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Green paper canvasses court orders to break-up businesses

Pressure is mounting on the government to further tighten competition policy by allowing courts to order companies found to be in breach of consumer law to reduce their market share.

Consideration of court-ordered divestitures is urged in today’s agricultural competitiveness green paper along with the creation of new “farmer co-operatives” aimed at strengthening farmers’ bargaining power.

The measures are more radical than those considered in the draft review of competition policy which has already caused consternation by recommending the inclusion of a contentious “effects test” in the Competition and Consumer Act.

Taken together, the proposed changes are likely to be seen as a further check on the power of Coles and Woolworths and cause new fault-lines in the Coalition.

However, many advocates for competition policy are welcoming the consideration of court-ordered divestitures as a step in the right direction.

Earlier this year, independent South Australian Senator Nick Xenophon introduced his own private members bill to allow a court to make divestment orders where a corporation was found to have misused its market power.

Senator Xenophon told Dynamic Business the inclusion of this concept in the agricultural competitiveness green paper was “music to my ears”.

“The fact that it’s raised in the green paper is an acknowledgment that current laws aren’t working,” he said.

“If this was part of our competition law, I expect it would be very rarely if at all used, but it would act as a sword of Damocles over large corporations to change their culture in the way they do business.”

Senator Xenophon said, at the end of the day, it was up to government to take up the proposal to improve the operation of competition law.

“If the government ignores this green paper, it does so at its own peril,” he said.

Dr Alexandra Merrett, formerly a senior enforcement lawyer for the Australian Competition and Consumer Commission, said that a court ordered divesture was a “fabulous weapon to have in the arsenal”.

“I think divestiture is absolutely appropriate. But you do need to understand that it’s going to be very rarely used,” she said.

She also stressed that forced divestiture would only be an appropriate response to certain types of conduct.

“There are some types of conduct where divesture goes directly to the harmful conduct and there are other types of conduct where divesture would just be punitive,” she said. “That’s exactly why it’s a court ordered a process.”

Head of Master Grocers Australia, Jos De Bruin, told Dynamic Business that Coles and Woolworths should be required to “pre-notify” the ACCC of any new land, property or business acquisitions. Failure to comply, should incur a penalty of divestiture.

The canvassing of a court-ordered divestiture process represents a further potential tightening of competition rules for larger market players following the Harper Review’s recommendation of an effects test.

The Harper review argued the existing test under section 46 of the Competition and Consumer Act at was too complex.

It sought to lower the bar by suggesting a successful case should no longer hinge on proving a company acted with the “purpose” of reducing competition; only that its actions had the “effect” of reducing competition.

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Joe Kelly

Joe Kelly

Joe Kelly is a writer for Dynamic Business. He has previously worked in the Canberra Press Gallery and has a keen interest in business, the economy and federal policy. He also follows international relations and likes to read history.

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