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Failing firm defence

Zwirska, Agnieszka (2003)
Department of Law
Abstract
The failing firm defence is well-established under the US Horizontal Merger Guidelines and judicatory of the US Supreme Court. This defence is applicable to the mergers that create or strengthen the dominant position of the firms on the market and therefore do not violate the competition law. Those mergers also generate efficiency gains and social benefits. In order to apply the failing firm defence, the following requirements have to be fulfilled: the failing firm would be unable to meet its financial obligations in the near future, it would not be able to reorganise successfully under Chapter 11 of the Bankruptcy Act, there is an alternative purchaser that would pose less sever danger to competition and in the absence of the acquisition,... (More)
The failing firm defence is well-established under the US Horizontal Merger Guidelines and judicatory of the US Supreme Court. This defence is applicable to the mergers that create or strengthen the dominant position of the firms on the market and therefore do not violate the competition law. Those mergers also generate efficiency gains and social benefits. In order to apply the failing firm defence, the following requirements have to be fulfilled: the failing firm would be unable to meet its financial obligations in the near future, it would not be able to reorganise successfully under Chapter 11 of the Bankruptcy Act, there is an alternative purchaser that would pose less sever danger to competition and in the absence of the acquisition, the assets of the failing firm would exit the relevant market. Under the US approach, the appraisal whether the proposed merger would significantly increase concentration and result in a concentrated market and whether the merger, in the light of concentration, raises concern about possible harmful competitive effect, is based on the substantial lessening of competition test and the Herfindahl-Hirschman Index. Thus, the effect of this merger within the relevant market must be examined. The EU law concerning mergers does not contain explicite reference to the failing firm defence as a foundation for approval of a merger that would create or strengthen a dominant position. Despite the lack of the statutory provision governing the failing firm defence, the Commission in its decisions and the ECJ in its case-law have developed the concept of the failing firm defence also known as the rescue merger. The sine qua non conditions for the application of the failing firm defence under EU acquis communitaiure are as follow: the undertaking to be acquired must be failing, the market share of the acquired undertaking would, in any event, be taken over by the acquiring undertaking, there is no less anti-competitive alternative buyer. Nowadays, there is an ongoing reform of the EU merger law. The failing firm defence constitutes an integral part of the proposed draft notice on the appraisal of the horizontal mergers and is one of the factors taking into account while scrutinising the horizontal mergers. The reform includes also the HHI Index and the SLC test for the assessment of the merger. (Less)
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author
Zwirska, Agnieszka
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
European Affairs
language
English
id
1554682
date added to LUP
2010-03-08 15:22:31
date last changed
2010-03-08 15:22:31
@misc{1554682,
  abstract     = {The failing firm defence is well-established under the US Horizontal Merger Guidelines and judicatory of the US Supreme Court. This defence is applicable to the mergers that create or strengthen the dominant position of the firms on the market and therefore do not violate the competition law. Those mergers also generate efficiency gains and social benefits. In order to apply the failing firm defence, the following requirements have to be fulfilled: the failing firm would be unable to meet its financial obligations in the near future, it would not be able to reorganise successfully under Chapter 11 of the Bankruptcy Act, there is an alternative purchaser that would pose less sever danger to competition and in the absence of the acquisition, the assets of the failing firm would exit the relevant market. Under the US approach, the appraisal whether the proposed merger would significantly increase concentration and result in a concentrated market and whether the merger, in the light of concentration, raises concern about possible harmful competitive effect, is based on the substantial lessening of competition test and the Herfindahl-Hirschman Index. Thus, the effect of this merger within the relevant market must be examined. The EU law concerning mergers does not contain explicite reference to the failing firm defence as a foundation for approval of a merger that would create or strengthen a dominant position. Despite the lack of the statutory provision governing the failing firm defence, the Commission in its decisions and the ECJ in its case-law have developed the concept of the failing firm defence also known as the rescue merger. The sine qua non conditions for the application of the failing firm defence under EU acquis communitaiure are as follow: the undertaking to be acquired must be failing, the market share of the acquired undertaking would, in any event, be taken over by the acquiring undertaking, there is no less anti-competitive alternative buyer. Nowadays, there is an ongoing reform of the EU merger law. The failing firm defence constitutes an integral part of the proposed draft notice on the appraisal of the horizontal mergers and is one of the factors taking into account while scrutinising the horizontal mergers. The reform includes also the HHI Index and the SLC test for the assessment of the merger.},
  author       = {Zwirska, Agnieszka},
  keyword      = {European Affairs},
  language     = {eng},
  note         = {Student Paper},
  title        = {Failing firm defence},
  year         = {2003},
}