Eligible CSF company
Key issue: change from 2015 Bill—increase in assets and turnover thresholds
Key concern: limiting access to CSF to public companies
CSF intermediary
Key issue: change from 2015 Bill—decrease in cooling-off period

Conclusion

Date introduced: 24 November 2016
House: House of Representatives
Portfolio: Treasury
Commencement: Schedules 1 and 2 of the Bill will commence on a day to be fixed by Proclamation or six months after Royal Assent, whichever occurs first. Schedule 3 will commence on the day after Royal Assent.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at February 2017.

History of the Bill

The Corporations Amendment (Crowd-sourced Funding) Bill 2015 (2015 Bill) was introduced into the House of Representatives on 3 December 2015, and passed the House on 10 February 2016. It was introduced into the Senate on 22 February 2016, but lapsed at dissolution of the Parliament on 9 May 2016.

The Corporations Amendment (Crowd-sourced Funding) Bill 2016 (2016 Bill or the current Bill) was introduced into the House of Representatives on 24 November 2016, and is in similar terms to the 2015 Bill. A Bills Digest was prepared in respect of the 2015 Bill.[1] Much of the material in this Bills Digest has been sourced from that earlier publication. The main differences between the two versions of the Bills are an increase in the assets and turnover thresholds for eligible companies from $5 million to $25 million and a reduction in the cooling-off period for retail investors from five business days to 48 hours. These changes are discussed below.

Purpose of the Bill

The Corporations Amendment (Crowd-sourced Funding) Bill 2016 (the 2016 Bill) seeks to amend the Corporations Act 2001 (Cth) to:

establish a framework to facilitate crowd-sourced equity funding (CSF)[2] offers by small unlisted public companies
provide new public companies that are eligible to crowd fund with temporary relief from reporting and corporate governance requirements that would usually apply 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 licensing regimes.

The Bill seeks to amend the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) to make consequential amendments.

Structure of the Bill

The Bill has three Schedules. Schedule 1 to the Bill seeks to amend the Corporations Act to create a framework to facilitate CSF in Australia. The new framework covers:

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.[3]

Schedule 1 to the Bill also seeks to make consequential amendments to the ASIC Act to include ‘crowd-funding service’, as defined in the Corporations Act, in a range of financial services covered by the ASIC Act.[4]

Schedule 2 to the Bill seeks to amend the Corporations Act to provide new public companies that are eligible to crowd fund with temporary relief from the reporting and corporate governance requirements that would usually apply.[5]

Schedule 3 amends the Corporations Act to provide greater flexibility in the Australian Market Licence (AML) and clearing and settlement facility licencing regimes.[6]

Background

Crowd-sourced equity funding (CSF) is a relatively new concept, and is enabled by the rise of internet technologies. As the name suggests, it allows businesses to obtain capital from a large number of investors (that is, a crowd) through an online platform, where each investor typically contributes a small amount of money in return for an equity stake in the business. At its most basic level, CSF allows people to invest in unlisted shares issued by businesses.

CSF has gained attention because access to finance is considered a major impediment to improved productivity and innovation, particularly for smaller and/or newer businesses that are not able to access the more traditional sources of financing. CSF can notionally help to alleviate some of these constraints by introducing an additional source of finance for these firms. However, the current regulatory framework imposes burdens and costs that are considered significant impediments to more widespread utilisation of CSF in Australia.

The proposed changes in this Bill are intended to alleviate these constraints.[7] In its broadest form, the Bill will allow small companies, which would otherwise find it difficult to raise money through traditional sources of finance, to raise money from the general public through an online platform. The proposed changes are also intended to improve investment opportunities for retail investors. However, since small businesses and start-ups also pose a greater relative risk for such retail investors, the proposed amendments also aim to provide protection to these investors by imposing caps on the investment in any single offer and by imposing information and gatekeeping requirements on licensed CSF intermediaries.

