The Commerce Commission says the recession will prompt more companies to argue they are at the brink of collapse as a way of gaining clearance for mergers and acquisitions.
To clarify its stance on such situations, the commission has issued draft guidelines.
While it has not yet seen an increase in takeover clearance applications from failing companies, the commission expects there will be more as a result of the economic downturn.
When seeking clearance for a takeover, companies can claim an otherwise anti-competitive merger should be approved because one or more of the parties is failing, or has a failing division.
The commission says normal competition analysis applies to such applications. Claims of imminent failure will not be accepted at face value.
In its draft guidelines, the commission says each case will be assessed on the facts.
It says companies facing declining sales or profits, or earnings below shareholders' expectations would not be classed as truly failing.
Instead, companies would need to provide a trend of reduced cash flows over time, and that there'd been ongoing attempts to rescue the business.
They would also need to prove there had been efforts to find a third party to buy the business.
Feedback is being invited on the draft guidelines.