The Practical Dilemmas of the Failing Firm Defense of Merger Review

Abstract

With economic slowdown pressures added to the increasing number of mergers and acquisitions, merger review will have to balance two functions; ensuring competition regulation and enterprise rescue. As a major tool to reconcile these objectives, the failing firm defense has evolved itself to be an institutional practice in most jurisdictions. The consideration of failing firms started to be mentioned as the provision of the review by the Anti-Monopoly Law of China (amended in 2022). But no comprehensive institutional framework has been achieved and the normative gaps, operational ambiguity, and systemic disconnect has not been formally achieved in practice. It is within this context that the paper begins by clarifying the theoretical basis of the failing firm defense, which demonstrates its main logic, the compromise between two evils and its conception in the functional complementarity of the legal domains. It subsequently examines the institutional merit of the mechanism in the surface of preserving assets and investment of competition. Moreover, it discusses the root causes of the existing dilemmas, as inadequate institutional coordination, technical limitations to processes of reviews, and the deficiency of supportive mechanisms are identified as a major problem. Conclusively, it suggests ways of enhancing it, namely systematized construction of regulation, streamlining of the review operation, reinforcement of the supporting mechanism, and the development in alignment with emerging business models which has a view to contributing to the accuracy and efficiency of merger review system in China.