Penalties for breaching the Commerce Act: divestment not an “easy out”

Penalties for breaching the Commerce Act: divestment not an “easy out”

A Waikato business was recently fined $420,000 for acquiring the assets of other businesses in breach of the Commerce Act, after first spending more than a year and a half trying to divest the assets under undertakings it had agreed with the Commerce Commission. 

The decision illustrates that divestment of assets is not a simple and easy answer to breaches of the Commerce Act in acquisitions.

It is also a timely reminder that, although New Zealand operates a voluntary merger clearance regime, acquisitions that substantially lessen competition remain unlawful under the Commerce Act, and that the Commission has an arsenal of enforcement actions. 

This is something that all New Zealand companies should take note of no matter their size.  This article expands on what this means for New Zealand companies who are considering buying or selling.

The Decision

The High Court decision imposed penalties of $420,000 on Alderson Logistics Limited (Alderson) and related company Supa Shavings (2022) Limited (Supa) for breaching the Commerce Act 1986 (Commerce Act) by acquiring businesses where the acquisitions had the effect of substantially lessening competition in a market.

The decision was made by consent between the Commission and the two companies. Prior to this, the Commission had  investigated the acquisitions, which itself is a lengthy and costly process. Alderson and Supa accepted that they had contravened the Commerce Act and the Commission asked them to sell the businesses that they had acquired.  The Commission and the two companies entered into a divestment undertaking.

Alderson then spent more than a year and a half trying to sell the businesses without success. Alderson engaged an investment bank to assess the feasibility of divestment, advise and assist Alderson to separate the Supa Shavings business, and ran a sale process. While originally considered feasible, the sale process ultimately failed. Despite one potential buyer proceeding to due diligence stage, the decision cites “obstacles to the sale which could not be overcome”.

In the end, the Commission released the two companies from the undertaking on the basis that divestment had been proven unfeasible.  The Commission and the two companies then applied to the Court for a judgement by consent and recommended the $420,000 penalty.  The Court agreed with this recommendation and acknowledged that there was no point in a divestment order.

The time, cost and distraction of the Commission’s investigation, the attempt to divest the acquired assets over a year and a half, the dealings with the Commission over the divestment undertaking, the Court case, and the penalty of $420,000 would have had a significant impact on Alderson and Supa at a time when supply shock and market changes had already impacted the businesses. 

Where it went wrong – failure to consider the Commerce Act and follow the Guidelines

Submissions to the Court for Alderson and Supa stated that they did not make the deliberate choice to sidestep the clearance process under the Commerce Act and that legal advice received did not alert them to the need for clearance.

This case is a useful example of where not thinking about whether a sale or acquisition breaches the Commerce Act and, at the very least, applying the Commission’s Mergers and Acquisitions Guidelines (Guidelines) can ultimately lead to significant costs.

Alderson and Supa acquired assets of rival suppliers in the Waikato bulk wood shavings (animal bedding) market, where the acquired companies had been each other’s only real competitors.

Importantly, the acquisition removed this rivalry, something that, under section 47 of the Commerce Act, was likely to substantially reduce competition. 

Mergers that substantially lessen competition in a market are prohibited by the Commerce Act, unless expressly authorised by the Commission.  Authorisations are granted if the Commission is satisfied that an acquisition will result, or will be likely to result, in such a benefit to the public that it should be permitted, despite it substantially reducing or being likely to substantially reduce competition.  They provide an exception to section 47, but it can be difficult to prove that the benefits to the public from an acquisition outweigh the negative effects of an acquisition.

Clearances are also available from the Commission. Clearances are granted if the Commission is satisfied that an application will not have, or would not be likely to have, the effect of substantially lessening competition in a market. They provide an assurance that a transaction does not breach section 47 and are therefore useful risk management tools in an acquisition.

Both clearances and authorisations provide statutory immunity from section 47, provided the acquisition is completed within 12 months.  As the Commission’s Guidelines make clear, while applying for clearance or authorisation is voluntary, parties proceed at risk if they do not  apply, particularly if they have not given adequate consideration to whether a planned acquisition may have anti-competitive effect.

