Corporations Amendment (Crowd-sourced Funding) Bill 2015
Mr HAWKE (Mitchell—Assistant Minister to the Treasurer) (10:48): I move:
That this bill be now read a second time.
Corporations Amendment (Crowd-sourced Funding) Bill 2015
This bill sets out amendments to the Corporations Act 2001 and consequential amendments to the Australian Securities and Investments Commission Act 2001 to facilitate crowd-sourced equity funding in Australia. It implements the commitment made by the government in the 2015-16 budget as part of our Growing Jobs and Small Business package.
Crowd-sourced equity funding is a relatively new and innovative concept. It allows businesses to obtain capital from a large number of investors through an online platform, where each investor typically contributes a small amount of money in return for an equity stake in the business.
In 2014, the Corporations and Markets Advisory Committee, otherwise known as CAMAC, completed a review into the crowd-sourced equity funding landscape in Australia. It found that this form of fundraising is costly and impractical for businesses, largely due to regulatory impediments in the Corporations Act that imposed an excessive compliance cost for start-ups and other small businesses.
The government acknowledges the detailed recommendations put forward by CAMAC. This bill responds by establishing a legislative framework for crowd-sourced equity funding that addresses these regulatory impacts identified in CAMAC's report.
The framework the government is introducing will enable public companies that are issuing equity through crowdsourcing to do so with reduced disclosure compared with what is required under a full public equity fundraising. It provides, for newly registered public companies that meet the assets and turnover tests, concessions from some corporate governance and reporting obligations. To ensure that investors are able to make informed investment decisions and are not exposed to excessive potential losses, the framework also sets out the minimum disclosure requirements and a $10,000 per issuer per 12-month period investor cap for retail investors. It also sets out a number of obligations that intermediaries will need to perform as part of providing a crowd-funding service.
It is not the government's role to pick winners, but creating the right economic conditions for small businesses and start-ups to grow and thrive and taking steps to remove unnecessary regulatory barriers are. The framework set out in this bill will enable Australia's innovative early-stage businesses to obtain the capital they need to turn good ideas into commercial successes.
Crowd-sourced equity funding will also offer a new funding option for small businesses. It complements other forms of crowd-funding already available, such as rewards-based crowdfunding and peer-to-peer lending, to offer start-ups choices in how they fund their operations. It will serve as both a complement and a source of competition to more traditional funding options for small businesses, including bank debt products.
The government has consulted extensively on the design of the proposed crowd-sourced equity funding framework. The model detailed in this bill strikes the right balance between supporting investment, reducing compliance costs and maintaining an appropriate level of investor protection.
In December 2014, the government released a discussion paper that raised options for a potential crowd-sourced equity funding model for Australia. The government consulted on this over early 2015, including through two industry roundtables. Over 40 submissions were received as part of this process.
The government also took into consideration the recommendations of the CAMAC review, including specific requirements for businesses, intermediaries and investors. International experience was also taken into account, in particular the framework in New Zealand, which has been in operation for nearly two years.
The consultation process indicated broad stakeholder support for a regulatory framework for crowd-sourced equity funding. Many stakeholders also recommended adoption of a framework quickly, noting that delays would risk impeding the development of the crowdfunding market in Australia. A number of crowdfunding platform operators also indicated interest in becoming licensed to provide platform services in Australia.
Stakeholder views were more varied on the specific model to be implemented. Some indicated support for the CAMAC model, others for adopting the same approach as taken in New Zealand. There were also views that a hybrid of the two was preferred. Concerns were raised that the CAMAC model would increase the complexity of the regulatory regime and may be burdensome for smaller companies. Others considered that the New Zealand model provides flexibility for companies to raise funds but may not provide enough protection for investors.
In August 2015, the Government released an outline of its proposed framework for public companies, reflecting many of the key aspects of New Zealand's approach, such as licensing and other gatekeeper obligations for intermediaries, reduced disclosure for companies raising funds, and a liberal approach to retail investor caps along with investor protections such as risk warnings for investors. Following a four-week consultation period, over 50 submissions were received.
The government undertook targeted consultation on the draft legislation prior to its introduction into parliament, making a number of improvements to the draft legislation on the basis of this feedback.
The government has also consulted with state and territory governments, which have agreed to these amendments to the Corporations Act and consequential amendments to the ASIC Act, in accordance with the Corporations Agreement 2002.
I would like to thank all of the stakeholders who participated in these consultations over the past year. It is important that the regulatory framework for crowd-sourced equity funding operates effectively in order to maximise the benefit to businesses, intermediaries and investors. Stakeholder feedback has assisted with development of a framework that achieves this.
I would now like to turn to the provisions of the bill.
Schedule 1 to this bill inserts a new part into chapter 6D of the Corporations Act. This sets out the various elements that comprise the crowd-sourced equity funding framework.
