On 3 December 2015, the Federal Government introduced a Bill called Corporations Amendment (Crowd-Sourced Funding) Bill 2015 (Bill) into Federal Parliament following which, the Bill was referred to the Economics Legislation Committee (Committee) for enquiry and reporting. The original reporting date was extended to 29 February 2016 and the report has now been made publicly available.
What’s the outcome from the Committee’s report?
The Committee recognised crowd sourced equity fundraising as an evolving possible solution to assisting cash strapped companies in raising equity capital from public investors without the compliance burden of a prospectus. A primary purpose of the Bill is to facilitate easier access for companies to obtain equity capital with the expected consequential outcome of stimulating economic growth by facilitating corporate funding for emerging businesses. The Bill was noted as being a key feature of the Federal Government’s ‘Growing Jobs and Small Business’ package. The Committee noted that the Bill, in addition to amending the Corporations Act 2001 (Cth) (Act), also proposed to amend the Australian Securities and Investments Commission Act 2001 (Cth) and that draft regulations supplementing the Bill had also been released by the Government. The Committee looked at earlier proposals by the Corporations and Markets Advisory Committee, also referring to relevant parts of the Financial System Inquiry Report and New Zealand for crowd sourced funding legislation. Additionally, submissions were accepted and a public hearing was held.
What the Committee decided was:
- Having a mandated public company structure plus relaxed corporate reporting requirements as contained in the Bill was a reasonable position to adopt;
- The $5 million assets and turnover test as an eligibility requirement to participate in crowd sourced fundraising was seen by the Committee as logical (given the legislative desire to assist small companies) and should remain subject to there being a mechanism to review the requirements based on later experience and assessed effectiveness. The actual recommendation of the Committee was for a Government review of the legislation two years after enactment;
- That it was appropriate for intermediaries involved in the crowd sourced funding to have an Australian Financial Services Licence as a necessary safeguard;
- That due to the current complexity of the Bill, there was merit in there being a simple introductory guide in the legislation, similar in function to the Small Business Guide in the Act; and
- The final recommendation of the majority of the Committee was that it recommends that the Senate pass the Bill.
Was there a dissenting report?
Yes, the Labor Party Senators (Senators) noted that a mixed response of submissions indicated that the Federal Government’s proposals were not universally approved and that by not allowing small business (in the form of proprietary companies) to access crowd sourced funding, this will deprive start up enterprises from the benefits of the Bill because they are unlikely, due to regulatory costs, to initially structure themselves as public companies limited by shares. The dissenting Senators also considered that greater regulatory relief should be available to crowd funding participants and that the assets and turnover test should be increased from $5 million to $10 million. The dissenting report ultimately agreed with the 2 year review approach taken on the enacted legislation and indicated that the Senators did not intend to block the Bill.
Crowd sourced funding for companies looks like a foregone conclusion and we now await the Bill being transitioned into an Act. As the Federal Government sees the Bill as a key feature of its ‘Growing Jobs and Small Business’ package, it would seem likely to be given high priority status.