contact the NZCC as early as possible to inform it of potential applications and engage in pre-notification consultation. This typically enables the NZCC to plan ahead, which can help expedite the process.
The NZCC generally expects a substantially developed draft, alongside supporting documents, at least a week prior to pre-notification consultations. The NZCC will generally advise whether parties need to supplement their application with further information before the NZCC would be willing to register a formal filing.
Once the NZCC registers a formal filing, a media release is published on its website announcing it has received the application. Subsequently, according to the NZCC’s indicative time frames in its Mergers and Acquisitions Guidelines (although the exact time frames vary from case to case, including depending on the complexity of, and degree of opposition to, a proposed merger):
- by working day five, the NZCC aims to publish a draft investigation timeline on its website alongside a ‘Statement of Preliminary Issues’, which sets out the issues the NZCC intends to explore and invites submissions from third parties (which are typically due by working day 15);
- the NZCC aims to complete initial interviews and information gathering by working day 30;
- by working day 40, the NZCC is required to either reach a determination or obtain an extension. If the NZCC has not granted clearance by working day 40, it will seek an extension and likely decide to publish a ‘Statement of Issues’ setting out the issues it continues to investigate. Both the merger parties and third parties are able to submit responses, typically due by working day 65;
- if the NZCC has not granted clearance by working day 90, it will likely decide to issue a ‘Statement of Unresolved Issues’, setting out the issues it considers have not been satisfactorily addressed. Merging parties and third parties will have until approximately working day 110 to make submissions; and
- following submissions on the Statement of Unresolved Issues (working day 130+) the NZCC will decide to either grant or decline clearance.
What is the statutory timetable for clearance? Can it be speeded up?
The Act provides the NZCC 40 working days to decide clearances and 60 working days to decide authorisations, but in practice, the NZCC often seeks extensions. If applicants do not agree to an extension, it is open to the NZCC to simply not make a determination in the prescribed time, in which case the application is deemed to be declined. This means that merging parties, in practice, always agree to extensions sought by the NZCC.
The NZCC’s average time over the past decade to 30 June 2022 to reach a decision for clearances is 65 working days. For authorisations, it is 179 working days.
The best ways to expedite the NZCC’s process are to:
- contact the NZCC as early as possible about potential applications and engage in a pre-notification consultation;
- have all required information ready to submit to the NZCC at least one week prior to the targeted formal filing date; and
- respond expeditiously to all NZCC information and interview requests.