A summary of the Corporations Amendment (Crowd-sourced Funding) Bill 2016, its key points and its current status.
This Bill seeks to amend the Corporations Act 2001 to establish a framework to
- facilitate crowd-sourced funding offers by small unlisted public companies;
- provide new public companies that are eligible to crowd fund with temporary relief from certain reporting and corporate governance requirements; and
- enable the minister to provide that certain financial market and clearing and settlement facility operators are exempt from specified parts of the Australian Market Licence and clearing and settlement facility licencing regimes; and
- the Australian Securities and Investments Commission Act 2001 to make consequential amendments.
Furthermore, the Crowd-source Funding (CSF) regime also seeks to include:
- eligibility requirements for a company to fundraise via CSF, including disclosure requirements for CSF offers;
- obligations of a CSF intermediary in facilitating CSF offers;
- the process for making CSF offers;
- rules relating to defective disclosure as part of a CSF offer; and
- investor protection provisions
The amendments establish a new CSF regime by inserting a new Part into Chapter 6D of the Corporations Act, which deals with:
- eligibility requirements for a company that wants to make an offer under the CSF regime;
- the process to make a CSF offer, including the role and obligations of the CSF intermediary (under Chapter 3 of the explanatory memo); and
- the prohibitions, liabilities and investor protections applying to CSF offers, including rules relating to defective disclosure documents and advertising restrictions.
Essentially, this measure recognises that regulatory impediments are the primary barrier to CSF in Australia. This Bill provides a model to reduce these regulatory barriers.
Definition of a Crowd-funding Service
A person will provide a crowd-funding service if:
- a CSF offer document for a CSF offer of securities of a company is published on a platform operated by the person; and
- applications may be made to the person for the issue, by the company, of securities pursuant to the offer
Schedule 1 of the Bill
This Schedule makes consequential amendments to the Australian Securities and Investments Commission Act 2001 (ASIC Act) to include a crowd-funding service, as defined in the Corporations Act, in the range of financial services covered by the ASIC Act
Schedule 2 of the Bill
This Schedule provides new public companies that are eligible to crowd fund with temporary relief from the reporting and corporate governance requirements that would usually apply. These concessions provide temporary relief to these companies to support the CSF regime by reducing the potential barriers to adopting the required public company structure.
Schedule 3 of the Bill
This Schedule amends the Act to provide greater flexibility in the Australian Market Licence (AML) and clearing and settlement facility licencing regimes. Under the changes, the Minister would be able to provide that certain financial market and clearing and settlement facility operators are exempt from some of the requirements in Chapter 7 of the Act. Providing for this flexibility is necessary to enable secondary trading markets for CSF securities to be licensed once the CSF regime is established.
Comparison Between This Proposed New Law and the Current Law
- An offer requiring disclosure is an offer made under Part 6D.2 that must comply with the requirements in Parts 6D.2 and 6D.3.
- A CSF offer is an offer that is expressly stated to be made under the CSF regime and that is eligible to be made under the regime.
- An offer will be eligible to be made under the CSF regime where:
- the offer is for the issue of securities of the company making the offer;
- the company making the offer is an ‘eligible CSF company’ at the time of the offer;
- the securities satisfy the eligibility conditions specified in the regulations;
- the offer complies with the ‘issuer cap’; and
- the company does not intend the funds sought under the offer to be used by the company or a related party of the company to any extent to invest in securities or interests in other entities or managed investment schemes.
This Bill will effectively remove regulatory barriers to CSF, and will make available a new funding source for businesses. It is expected that the overall ‘per business’ compliance costs for issuers that participate in crowd-sourced funding will decline.
Progress and Current Status
This Bill was first introduced on 24 November 2016 and has been through a second reading debate taking place 30 November 2016. There are no proposed amendments to this dates and no schedule of amendments at present. It is currently before representatives and was referred to the Senate Economics Legislation Committee and the Report is due 13 February 2017.