27 Sep 2012

The cost of regulatory approvals in M&A - "user pays"?

by Sam Cottell

It would be difficult in practice to introduce fees for the informal merger clearance or FIRB process.

The informal merger clearance process in Australia currently does not require merger participants to pay any filing, assessment or other fees to the Australian Competition & Consumer Commission (ACCC). Nor does the Foreign Investment Review Board (FIRB) require payment of any notification or similar fees.

In light of recent developments in Australia and overseas, could these types of fees be introduced in Australia?

Three forms of merger clearance

In high-level terms, Australia currently has three procedures for obtaining merger (anti-trust) clearance.

The first is the "informal" process whereby the merger participants voluntarily seek the ACCC's informal views on the proposed merger. Under this process, the ACCC does not actually approve the merger; rather it simply gives an informal green light by way of a statement to the effect that it "does not propose to intervene" to prevent the proposed merger.

The next option is to seek formal clearance from the ACCC under section 95AC of the Competition and Consumer Act 2010 (Cth) on the basis that the merger is unlikely to substantially lessen competition. This alternative procedure is highly proscriptive in terms of the administrative steps involved. Since its introduction in 2007 it has not been used.

The final option is to seek authorisation from the Australian Competition Tribunal on the basis that the merger is likely to result in such a benefit to the public that it should be allowed to take place. Again, this has not been utilised.

A fee of $25,000 currently applies to applications under the formal clearance and authorisation procedures, however, no fees are currently imposed by the ACCC in relation to the more widely used informal procedure.

Australia's foreign investment approval regime

Australia's foreign investment approval regime is set out in the Foreign Acquisition and Takeovers Act 1975 (Cth), which is applied in conjunction with Australia's foreign investment policy. Applications for approval are handled by the Treasurer with advice from FIRB.

Notification to FIRB is mandatory for certain types of foreign investment (eg. any direct investments by foreign governments, regardless of value), whereas for other types of foreign investment (eg. an acquisition of an Australian business) the notification is voluntary (albeit strongly encouraged).

Similar to the ACCC approach to handling informal merger clearances, FIRB typically does not grant an "approval". Instead, it usually gives a statement to the effect that the Treasurer does not propose to intervene to prohibit the investment.

However, unlike the informal merger clearance process applied by the ACCC, the FIRB process is more certain, at least from a timing perspective, with most decisions being made within 30 days of the notification. In fact, in high-level terms, the Treasurer loses the ability to block an acquisition or investment unless the Treasurer does so within the 30 day period or makes an interim order during that period in which case an extended 90 day period applies.


The Australian merger clearance process differs in many respects from that in many other jurisdictions. For example, many jurisdictions simply apply a formal process, or make it mandatory (rather than voluntary) for the merger participants to notify and seek approval from the relevant competition regulator.

As mentioned, as a matter of practice in Australia, all merger clearances are pursued via the informal process for which no fees currently apply. This is in contrast to many (but certainly not all) foreign jurisdictions in which notification or similar fees are applied. Some jurisdictions impose fixed fees while several jurisdictions apply a sliding fee scale depending on a variety of factors such as the turnover of the merged entity. Some jurisdictions even apply a "fee for service"[1] or a "tiered fees based on complexity" approach.

These can be quite significant. For example, in the UK if the turnover of the combined merged entity will exceed £120m, then a fixed fee of £160,000 applies. In the USA, a notification fee of US$280,000 applies if the "size of the transaction" is greater than US$682m. As a percentage of the deal value, the fees are relatively small but they are nevertheless significant[2], and non-refundable.

Moreover, some foreign jurisdictions have recently announced increases to their merger clearance fees. The fee increases are generally intended to ensure that the burden falls more on the participants in the merger and less on the taxpayer. In the UK, the merger fees have recently increased by 30%.

In relation to foreign investment approvals, most other jurisdictions (including virtually all G20 nations) follow the same approach as Australia ie. they do not charge any notification or other fees. A notable exception is New Zealand where the New Zealand Overseas Investment Office charges a fee of NZ$22,488.89 to consider applications for consent to land transactions that require Ministerial approval. For business asset transactions that require approval, the fee is NZ$13,186.67. It is interesting to note that these fees were increased in September 2009 "to enable the Regulator to fully recover its costs and to rationalise the charging structure".

Another notable exception is Mexico where a relatively nominal fee (less than US$50) is charged by the National Foreign Investment Commission for receiving, studying or resolving queries or confirmations regarding foreign investment criteria.

Developments in Australia

To date there has been no ACCC or government review or announcement regarding the possible introduction of fees for either the informal merger clearance process or FIRB approvals. However, the prospect cannot be ruled out, particularly as a user-pays or cost recovery rationale is more widely applied by the Government in lieu of a generally funded "public service" approach.

For example, the Commonwealth Government recently announced increases to the filing fees in all federal courts. The filing fees for companies will go up by approximately 40% and for ASX listed companies the increase will be even steeper – approximately 110%.


While the introduction of fees for the informal merger clearance process is a possibility, the informal nature of that process does make it difficult to formulate an appropriate fee framework. For example, one of the biggest criticisms of the informal process is that no firm timeline is applied by the ACCC. A straightforward merger can often be considered by the ACCC in as little as 3 to 4 weeks, whereas it often takes many months for more complicated deals. A one-size-fits-all fee approach, even if based on a sliding scale, is unlikely to meet all objectives.

Fixed fees already apply for mergers using the formal clearance or authorisation processes, but since those processes are never used in practice it remains to be seen whether the Government will soon seek to impose fees on the informal process.

As with merger fees, the possibility of introducing fees for FIRB approvals is certainly a possibility, but this seems like a very remote prospect. Not only would these fees put Australia out of line with virtually all of its G20 peers, any proposal to introduce such fees would likely generate significant political and media attention. While no hard data is readily available, it may be that the cost to Government is relatively small when considering whether a proposed foreign investment is contrary to Australia's national interest, and therefore does not justify the introduction of a user-pays fee. This is in contrast to the merger clearance process where it is often necessary for the ACCC to undertake detailed economic analysis and make extensive market inquiries.

[1] In Switzerland, a fixed fee is charged for the initial notification and then fees for the second phase are based on an hourly fee. See page 8 of the "Merger Notification Filing Fees – Report of the International Competition Network" (April 2005). Back to article

[2] In 2001 the US Federal Trade Commission collected a total of US$172m in merger notification fees. See page Appendix D of the "Merger Notification Filing Fees – A Report of the International Competition Network" (April 2005). Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.