The 'Failing Firm' Defence in Difficult Times

This article first appeared in the July 2010 issue of the In-House Lawyer.

Given the current economic climate, competition authorities are expecting a possible increase in the use of the 'failing firm' defence. The doctrine provides potential opportunities for businesses to acquire competitors, which in normal circumstances would be regarded as anti-competitive. The basic rationale behind the doctrine is that since the failing firm would have left the market anyway due to its financial collapse, any harm to competition caused by the loss of an independent market player would arise regardless of the merger. The doctrine therefore potentially allows a business to acquire its struggling competitor, which is on the brink of administration or liquidation. The defence is worth considering by any administrator or liquidator of a business. Competitors are likely to pay the highest prices for assets and so a merger with a competitor could be an appropriate solution to save a