With the release of the 2015 Federal Budget on Tuesday sparking debate about who wins and who loses out, now is a great time to provide an update about the implications of the Budget for one of our favourite areas – crowd-sourced equity funding (CSEF).
ASIC’s CSEF mandate
The Budget goes some way to delivering on the Federal Government’s stated commitment to stimulating small business growth, cutting red tape and encouraging start-ups and entrepreneurs.
One significant part of the Budget’s Jobs and Small Business package is a funding injection of $7.8 million over four years to the Australian Securities & Investments Commission (ASIC) to facilitate CSEF. ASIC’s mandate in relation to these funds will be to “implement and monitor a regulatory framework” for CSEF, including less onerous reporting and disclosure requirements (and, possibly, some of the other changes discussed in our previous paper).1
The Budget indicates that the Federal Government will release another consultation paper later in 2015 on changes to the Corporations Act to remove unnecessarily restrictive regulation for small businesses. While this may provide further details about the proposed CSEF regime, the timing of the consultation paper means that Australia might not see changes in CSEF law as soon as many had hoped.
Exempt public companies
The Budget acknowledges that the current regulatory framework makes it difficult for small businesses to access equity funding without adopting a public company structure that is subject to burdensome governance and disclosure obligations. Accordingly “the new law will remove the costly elements of transitioning to a public company” to reduce compliance costs and facilitate CSEF for small businesses, while still ensuring that investors are adequately protected.2
The Budget wording suggests that the Federal Government may be planning to adopt one of the recommendations made by the Corporations and Markets Advisory Committee (CAMAC) in its 2014 CSEF report. CAMAC recommended the introduction of an ‘exempt public company’ category that would temporarily relieve fundraisers from some of the more onerous public company obligations while conducting a CSEF campaign.
In our experience, not many industry participants have been enthusiastic about structuring a CSEF regime around the concept of ‘exempt public companies’. It remains to be seen whether this concept will make its way into Australian law and, if so, how it will play out in practice.
The Budget does not shed any light on other aspects of what Australia’s CSEF regime will entail.
The show must go on
Meanwhile, despite the comparably slow process of legislative change, the Australian CSEF landscape has continued to develop apace. In the past year Addisons has advised some of the most exciting new arrivals on the Australian CSEF scene, such as:
- CrowdfundUP – officially launched in March this year, CrowdfundUP is Australia’s first ‘real-estate’ crowdfunding platform that seeks to facilitate online investments in commercial real-estate deals, including for retail investors.
- OurCrowd – originally established in 2012, the Israeli/US-based OurCrowd is an equity crowdfunding platform open only to wholesale investors and focuses mainly on raising money for start-ups. It recently opened an Australian office.
No doubt many small businesses and aspiring entrepreneurs will be anxiously awaiting the introduction of the new CSEF regime foreshadowed previously by the Government and affirmed in the recent Budget. We will be sure to keep you updated on any CSEF-related developments. For now, though, the show must go on.