Overview of features of the proposed CSF regime

The Explanatory Memorandum for this Bill contains discussions of three alternative models for CSF in Australia. These are the:

model proposed by the Corporations and Markets Advisory Committee’s (CAMAC) 2014 review [8] of CSF in Australia
model adopted in New Zealand and
post-consultation model that amalgamates aspects of the first two and introduces additional provisions that are not in either of these.[9]

The New Zealand CSF law[10] has been cited as a justification and model for possible emulation in Australia.[11] While the New Zealand law offers a readymade model, the CAMAC report proposed an alternative framework for CSF in Australia. During consultations regarding the Bill, however, concerns were raised that the New Zealand model would increase flexibility but would not provide enough protections for investors, while the CAMAC model would increase the overall complexity of crowdfunding.[12]

The current Bill, reflecting the post-consultation model, amalgamates aspects of both the New Zealand and CAMAC approaches, but introduces additional elements that reflect feedback from the overall consultation process undertaken by the government.[13]

The model set out in the Bill will operate as follows:

Small and medium Australian companies that meet eligibility requirements for CSF funding will be able to issue securities of the company to the general public in order to raise funds. Offers for a company’s securities must be made through eligible CSF intermediaries, by publishing on the latter’s platform, a CSF offer document that contains appropriate information required by regulations.[14] Furthermore, all applications made in response to the offer, and all money in respect of such applications must be sent and paid, respectively, to the CSF intermediary.[15] The issuing company must not make a CSF offer in any other way than that specified above.[16] Advertising for the CSF offers comes with restrictions, but can be made with certain mandatory statements.[17] Companies, individual directors, underwriters and CSF intermediaries may be liable for loss or damage suffered by a person due to a defective CSF offer document.[18]

Among the various eligibility requirements for CSF funding, a company must be a public company limited by shares[19], and must not have annual turnover or total assets in excess of $25 million each.[20] (The 2015 Bill imposed turnover and assets limits of $5 million.[21]) Its primary place of business should be in Australia and neither it, nor any of its subsidiaries, should be a listed corporation.[22] A CSF fundraising cap of $5 million in any 12-month period is imposed.[23] The funds raised through CSF must not be used by the company or any of its related parties to invest in securities or interests in other entities or schemes.[24]

The CSF provisions are only available to unlisted public companies, that is, companies that can offer shares to the public, but whose shares will not be included on the official list of a securities exchange.[25] However, as the corporate governance and reporting obligations imposed on public companies are more onerous than those imposed on proprietary companies, the Bill provides proprietary companies that convert to a public company in order to access CSF exemptions from certain reporting obligations for a period of up to five years.[26] Among these, companies will be exempted from annual general meeting and audit requirements.[27] However, in order to benefit from these exemptions, companies must conduct a CSF raising within one year.[28] This would ensure proper targeting of the policy to companies that would most need, and benefit from, the exemptions from reporting requirements and governance arrangements that would otherwise apply.

Financial services companies wishing to act as CSF intermediaries must hold an Australian Financial Service License and comply with licensing requirements, including membership of an external dispute resolution scheme.[29] They must also conduct appropriate due diligence checks on the issues before marketing the CSF offers, and suspend or terminate the offers if any impropriety is discovered thereafter.[30] They must also disclose fees paid to them by issuers and any investments they make in the issuers using their platforms.[31] CSF intermediaries who fail to comply with certain obligations may commit an offence, with penalties ranging from five penalty units (currently $900[32]) to 300 penalty units (currently $54,000) and/or five years imprisonment.[33]

Finally, the proposed CSF regime creates safeguards for retail investors, who face a greater relative risk from CSF offers. These investors will be able to invest a maximum of $10,000 per offer,[34] and will have the unconditional right to withdraw within 48 hours of making an application for the issue of securities pursuant to the CSF offer.[35] (The 2015 Bill proposed a cooling-off period of five business days.[36]) They will also need to sign a risk acknowledgement statement prior to investment.[37]

