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Trade Practices Amendment Bill 1990



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House: House of Representatives

Portfolio: Attorney-General

Purpose

To ensure that a corporation is not able to avoid the merger and acquisition prohibitions of the Trade Practices Act 1974 (the Principal Act) by making acquisitions through associated or related companies.

Background

Section 50 of the Principal Act prohibits the acquisition, directly or indirectly, of any shares in the capital, or any assets, of a corporation where:

*the acquisition would result in a corporation being in, or being likely to be in, a position to dominate a market for goods or services; or

*the acquiring corporation is already in a position of market dominance and the acquisition would substantially strengthen the power of that corporation to dominate that market.

The principal amendments proposed by this Bill were announced by the Attorney-General in a media release of 9 October 1990. The amendments relate to the acquisition of interests in entities that may lead to a breach of the Principal Act but, due to technicalities, fall outside the current scope of the Principal Act. Specifically, the difficulties relate to determining if a company has acquired shares assets by means of a subsidiary company or companies, or a company over which a corporation had control or influence.

The difficulties in the merger and acquisition provisions of the Principal Act relate to an interpretation of the words `directly or indirectly' in section 50 of the Principal Act by single judge of the Federal Court of Australia in Trade Practices Commission v. Australian Iron and Steel Pty. Ltd. Ors((1990) ATPR 41-001). Basically, the case involved a complex takeover scheme of New Zealand Steel by BHP, the result according to the TPC, would be a substantial strengthening of the power of BHP to dominate the steel and steel products market, and thus constitute a breach of section 50 of the Principal Act. The Court, in deciding whether there had been a `direct or indirect' acquisition of any shares or assets by BHP of New Zealand Steel held that the interposition between an acquiring corporation (e.g. BHP) and the target body (e.g. New Zealand Steel) by a wholly owned subsidiary of the acquiring corporation may fall within section 50 of the Principal Act, but only where the subsidiary acts as agent for the acquiring corporation. It can be argued, that the effect of the Courts decision is to provide corporations with an avenue to avoid the merger and acquisition provisions of section 50 of the Principal Act by allowing, in instances other than where a subsidiary or related company acts as an agent for an acquiring corporation, acquisitions of market competitors through subsidiaries or related companies.

Main Provisions

The Bill will have effect from 21 December 1990 (clause 2).

A corporation that is related or associated with another corporation is not to acquire shares or assets in any another corporation if:

*as a result of the acquisition, the corporation would be, or would be likely to be, in a position to dominate a market; or

*where a corporation is in a position to dominate a market, the acquired corporation, or another corporation related or associated with it, is, or is likely to be, a competitor of the corporation, or any corporation related or associated with it, and the acquisition would, or would be likely to, substantially strengthen the power of the corporation to dominate the market (clause 3).

Bills Digest Service 31 January 1991

Parliamentary Research Service

For further information, if required, contact the Law and Government Group on 06 2772430.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1991

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1991.