Chapter 1
Introduction
Reference
1.1
On 3 December 2015, the Assistant Minister to the Treasurer introduced
the Corporations Amendment (Crowd-sourced Funding) Bill 2015 (the bill) into
the House of Representatives. On the same day, the provisions of the bill were
referred to the Economics Legislation Committee for inquiry and report by
22 February 2016.[1]
The committee's reporting date was subsequently extended to 29 February 2016.[2]
1.2
The committee advertised the inquiry on its website and received 22
submissions. A list of submissions received is at Appendix 1.
1.3
A public hearing was held in Canberra on 23 February, 2016. The witness
list is at appendix 2.
Terminology
1.4
The committee notes that the bill employs the term 'crowd-sourced
funding' (CSF) instead of the more widely used term 'crowd-sourced equity
funding' (CSEF). Both terms are used in this report.
Purpose of the bill
1.5
Productivity is one of the core drivers of economic growth. Recognising
this, governments have sought to foster innovation as a means of unlocking
productivity. The continuing growth of the internet, in particular, offers new
opportunities to boost productivity through innovative ways to raise funds.
Crowd sourced funding (CSF) is one such method of online fundraising for
innovative start-up and other small enterprises that lack access to finance to
develop their business at a critical early stage.
1.6
CSF, also known as equity crowdfunding or investment-based crowdfunding,
is an evolving concept in corporate capital-raising. Broadly, the term
describes a company seeking funds—particularly start-up or early-stage
capital—online from 'the crowd'. In exchange for cash, the company offers its
equity. Equity offers are published through an online portal, also known as a
funding portal; that is, a website.[3]
1.7
CSF allows entrepreneurs to raise funds in small amounts from a large
number of investors, instead of relying on large capital outlays from one or
more investors.
1.8
A number of recent reviews have identified CSF as a means of giving
emerging, innovative business access to the capital they need to establish and
grow. The bill aims to further the objective of encouraging innovation and
stimulating economic growth by facilitating funding for emerging businesses.[4]
1.9
The purpose of the bill is to facilitate crowd-sourced equity funding in
Australia. The Explanatory Memorandum described crowd-sourced funding as:
...an emerging form of funding that allows entrepreneurs to
raise funds from a large number of investors. It has the potential to provide
finance for innovative business ideas and additional investment opportunities
for retail investors, while ensuring investors continue to have sufficient
information to make informed investment decisions.[5]
1.10
If enacted, the bill would also provide companies that are eligible to
crowd fund with temporary relief from otherwise-applicable reporting and
corporate governance requirements.
1.11
The bill's explanatory memorandum details why this legislation is
necessary, as existing legislative arrangements may be a barrier to small
businesses, or start-ups, making securities offers:
- For
proprietary companies, a limit of 50 non-employee shareholders and prohibitions
on making public offers of securities mean such companies are not able to
access the large number of small-scale investors that would typically be
targeted under an equity CSF campaign.
- Public
companies are not subject to these restrictions, but must comply with
substantially higher corporate governance and reporting obligations that may be
too expensive to be an option for small business. Public companies making
equity or debt offers must generally also use a disclosure document, which can
be costly and time consuming to prepare.[6]
1.12
The bill seeks to remove the regulatory barriers to CSF.
Key provisions of the bill
1.13
The bill comprises three schedules setting out amendments to the
Corporations Act 2001 (the Act) and consequential amendments to the Australian
Securities and Investments Commission Act 2001 (the ASIC Act), with the
objective of facilitating crowd-sourced equity funding. It is a key feature of
the government's Growing Jobs and Small Business package.[7]
1.14
Schedule 1 of the bill would amend the Corporations Act 2001 (the
Act) and establish a regulatory framework to facilitate crowd-sourced funding
by small, unlisted public companies. The proposed regime would 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.[8]
1.15
Schedule 1 also seeks consequential amendments to the Australian
Securities and Investments Commission Act 2001 (the ASIC Act) to expand the
range of financial services covered by the ASIC Act to include a crowd-funding
service, as defined by the Corporations Act.
1.16
Schedule 2 of the bill would provide eligible new public companies with
temporary relief from reporting and corporate governance requirements. This
would reduce potential barriers to adopting the required public company
structure.
1.17
Schedule 3 introduces provisions aimed at providing greater flexibility
in the Australian Market Licence (AML) and clearing and settlement facility
licencing regimes.
Scrutiny of bills
1.18
Under Senate standing order 25(2A), a legislation committee, when
examining bills or draft bills, shall take into account any comments on the
bills published by the standing committee for the Scrutiny of Bills. The standing committee assesses
legislative proposals against a set of accountability standards that focus on
the effect of proposed legislation on individual rights, liberties and
obligations, and on parliamentary propriety.
1.19
The Standing Committee for the Scrutiny of Bills examined the bill,
referring a number of questions to the Assistant Treasurer.[9] That committee was
primarily concerned with the delegation of legislative power effected by
certain sections of the bill. The committee notes that the standing committee
drew attention to these provisions, stating that the provisions may be
considered to delegate legislative powers inappropriately. The Standing
Committee for the Scrutiny of Bills was also concerned with provisions
reversing the onus of proof. That committee again drew attention to these
provisions, noting that they may be considered to trespass unduly on personal
rights and liberties.
1.20
In its subsequent report, the standing committee included the Minister's
response to the matters raised, which included noting the evolving nature of
CSF and the importance of being able to adjust quickly as the market develops
and investors become more familiar with the sector.[10]
The specific matters raised by the standing committee, outlined in full its
report, were not considered as part of this current inquiry. The committee
notes, however, that the bill contains provisions designed to ensure that the
legislation can be applied flexibly to the rapidly changing CSF environment.
Regulation impact statement
1.21
The bill's Explanatory Memorandum states:
It is expected that the overall 'per business' compliance
costs for issuers that participate in crowd-sourced funding will decline.
However, given the likely growth in the number of businesses raising funds
through these arrangements, the aggregate compliance burden over the economy is
expected to increase.[11]
1.22
The Explanatory Memorandum noted that the CSF model in the bill is
likely to have the highest net benefit of the options considered by the
government and a 'lower estimated aggregate regulatory cost'.[12]
Human rights
According to the Explanatory Memorandum, the bill is
compatible with human rights as 'it seeks to protect retail clients from
advertisements that could induce them to make investment decisions without
having all the necessary information'.[13]
The Parliamentary Joint Committee on Human Rights made no comment on the
provisions of the bill.[14]
Acknowledgements
1.23
The committee thanks all those who contributed to the inquiry.
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