Assessments of Crowd-sourced funding in Australia

A number of recent reviews have identified the potential of CSF to improve access to finance for innovative businesses, and to facilitate further research and/or commercialisation, including:

the CAMAC review of 2014
the Government’s Industry Innovation and Competitiveness Agenda, released in October 2014,[38] which called for consultation on a regulatory framework for CSF
the Murray Inquiry into Australia’s financial system, released by the Government in December 2014,[39] which specifically recommended reducing regulatory impediments to crowdfunding by introducing graduated fundraising regulation (in its response to the Inquiry, released in October 2015, the Government accepted this recommendation)[40]
the Productivity Commission’s Business Set-up, Transfer and Closure draft report,[41] released in May 2015, which also supported the introduction of a CSF framework
the Government’s National Innovation and Science Agenda,[42] released in December 2015, which identified CSF as a reform that would make it easier for small businesses to raise equity funds from the public and
the Government’s FinTech Statement,[43] released in March 2016, which stipulated CSF as a FinTech priority.[44]

These public assessments of crowd-sourced funding in Australia were done prior to the dissolution of the 44th Parliament in 2016 (when the 2015 Bill lapsed). There have been no substantive assessments of CSF done since the current (45th) Parliament was sworn in. The 2016 Bill is largely based on the 2015 Bill and therefore draws extensively on the lessons of these earlier studies.

Consultations on CSF began in late 2014, following the release of the Treasury Discussion Paper on Crowd-sourced Equity Funding.[45] This paper sought to canvass stakeholder opinions of two alternative models for a CSF framework and presented the impact analysis of both models. The first of these is the model implemented in New Zealand, while the second is the model proposed by the Corporations and Markets Advisory Committee (CAMAC) in its Crowd Sourced Equity Funding Report.[46]

Over 40 submissions were received in response to the Treasury discussion paper, and two stakeholder roundtables were organised to discuss the design of the framework. Overall there was broad support for an integrated model that combined elements from both New Zealand’s and CAMAC’s models. The proposed framework was outlined in a separate Treasury consultation paper in August 2015.[47]

In addition to the initial stakeholder submissions and roundtables, targeted consultations were also undertaken on the draft legislation, and further public consultation was undertaken by the Senate Economics Legislation Committee following the introduction of the 2015 Bill into Parliament in December 2015.[48]

The CAMAC review into CSF in Australia found this form of funding is currently costly and impractical for businesses, mainly due to regulatory impediments in the Corporations Act, which imposed high compliance costs for small and start-up businesses.[49]

According to the CAMAC report Crowd Sourced Equity Funding:

There is no legal definition of [crowd-sourced equity funding]. However, in practice, the concept refers to a form of corporate fundraising that envisages start‑up or other smaller companies (issuers) obtaining seed or other capital through small equity investments from relatively large numbers of investors, with online portals (intermediaries) publicising and facilitating these equity offers to online users (the crowd).

Typically, the amount of equity capital to be sought by an issuer in a particular period through [CSF] would be relatively modest. [CSF] does not cover large‑scale public offers by larger corporations.[50]

Policy and Economic Rationale

The main policy rationale[51] for CSF is to promote and facilitate innovation in the Australian economy, particularly by small firms and new start-ups. Innovation is highly dependent on access to adequate levels of finance. It is a common assertion that it takes $1 to research an idea or concept, $10 to turn that into a marketable product, and $100 to successfully commercialise it. The funding needs typically are for either of the latter two stages, but a given amount will have a proportionally smaller impact in the commercialisation stage than in the product development stage.

There is evidence that inadequate access to finance is the biggest impediment to innovation for small and medium enterprises, which account for over 95 per cent of all businesses in Australia. As shown in the recently released report by the Australian Council of Learned Academies, Securing Australia's Future: Australia’s Comparative Advantage, a 2012 survey by the Australian Bureau of Statistics (ABS) on constraints to innovation showed that 43 per cent of small firms and 20 per cent of medium-sized firms identified funding as the biggest impediment to innovation; this contrasted with only 12.5 per cent of large firms that noted funding as a constraint.[52] However, for innovation-active firms, the constraints are even more acute. Relative to the all firms-case[53], 66 per cent of innovating small firms considered financing to be the biggest impediment to innovation. The corresponding responses for medium and large firms were 25 per cent and 15 per cent, respectively.[54]

