There has been recent debate in Australia and elsewhere
about the role of competition regulators when decisions have to be
made urgently about the survival of some firms hit by the financial
In this context, laws have been recently passed in
Australia to provide that the normal merger clearance rules and
powers of the ACCC no longer apply to transfers ordered by the
Australian Prudential Regulation Authority, or to disposals by a
statutory manager it appoints.
In practice, the exemptions are only likely to be used
where the continued viability of a bank is under imminent
As part of its initial response to the global financial crisis
in October 2008, the Commonwealth Government made amendments to
banking law in Australia to ensure that, if necessary, disposals of
distressed banking assets can occur rapidly without the need for
Australian Competition and Consumer Commission review.
These amendments ensure that the Australian Prudential
Regulation Authority's (APRA) ability to move
quickly in order to safeguard the stability of the Australian
financial system, and the interests of deposit holders, is not
compromised by section 50 of the Trade Practices Act 1974
Where these new provisions apply to a proposed transaction, the
ACCC's role is limited to being consulted by APRA. In all other
circumstances, the ACCC retains its powers to review proposed
transactions and to intervene under section 50 if it sees fit.
In practice, these new exemptions from section 50 are only
likely to be available where the stability of the Australian
financial system, or the interests of depositors, will be
jeopardised if the transfer or disposal does not take place - that
is, where there is an imminent threat of an Authorised
Deposit-taking Institution (ADI) failing.
Of course, in considering whether to seek to rely on these new
exemptions in order to circumvent the need for ACCC approval of a
particular transaction, businesses in the banking industry will
also need to be mindful of the broader commercial and regulatory
consequences of APRA intervention of this kind.
Under these new provisions, section 50 of the TPA no longer
compulsory transfers of business from one ADI to another under
Part 4 of the Financial Sector (Business Transfer and Group
Restructure) Act 1999;
the acquisition of assets in a sale or disposal of the whole or
part of the business of an ADI by an ADI statutory manager
(appointed by APRA) who is in control of the ADI's business
under the Banking Act 1959;
the acquisition of shares in an ADI as a direct result of the
issue or sale of shares, or a right to acquire shares, by the ADI
Importantly, the prerequisites for a compulsory transfer and for
the appointment of an ADI statutory manager are quite stringent. In
general, they will only be satisfied where:
the ADI is likely to be unable to meet its contractual or other
obligations (including its payment obligations) or, in the case of
a compulsory transfer, is in breach of the Banking Act or has
already had an ADI statutory manager or prudential investigator
appointed to it;
APRA is satisfied that the transfer, or the appointment of the
ADI statutory manager, is appropriate in the interests of
deposit-holders and of the Australian financial sector as a
These requirements are cumulative in the case of a compulsory
transfer, and are alternatives in the case of the appointment of an
ADI statutory manager.
Additionally, a compulsory transfer requires either the consent
of the Commonwealth Treasurer or a waiver by the Treasurer of the
need for that consent.
In other contexts, the ACCC will apply normal competition rules
- one of which includes the existing "failing company"
principle, that if a firm is destined to exit the market or fail,
in the absence of the proposed sale to a competitor, that likely
outcome is relevant to the Commission's assessment of the
impact of the sale on competition in markets in the future,
"with and without" the transaction under review.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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