The Commerce Commission is gearing itself to receive an increase in companies applying for clearance to merge on the basis of a "failing firm" argument.

"In the current economic climate the Commission expects more firms to put forward an argument that they are failing and that the only option is to sell to a competitor that already has a substantial degree of market power", commission competition branch director Deb Battell says.

She made it clear to a business audience in Wellington last week that while failing firm arguments would be appropriate in certain circumstances, firms would still be expected to put a robust case to the Commission.

"Our approach is not to make it harder and we do understand that many firms will have valid claims. However, we will not be relaxing standards.

"The 'failing company' must be genuine and businesses must be able to demonstrate that they have taken strong steps to either save the business or seek an alternative buyer," she said.

"This is not a time to loosen competition policy but the Commission fully understands that businesses will be wanting quick decisions and we are gearing up to respond."

The Commission is currently preparing a guideline about failing companies to go along with guidelines already issued about mergers and acquisitions.

Published in the National Business Review of 13 February 2009