Despite the fact that innovation helps to improve productivity, competitiveness and growth, this smaller segment of the market typically finds it extremely difficult, if not impossible, to access the traditional sources of financing that are available to the more established firms. The CAMAC report refers to the ‘capital gap’, where an enterprise is in need of finance to continue to its next stage of development, but cannot attract further funding from traditional financing sources and is not yet able to conduct an initial public offer of its securities.[55]

As such, the exclusion of proprietary companies from being able to access CSF would appear to potentially undermine the efficacy of the policy as expressed in the Bill. However, in his second reading speech the Minister noted that:

I have instructed Treasury to continue developing a framework for proprietary companies as a priority and would expect that an extension of the framework will be introduced through subsequent legislation in the near future.[56]

The economic rationale[57] for the Bill arises from the problems associated with imperfect information, externalities[58] and the regulatory burden inherent in the Corporations Act.

Probably the biggest impediment to finance arises from information asymmetry problems. Any kind of investment is inherently and unavoidably risky, in that business failure would result in the total loss of investment. Traditional sources of finance like banks and stock markets manage this risk by requiring a ‘track record’ of successful past performance, which, all else being equal, would indicate the ‘quality’ of the application and increase the probability of continuing success in the future. In this context, this means that most small firms or start-ups would not have the track record to obtain funding. Their inability to indicate their ‘quality’ to banks is a problem of information asymmetry that was identified by Nobel laureate George Akerlof as a major cause for market collapse and lost opportunities.[59]

One of the respondents to the CAMAC discussion paper described this problem as the ‘valley of death’:

The valley of death represents the stage in the growth cycle of an early stage business at which those early stage businesses have, on balance, not yet matured in their networks and risk profile to identify and attract sufficient capital from external sources to enable them to commercialise their products and services to a level at which the risk profile is sufficiently improved to enable sophisticated investors and professional investors to risk their capital in such companies.[60]

Increased innovation would create knowledge spill-over effects, which is a form of positive externality. According to standard theory, this would lead to under-provision of innovation by businesses; that is, they would be less willing to make the necessary investment if they are not able to appropriate all or most of the benefits associated with this investment. This is an example of market failure where government intervention to rectify the failure would be justified.

Finally, as shown in the responses to the CAMAC discussion paper that preceded its report,[61] the current capital raising provisions of the Corporations Act were designed for more substantive capital raising activities by large, established public firms, and the regulatory (corporate governance) and compliance (reporting) requirements associated with those would be prohibitively expensive for small, start-up firms.[62]

While CSF is technically legal in Australia and there are currently a small number of operators of online platforms offering investment in Australian start-ups and small businesses, the current legislative arrangements outlined above significantly limit the type of service they can offer, and do not fulfil the 'crowd' element of CSF.

Thus the Bill is primarily intended to alleviate the financing constraints facing small and start-up firms, subject to certain requirements being met.

Committee consideration

Senate Economics Committee

The current Bill was referred to the Senate Economics Legislation Committee on 1 December 2016. The Committee report is due on 13 February 2017.[63] Submissions to this inquiry closed on 9 January 2017, and the Committee had received 17 submissions by the time of the submission deadline.

The 2015 Bill was referred by the Senate to the Senate Economics Legislation Committee on 3 December 2015,[64] and its report was tabled on 1 March 2016.[65] The main reason for referral was to thoroughly consider the issues surrounding the impact of this legislation on the start-up sector. The earlier inquiry elicited a relatively more extensive response, but the stakeholder perspectives of groups that have made submissions to both inquiries have not substantially changed.

