M&A Update: ACCC to crackdown on goodwill restraints in sale agreements

From 1 January 2026, Australia will shift to a mandatory merger control regime requiring certain transactions to be notified to the ACCC and cleared before completion. This marks a significant departure from the current informal, voluntary model.

While much focus has been on the impact of the new regime on deal timing and execution certainty, the ACCC has flagged a broader enforcement approach, including scrutiny of restraint clauses in sale agreements, such as non-compete and non-solicitation provisions.

Restraints in sale agreement

In sales transactions, it is common practice for a buyer to seek protection for the goodwill they are acquiring (such as customer relationships, brand recognition, and industry reputation) by imposing post-completion restraints on the seller (and their underlying owners and controllers).

These restraints seek to prohibit the seller from starting a competing business, soliciting former clients, or hiring former employees.

In the context of an M&A transaction, a post-completion restraint is often a non-negotiable for a prospective buyer, who will almost always want certainty that the seller will not directly or indirectly compete with the buyer and the target business after completion.

Goodwill Exemption

As a general rule, a clause in a transaction document that restricts the ability of merger parties to compete following completion may constitute a cartel provision under Part IV of the Competition and Consumer Act 2010 (Cth) (CCA) and may attract significant penalties.

However, section 51(2) of the CCA outlines specific circumstances in which certain contractual provisions are disregarded when assessing potential breaches of Part IV.

Relevant here is section 51(2)(e) of the CCA (Goodwill Exemption), which provides as follows:

“(2)         In determining whether a contravention of a provision of this Part other than section 45D, 45DA, 45DB, 45E, 45EA or 48 has been committed, regard shall not be had:

…

(e)           in the case of a contract for the sale of a business or of shares in the capital of a body corporate carrying on a business — to any provision of the contract that is solely for the protection of the purchaser in respect of the goodwill of the business;"

This Goodwill Exemption effectively allows for the inclusion of certain restraint provisions in business or share sale agreements, provided the restraint is solely for the protection of the buyer’s interest in the goodwill of the target business.

Whether a restraint qualifies under the Goodwill Exemption depends on a range of factors, including the restraint’s duration, geographical reach, and the product or service scope. For instance, a clause restraining a seller from competing in a market or product line where the target business does not operate, is unlikely to be considered “solely for the protection of goodwill,” and may fall outside the Goodwill Exemption.

What are the key changes?

The new merger control laws significantly alter the operation of the Goodwill Exemption, making it clear that restraint clauses in sale agreements will be subject to active scrutiny by the ACCC. 

The key changes include:

1. New ACCC Declaration Power

The ACCC will have the express power to declare that the Goodwill Exemption does not apply to a restraint clause in a business or share sale agreement, where it considers the clause is not reasonably necessary to protect the buyer’s interest in the goodwill of the target business.

For example, this may apply where a non-compete clause is overly broad in duration, scope, or geographic reach.

2. Mandatory Disclosure of Restraints

Notification forms under the new merger regime are expected to require parties to disclose any contractual restraints that rely on the Goodwill Exemption.

The legislation also allows the ACCC to formally require this through a legislative instrument. In practice, we expect that identifying and explaining goodwill restraints will become a standard requirement in all merger notifications.

3. Annual ACCC Reporting Obligation

The ACCC will be required to include information about goodwill restraints in its annual report, including:

• the types of restraint clauses disclosed to the ACCC;
• the number of declarations made by the ACCC, rejecting reliance on the Goodwill Exemption; and
• the factual circumstances underpinning those declarations.

4. Ongoing Enforcement Powers

Importantly, the ACCC will retain its existing power to take enforcement action where it believes a restraint breaches Part IV of the CCA — even if it has not issued a formal declaration.

Although the ACCC has not previously pursued enforcement action in relation to goodwill restraints, the introduction of a streamlined declaration process may provide a more practical and less confrontational mechanism for the ACCC to challenge overly broad restraints.