Price signalling in corporate restructuring

In its major review of competition law, the government proposes to remove the price signaling provisions in the Competition and Consumer Act 2010. These provisions, introduced in 2012, had some potential for impact on bank syndicates working on the restructure of a failing or insolvent business, by way of proscribing collective discussions – see s 44ZZW. A complex carve-out, in s 44ZZZ, and exemptions available from the ACCC under s 93, were offered to protect the banks. 

The regime was over-regulatory and never looked like working.  It relied upon a “borrower insolvency situation” which was limited in scope, and terms used – “may be insolvent” and “may become insolvent” – are not ones typically used in insolvency drafting. There was also the potential for notification of a borrower insolvency situation triggering possible directors’ liability for insolvent trading and prompting a formal appointment, countering the whole purpose of the protection. 

Also, as the Treasury documents explaining the proposed reforms says, while price signalling occurs in other industries – petroleum supply for example – the provisions in the Act are confined to banks. Treasury also points out that the provisions have never been used, although that is not necessarily indicative of their impact.

Now, the proposal is that anti-competitive price signaling be proscribed broadly, and be covered by expanding section 45 to include a prohibition on ‘concerted practices’. These are relationships between businesses in competition which knowingly substitute practical co-operation for what should be the healthy risks of competition. It is not necessary that a concerted practice have an particular anti-competitive ‘provision’, as it is the practice itself which has the anti-competitive purpose, effect or likely effect – the effects test.

A genuine work-out involving banks should not fall within the proposed section 45 prohibition. As the paper says, while exchange of pricing information in private may facilitate anti-competitive collusion between competitors, on the other hand, the private disclosure of pricing information may in some circumstances be pro-competitive or a necessary part of business. It gives the example of a joint venture or similar type of collaborative business activity. It might also have mentioned restructuring by a syndicate of financiers.

That issue can be left to the competition lawyers and economists. Its application in the context of restructuring appears to be remote. 

Treasury asks for comments by 30 September 2016.

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