The earlier Committee report reviewed and summarised several preceding reports that considered the issue on its own, or as part of a broader agenda dealing with productivity and innovation. A key point recognised by the report was the importance of balancing the financing needs of businesses with appropriate investor protections.[66]

The need for striking a balance was also recognised by all the submitters to the Committee; however, there was a divergence of views on the correct balance. Some respondents felt that the entry barriers for companies were too high, and that the proposed CSF regime would prevent deserving companies from raising much-needed finance. On the other hand, others considered the responsibilities and obligations imposed on intermediaries as too onerous, which would discourage people from providing this service.[67] (The views of some submitters are considered under ‘Position of major interest groups’, below.)

The Committee noted the Government’s extensive consultation process undertaken prior to the introduction of this Bill, and also alluded to the fact that given this is a new policy issue around the world, and therefore without robust results and lessons, a predominantly cautious approach taken in this early stage is prudent. The crux of the question, according to the Committee, is whether it would provide a good starting point to build the necessary legislative framework. The Committee Report responded in the affirmative. The Committee also noted that the legislative framework would benefit from subsequent review and ‘fine-tuning’.[68]

The two main recommendations of the Report were:

that the government monitor carefully the implementation of the legislation and undertake a review two years after its enactment with special attention to the matters detailed in the report and
that the Senate pass the Bill.[69]

The Labor Senators on the Committee issued a Dissenting Report that focused on the perceived costs and complexities of the Bill. According to this Report, the Committee had failed to take account of concerns expressed in several submissions that the requirement to take a company public in order to access CSF would place an onerous financial burden, often running into thousands of dollars. There was concern that many small companies would not have the resources or the capabilities to implement such a change, despite the proposed exemption period from some of the obligations usually imposed on public companies.[70]

A key recommendation of the Dissenting Report was that the Bill should be amended to remove the restriction that limits CSF to unlisted public companies. It further stated:

In its place, the Bill should merely allow small firms to access the Bill’s Corporations Law exemptions from the point at which they enter into a legally enforceable agreement with an intermediary (crowdfunding platform) to hold an equity crowdfunding campaign.[71]

A second recommendation was that the asset and turnover cap should be raised from $5 million to $10 million, in order to increase the number of firms that can access CSF.[72] The 2016 Bill has raised these caps to $25 million each for assets and annual turnover.

Senate Standing Committee for the Scrutiny of Bills

The Committee dealt with the 2015 Bill in the Alert Digest No. 1 of 2016, in which it raised concerns that provisions in the Bill inappropriately delegated legislative power and reversed the burden of proof. It also sought advice from the Assistant Treasurer on a number of issues.[73] The Assistant Treasurer responded to the Committee’s comments in a letter received on 18 February 2016. The relevant extracts from the Alert Digest, and the Assistant Treasurer’s responses to those, are contained in the Second Report of 2016 of the Committee.[74] The Committee made further comments on the 2016 Bill.[75]

The following were the main areas of concern for the Committee:

Proposed section 738F provides for certain rules in Chapter 7 of the Corporations Act (which regulates financial services and markets) to apply in a modified way to proposed Part 6D.3A of the Corporations Act (which will regulate CSF). Proposed subsection 738F(3) then allows regulations to be made to further modify the application of the relevant Chapter 7 rules in specified situations. In short, regulations may be made to modify the application of the primary legislation. This is an example of a ‘Henry VIII clause’, which enables delegated or subordinate legislation to override the operation of legislation that has been passed by the Parliament. The Scrutiny of Bills Committee raises concerns in regards to such clauses when the rationale for their use is not provided or is insufficient as ‘such clauses may subvert the appropriate relationship between the Parliament and the Executive branch of government’.[76] In this instance the Committee noted that the Explanatory Memorandum to the Bill did not provide any justification of the provision and sought advice on the matter from the Assistant Treasurer.[77] The Assistant Treasurer advised that an equivalent regulation-making power was provided in Chapter 7 of the Corporations Act and therefore was required in the Bill to ensure consistency. The Committee asked for this information to be included in the Explanatory Memorandum to the Bill.[78] It is now included at paragraph 3.88 of the Explanatory Memorandum to the 2016 Bill.[79]

