This article discusses the proposed reforms to the Commerce Act announced by the Government yesterday morning - including hotly anticipated amendments to the merger control regime, along with other regulatory changes.

Current state of play

As discussed in our article in August, last month the Minister of Commerce and Consumer Affairs Scott Simpson confirmed the first wave of reforms to the Commerce Act 1986 (Commerce Act). However, that announcement did not include reforms related to the merger regime or the outcome of the governance review of the Commerce Commission (Commission).

Yesterday morning the Government filled in the gaps on those outstanding elements of the reform regime. We summarise the key takeaways below. 

Merger control: expanded and clarified

Creeping acquisitions subject to section 47

As expected, the Government has decided to expand the scope of section 47 of the Commerce Act to address creeping acquisitions, being the acquisition of multiple small competitors that may not raise competition issues in isolation, but do when assessed cumulatively. The Commission will now be able to combine the competitive assessment of mergers by an acquirer in the last three years - following the introduction of similar powers in Australia.

Public feedback received by MBIE in its review earlier this year on this proposal was mixed, with many submitters questioning whether this power was necessary, given there must be a point at which one of the acquisitions in the three-year window would result in a substantial lessening of competition - regardless of whether its effect was aggregated with other acquisitions.

Clarifications to the definitions of “substantial lessening of competition”, “substantial degree of influence”, and “assets of a business”

What constitutes a “substantial lessening of competition” will now explicitly include the creating, strengthening or entrenchment of market power. The intention of this amendment is to address what the Government calls “killer acquisitions”, being acquisitions by large companies of smaller competitors to protect their competitive position. 

Like the creeping acquisitions powers, this change is consistent with equivalent reforms in Australia, and is notable for the fact that it will also apply to the Commission’s assessment of a substantial lessening of competition under the misuse of market power and anticompetitive agreements prohibitions in sections 36 and 27 of the Commerce Act.

The clarifications to the other two definitions are not expected to make a material difference to the regime generally - instead codifying the position as already widely understood.

Behavioural undertakings are back

In a widely welcomed change, the Commission will again be able to accept behavioural undertakings as remedies in merger cases, bringing New Zealand back in line with the majority of overseas jurisdictions. In recent years, merger applicants have been limited to offering structural remedies only - ie involving only an undertaking to divest shares or assets of the merged business post-acquisition. 

This limitation has previously created challenges for both domestic and cross-border acquisitions. Domestically, acquisitions that may have been cleared or authorised with a behavioural undertaking have been declined, abandoned, or may not have even taken place. Accordingly, we support this change.

Structural changes to the Commission’s review of mergers and acquisitions

Some additional changes have been introduced to the Commission’s processes and powers when investigating potentially anticompetitive mergers and acquisitions. These include:

• Call-in powers, allowing the Commission to require merger parties to apply for clearance or authorisation for non-notified mergers;
• Stay and hold powers, allowing the Commission to stop completion of an acquisition if it considers there are issues still requiring investigation;
• A requirement for the Commission to make a decision on merger clearance applications which cannot be resolved within the initial 40 working day window from filing, within 140 working days, and merger authorisation applications which cannot be resolved within the initial 60 working day window, within 160 working days; and
• Post-decision, the Commission will need to publish a decision summary within 1 working day, with full reasons published within 20 working days (and the 20 working day window for appeals to now commence from the date the reasons are published).

We look forward to seeing how these proposed reforms take shape in the proposed Bill. 

Other notable changes: predatory pricing, industry codes and AI

While already specifically referred to as an example of misuse of market power in the Commission’s section 36 guidelines, the Government proposes introducing an objective test in the Commerce Act for when pricing strategies constitute predatory pricing (ie pricing below cost with the purpose or effect of lessening competition in a market). This would exclude as predatory pricing short-term promotions, one-off specials, de minimis discounts, and mistaken pricing. It remains to be seen whether the introduction of this test is necessary, given section 36 already provides relatively broad discretion to the Commission.

The Commission will now have the ability to recommend Cabinet introduces sector/industry specific regulations targeted at breaking down barriers to entry and expansion in uncompetitive sectors/industries. This follows a similar approach in Australia. This power is intended to be a “last resort” for concentrated markets, and would not allow forced restructure of markets (such as the divestment of business assets).

Lastly, artificial intelligence will be specifically referenced in the Commerce Act. Where anticompetitive conduct (most likely to be cartel conduct) is the result of the use of AI, it will not be a defence that the conduct has been devised/carried out by AI.

No material changes to last month’s announcements 

As a reminder, the Government’s announcement in August focused on reforms aimed at encouraging beneficial collaboration, and changing the way in which the Commission handles Official Information Act requests to ensure the Commission’s investigations are not impeded by such requests. No changes to these were announced yesterday. 

For more detail on these proposed reforms, refer to our article.

Commerce Commission governance review findings

The findings and recommendations of Dame Paula Rebstock’s review of the Commission have now also been announced, focusing on the growth of the Commission in recent years. This growth has led to its regulatory and governance functions no longer being fit for purpose, with the key proposal being a separation of these functions - a move supported by the Commission’s Chair Dr John Small.

Next steps

The Government has said these changes to the Commerce Act (and the earlier ones proposed) will be reflected in a Bill that will be introduced to Parliament before Christmas and passed by mid-2026. We will provide a further update once we have seen the Bill, and will let you know the deadline for any submissions on it.

Questions

If you have any questions about how these changes may affect your business, please get in touch with one of our experts. 

Special thanks to Henry King and Achi Simhony for their assistance in preparing this article.