At long last, Australia is set to have its own crowd-sourced funding (CSF) regime. The Bill to establish the regime passed the House of Representatives on 8 February 2017 and the Senate on 22 March 2017, meaning that the regime should come into force in about 6 months.1
The new regime will allow eligible unlisted public companies to raise a limited amount of equity capital from the “crowd” at large, including from retail investors, without providing prospectus-level disclosure.
The legislation also creates a role for dedicated CSF “intermediaries”: licensed operators of platforms which publish fundraisers’ CSF offers and provide the interface between fundraisers and potential investors.
This is the first in a series of 3 papers about the new CSF regime. Read on to find out what you need to know if you’re thinking of participating in the CSF regime as a fundraiser.
Key points for fundraisers
- Unlisted public companies only (for now): Only unlisted public companies limited by shares which satisfy the gross assets and turnover caps will be permitted to conduct CSF. While proprietary companies will be excluded from the regime when it first comes into effect, the Government has been consulting in relation to possibly extending the CSF provisions to proprietary companies. It’s not yet clear whether this will occur or, if it does, what the rules will be for proprietary companies.
- Gross assets and revenue caps: To conduct CSF, the value of the fundraiser group’s consolidated gross assets and consolidated annual revenue must each be less than $25 million.
- Offers to issue new ordinary shares only (for now): The regime will only allow eligible companies to issue new securities. It will not facilitate the sale of existing securities which have already been issued. Initially only offers for the issue of fully-paid ordinary shares will be permitted. In future, regulations may expand the types of securities which can be offered.
- Limit of $5m per 12 months: A fundraiser will be limited to raising $5 million in any 12-month period through the CSF regime. This $5 million includes amounts raised from “small scale personal offers” and offers made via Australian Financial Services licensees under existing disclosure exemptions.
- Offer disclosure: To use the CSF regime, fundraisers will need to prepare a specific CSF offer document containing the information prescribed by the regulations, and publish that offer document on a single intermediary’s platform.
- Corporate governance concessions: Fundraisers using the CSF regime may be entitled to certain corporate governance concessions for a limited period of time. However, these concessions will only apply to companies that register or convert to public companies after the CSF regime commences.
The concessions that may be available for such companies are:
- an exemption from the requirement for public companies to hold an Annual General Meeting;
- an exemption from the requirement for public companies to have their financial reports audited (although this exemption will cease to apply when more than $1 million has been raised from CSF offers); and
- the option to provide financial reports to shareholders by online means only (rather than providing shareholders with an option to elect to receive reports in hard copy format, as other public companies must do).
- Process for conducting CSF offers: The new regime also sets out detailed rules about the procedures that both fundraisers and intermediaries will have to follow when conducting CSF offers. These include (among other things) that:
- fundraisers will be limited to making one CSF offer at a time, and that CSF offer must be published on a single intermediary’s platform;
- the CSF offer must only be open for a maximum of 3 months; and
- both fundraisers and intermediaries must comply with the CSF regime’s advertising restrictions when advertising or publishing material relating to CSF offers.
The road ahead
With the CSF regime just around the corner, potential CSF fundraisers, intermediaries and investors should start thinking about how they might take advantage of this new fundraising and investment process.
Stay tuned for the next instalment of this series, which will focus on the key points that prospective CSF intermediaries should consider.