Proposed subsection 738G(1) sets out the eligibility conditions that would need to be satisfied before a CSF offer can be made. Proposed paragraph 738G(1)(c) states that eligible CSF offers would require that the securities are of a class specified in the regulations, while proposed paragraph 738G(1)(f) provides a broad power to specify ‘any other requirements’ in the regulations. In relation to proposed paragraph 738G(1)(c), the Committee noted that as the regulations will be subject to disallowance, it would leave the question of whether the proposed delegation of legislative power is appropriate to the Senate as a whole.[80] The Assistant Treasurer’s response noted that the proposed clause would allow the CSF regime to be restricted to a limited range of securities which, given crowd-funding’s relatively new status in Australia, would provide the flexibility to adjust the types of securities that are eligible for crowd-funding as the risks and benefits associated with the sector are better understood. The Committee thanked the Assistant Treasurer for providing this additional information. [81] In its report on the current Bill, the Committee also acknowledged the inclusion of the additional information in the Explanatory Memorandum to the 2016 Bill.[82] In relation to proposed paragraph 738G(1)(f) the Committee noted the breadth of the provision and reiterated its expectation that when important matters are dealt with in regulations, rather than primary legislation, this approach should be justified. It noted that that there appeared to be no information in the Explanatory Memorandum as to why such a broad power to impact the scope of eligible offers should be left to the regulations. It has sought advice from the Treasurer as to the rationale for the delegation and examples of circumstances in which the power to prescribe other eligibility requirements in the regulations are expected to be used.[83] At the time of writing this Digest, a response from the Treasurer has not been published.

The Committee also requested further information from the Assistant Treasurer on provisions that would place an evidential burden of proof on a defendant seeking to rely on certain defences. The relevant provisions are proposed section 738Z (which sets out exceptions to the offences relating to defective offer documents) and proposed section 738ZG (which relates to prohibited advertising of a CSF offer).[84] The Minister advised the Committee that the approach was consistent with that taken in Chapter 6D of the Corporations Act and ‘fully consistent with the principle in the Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers which establishes the general rule that a defendant should only bear an evidential burden of proof for an offence-specific defence’.[85] The Committee asked for this information to be included in the Explanatory Memorandum to the Bill.[86] It is now included at paragraph 5.46 of the Explanatory Memorandum to the 2016 Bill.[87]

Policy position of non-government parties/Independents

The Labor Senators on the Economics Committee had, during the inquiry on the 2015 Bill, offered qualified support for the Bill. Their Dissenting Report, while noting that they did not intend to block the Bill, nevertheless called for a ‘lighter regulatory touch’, and the ‘need to remove a major barrier to small firms accessing equity crowdfunding system’.[88] Their position was based on concerns raised in several submissions and testimonies that the demand for small firms to convert into unlisted public companies in order to access CSF would potentially add regulatory and financial impost on start‑ups and crowdfunding platforms.

An additional concern expressed was that the Bill would not meet the capital needs of start-ups and small firms, and while the various exemptions from obligations usually imposed on public companies would provide some relief, these would be hardly enough to overcome the costs associated with becoming a public company.[89]

The Dissenting Report made two main recommendations to improve access by start-ups and small firms to CSF. The first related to the requirement that limits eligibility to unlisted public companies. Specifically, the Dissenting Report recommended:

Section 738H(1)(a) should be amended to remove the restriction that limits CSF to unlisted public companies. In its place, the Bill should merely allow small firms to access the Bill’s Corporation Law exemptions from the point at which they enter into a legally enforceable agreement with an intermediary (crowdfunding platform) to hold an equity crowdfunding campaign.[90]

The second major change called for in the Dissenting Report was that the current cap on assets and turnover should be increased from $5 million to $10 million. This would increase the number of firms that can access CSF. Senator Wong proposed amendments to the 2015 Bill to action the Dissenting Report’s recommendations.[91]

In his second reading speech on the 2015 Bill, Adam Bandt of the Australian Greens echoed the concerns about the regulatory burdens associated with a company going public, and was appreciative of the exemptions offered to small firms and the protections offered to retail investors. [92] Overall, he was supportive of the Bill but emphasised the importance of striking a good balance between the need for innovation and appropriate investor protections.