Australia's crowd-sourced equity funding regime will allow eligible companies to fundraise up to $5 million per year from retail investors. This amount is higher than that allowed under both the New Zealand framework and the model recommended by CAMAC. The ability to raise higher amounts will enable entrepreneurs of innovative early-stage businesses in Australia to obtain the capital they need to turn good ideas into commercial successes.
To ensure the regime is appropriately targeted, companies will be required to meet turnover and assets tests before they are eligible to fundraise under this part. The threshold is set at $5 million. As the market develops, the ongoing appropriateness of these thresholds can be reviewed.
Unlike some overseas jurisdictions, in Australia there has been a historical distinction between public and proprietary companies. Proprietary companies are generally relatively small and closely held, and have low corporate governance and reporting obligations. They are limited to having no more than 50 non-employee shareholders, and are generally prohibited from offering shares to the general public. Public companies do not have these limitations, but have greater corporate governance and reporting obligations to ensure that their broader shareholder base has ongoing access to information about the company. It is important to note that public companies are not automatically listed on the ASX; a public company may be unlisted.
For small business people, time spent on regulatory compliance is time not spent working to ensure the success of their business. While businesses wishing to access crowd-sourced equity funding must be public companies, the government is conscious that the demands involved in transitioning to a public company structure and complying with the corporate governance and reporting obligations, for the amount of funds that an early-stage business would typically seek, can be onerous. As such, the government is providing a holiday of up to five years from these key requirements, which is set out in schedule 2.
Schedule 2 to this bill sets out a number of concessions for newly registered public companies that have restructured in order to access crowd-sourced equity funding. Provided a company undertakes crowd-sourced equity fundraising within 12 months of registering as a public company, it is eligible for exemptions of up to five years from requirements to:
hold an annual general meeting;
have annual reports audited if it has raised less than $1 million from crowd-sourced equity funding; and
provide its annual reports to investors, other than by publishing them on its website.
Further, companies fundraising under this framework will be able to offer equity securities to retail investors with lower disclosure than currently required. This will improve access to crowd-sourced equity funding for small businesses and start-ups as a full disclosure document can be costly and time consuming to prepare.
The government recognises that reducing disclosure may also diminish investors' confidence about their capacity to make informed decisions about an offer. The government proposes to set out disclosure requirements in the regulations that will ensure that investors have access to the key facts about the company, its structure and the fundraising. Investors will also be able to interact directly with the company to ask questions relating to an offer and the company will be able to respond to any questions. This is consistent with the approach in New Zealand.
The government has listened to stakeholders on how to best balance the fundraising needs of businesses and investor protection. The framework in this bill permits retail investors to invest up to $10,000 per issuer per 12-month period, allowing investors the opportunity to make substantial investments in a product, while also seeking to mitigate the size of their exposure. The bill also provides a regulation-making power to amend this amount as the market develops. Retail investors will not be limited in the total amount of investment in crowd-sourced equity funding they can undertake, allowing them to diversify their investments. Investors will also be protected in the form of cooling off rights for a period of five days after making an investment.
The final element of the bill I would like to highlight is the importance of intermediaries to the operation of an equity crowdfunding market. As a gatekeeper, intermediaries provide an important quality assurance role, and in recognition of this intermediaries will be required to hold an Australian financial services licence.
Requiring intermediaries to be licensed provides issuers and investors alike with confidence in the integrity of the intermediary and their capacity to carry out the obligations of operating a crowd-sourced equity funding platform. The framework sets out certain obligations that intermediaries will need to perform, including the requirement to conduct checks on issuers before listing their offer.
Ongoing responsibility for issuing licenses and monitoring the operation of the framework set out in this bill will sit with the Australian Securities and Investments Commission, commonly referred to as ASIC. To support this, ASIC was provided with $7.8 million in funding through the 2015-16 Budget.
This bill also makes amendments to chapter 7 of the Corporations Act, to ensure the Australian market licensing regime can, in the future, be tailored to intermediaries operating crowd-sourced funding platforms. Schedule 3 to this bill provides the minister with an exemption power to exempt certain market operators, including intermediaries, from specific obligations under the Australian market licensing regime. This will enable the government to further reduce the compliance burden for operators of emerging and specialised markets, such as the crowdfunding market, as it matures. These amendments commence on the date this bill receives royal assent.
The full details of the amendments are contained in the explanatory memorandum. The government proposes to make regulations to support the operation of the measures in this bill.
Introducing this bill today delivers on the government's budget commitment. It helps to deliver on the government's commitments to foster innovative economic activity, unlocking a new source of funding. The crowd-sourced equity funding framework will take effect six months from the date the bill receives royal assent. I commend the bill to the House.