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Crowd-sourced Equity Funding
On 24 November 2016, the government introduced a new bill to establish a regulatory framework for crowd-sourced equity funding (CSEF).
The Corporations Amendment (Crowd-sourced Funding) Bill 2016 (Cth) (Bill) amends the original CSEF bill introduced in December 2015, which lapsed at the dissolution of the Senate in May this year. The reintroduction of the Bill is consistent with the Government’s National Innovation and Science Agenda, released in December 2015, which identified crowd-sourced funding (CSF) as a reform that would facilitate small businesses raising equity funds from the public.
The original CSEF bill introduced in late 2015 intended to implement a CSEF regime with the following key features:
- only unlisted public companies with less than A$5 million in consolidated gross assets and less than A$5 million in annual revenue are able to access the CSEF regime;
- fundraising cap of A$5 million in any 12 month period;
- CSEF intermediaries to be licensed to provide crowd funding services, and further requirements on intermediaries to undertake gatekeeper obligations such as due diligence on the offering issuer companies, and providing generic risk warnings to investors;
- investment caps for retail investors of A$10,000 per issuer per 12 month period, and the requirement for investors to provide a risk acknowledgement statement;
- reduced disclosure requirements, including the introduction of the CSF offer document;
- amendments to the Australian Securities and Investments Commission Act 2001 (Cth) to place CSF within the purview of ASIC;
- eligible new public companies are provided with temporary relief from reporting and corporate governance requirements (including AGMs, audited financial reports and half-yearly reporting) for a maximum period of five years; and
- the Minister is provided with the power to exempt certain financial market and clearing and settlement facility operators from some of the requirements in Chapter 7 of the Corporations Act 2001 (Cth) to enable secondary trading markets for CSEF securities.
The Bill introduced makes the following amendments to the original bill:
- the asset and turnover test for unlisted public companies to be eligible to access the CSEF regime are increased from less than A$5 million in consolidated gross assets and annual revenue to less than A$25 million;
- temporary concessions from certain public company corporate governance and reporting requirements that are available to a new public company limited by shares are extended to include a proprietary company that converts to a public company limited by shares; and
- the cooling-off rights for retail clients are reduced from 5 business days to 48 hours after the application is made.
What will happen next?
The bill is yet to be passed by the lower house and the Senate.
Once the bill passes both Houses, Schedule 1 relating to the establishment of a regulatory framework to facilitate CSEF, and Schedule 2 relating to the temporary reliefs from reporting and corporate governance requirements, will commence on a day to be fixed by proclamation or 6 months after receiving assent. Schedule 3 allowing the Minister to exempt certain financial market and clearing and settlement facility operators from requirements in Chapter 7 of the Corporations Act 2001 (Cth) will commence on the day after receiving assent.