Why this decision matters for New Zealand companies

Businesses should be aware of the following warnings from the Commission arising from the Alderson case:

• The Commission will actively pursue non-notified mergers that have or may have an anti-competitive effect;
• The absence of clearance or authorisation will not insulate acquisitions from investigations by the Commission; and
• Divestment is a real enforcement risk after the acquisition is completed.

Post-acquisition divestment is likely to be costly for affected businesses. Following acquisitions, businesses don’t always leave the assets or acquired business separate.  Rather, they become integrated.  Divestments under an undertaking can be even more complex and costly than the initial acquisition.  

How this decision fits within the Guidelines

The Commission’s Guidelines provide a handy roadmap for whether acquisitions are likely to cause competition concerns or not.  Used in connection with the Commerce Act, they can provide an excellent starting point for businesses concerned about an acquisition.

Emphasis should be given to the factors used in determining whether competition will be substantially lessened, such as:

• The with and without test, looking to whether competition would be materially worse with the merger than without it.
• The importance of market share and concentration indicators, especially for mergers between competing suppliers. The guidance provides as follows:
  • A merger is unlikely (important distinction between unlikely and unneeded – still possibly needed due to other factors) to require a clearance application, or warrant an investigation if no clearance is sought, where post-merger:
    • where the three largest firms in the market have a combined market share of 70% or more, and the merged firm’s combined market share is less than 20%; and/or
    • the three largest firms in the market have a combined market share of less than 70%, and the merged firm’s combined market share is less than 40%;
• Heightened risk where an acquisition removes a close competitive constraint, enabling unilateral price increases or coordinated conduct.
• The Commission’s power to investigate and take enforcement action in relation to non‑notified mergers should not be overlooked.

Practical lessons for businesses and what to expect

Firms should expect that the Commission will look at whether acquisitions are likely to breach, or breach, section 47.

To avoid an acquisition unravelling:

• Engage early and reasonably consider clearance: Early stages of planning and due diligence should assess the Commission’s Guidelines and compliance with the Commerce Act as a fundamental consideration, with clearance and authorisation, where necessary, reasonably considered or sought. Legal advice on the Commerce Act is recommended.
• Obtain legal certainty: Clearance or authorisation provides legal certainty. If clearance or authorisation is granted, and the transaction completed within a year, the transaction cannot later be challenged under section 47.
• Be cautious with ‘competitor’ acquisitions: Transactions should be assessed to identify whether the target entity is a competitor in the business’ operating market. Transactions involving direct competitors, or the removal of a close rival, will attract significant scrutiny from the Commission. This is not the only situation, however, in which a transaction can substantially reduce competition, so expert assistance is very useful to obtain.
• Be aware that consequences extend beyond financial penalties: Divestment is a real threat and may be more disruptive than fiscal penalties.

Although optional, considering whether there is a need to apply for clearance or authorisation as the first step to a merger or acquisition may be the determining factor of an acquisition’s longevity.  Where there is room for doubt, the best course of action may be to proceed with an application – or seek some further advice on the risk.

On the horizon: Bigger picture reforms and earlier intervention

The Alderson decision highlights some benefits of the proposed Amendments to the Commerce Act.  On 9 December 2025, the Commerce (Promoting Competition and Other Matters) Amendment Bill was introduced.

This Bill will introduce suspension and call‑in powers for the Commission.  As currently proposed, these reforms would allow the Commission to:

• Pause or halt transactions completely while competition concerns are assessed; and
• Require parties to seek clearance, even where they had not intended to do so using the call-in power.

These strengthened early intervention powers would reduce the risk of assets becoming so integrated that divestment is impractical and would provide greater certainty for both businesses and regulators.  The Commission could also order businesses to safeguard assets where it intervenes too late.  While these reforms are still at an early stage and may evolve, they reinforce the direction of travel towards stronger merger oversight.

Special thanks to Partner Gareth Clendinning for preparing this article.

Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.