With regards to the 2016 Bill, the Labor Party has reaffirmed its contention that CSF funding should not be limited to public firms only.[93] Mr Ed Husic further raised concerns that the reduction of the cooling-off period from five days to 48 hours would reduce investor protections.[94]

Position of major interest groups

As mentioned above in the section Senate Economics Committee, there is nothing to indicate that the position of major interest groups has changed materially from the time the Senate Economics Committee considered the 2015 Bill. Unless mentioned otherwise, this section relates to stakeholder perspectives that were expressed during the earlier inquiry relating to the 2015 Bill.

The Economics Legislation Committee received 22 submissions on the 2015 Bill, which generally favoured the idea of introducing a CSF regime.[95] The Australian Stock Exchange (ASX) was generally very supportive of the Bill, and considered that the final regulatory settings in the Bill struck a reasonable balance between making CSF an attractive and feasible option for companies seeking to raise funds, and maintaining appropriate protections for investors.[96]

However, some submitters expressed concerns relating to the compliance burden and costs that this Bill would impose.[97]

The first of these concerns related to the requirement that companies wishing to access CSF convert to a public company. According to VentureCrowd, an equity crowd-funding business, this would impose a significant regulatory, administrative and compliance burden on the companies.[98] It also noted:

The Corporations Act requires a proprietary company with 50 or more shareholders to become a public company. In the expectation that a start-up who accesses ECF [equity crowd funding] will gain 50 or more shareholders, the Bill requires that start-up to convert to become a public company (whether or not it ever exceeds the 50 shareholder limit).

The public company regime was introduced to regulate large, well-funded and well-resourced companies that were either listed on a stock exchange or of equivalent private stature. Start-up businesses, without revenue and resources, could not have been further from the minds of those who wrote the legislation.[99]

The Australian Small Scale Offerings Board (ASSOB) took a contrary view, and insisted that ‘issuer companies convert to public companies prior to listing ... to learn to be compliant and accountable to investors from the start’.[100] However, ASSOB expressed concern about the compliance and regulatory burden on intermediaries, especially for fundraising efforts below $500,000.[101] In its submission to the inquiry on the 2016 Bill, ASSOB supported both increasing the turnover and revenue limits to $25 million, and reducing the cooling-off period to 48 hours.[102]

ASSOB’s position regarding public companies was echoed by Chartered Accountants Australia and New Zealand, which expressed a view that CSF framework concessions may have a negative impact on investor rights and may also not achieve the desired result of reducing the regulatory burden.[103] With regards to the inquiry on the 2016 Bill, the submission of Chartered Accountants Australia and New Zealand supported the proposed amendment of the turnover cap to $25 million, but recommended that the asset threshold should only be $12.5 million. This would bring the turnover and asset thresholds in line with the corresponding small company reporting thresholds.[104] It also recommended retaining the five-day cooling-off period, since crowd-sourced funding is a new form of investment for many Australian investors. This cooling-off period should accordingly be reviewed and revised as appropriate once this form of funding becomes more established.[105]

The Australian Private Equity and Venture Capital Association Ltd (AVCAL), while generally supporting the Bill, raised concerns about some specific provisions relating to the exclusion of investment companies from CSF.[106] Additionally, restrictions on the revenue and assets limits (of $5 million each), and the prohibition of eligible CSF companies and related parties having more than one concurrent offer were also objected to. The underlying argument was that these restrictions would potentially hinder promising start-up companies and exclude them from the crowd-funding pool.[107]

Financial implications

According to the Explanatory Memorandum, the measure has the following financial impact on the Budget (see Table 1).[108]

Table 1: financial impact

2015–16	2016–17	2017–18	2018–19
-$1.2m	-$3.1m	-$1.7m	-$1.6m

Source: Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, p. 4.

This includes a movement of funds from 2015–16 to 2016–17 as part of the 2015–16 Mid-Year Economic and Fiscal Outlook.[109]

According to the Explanatory Memorandum, the compliance costs associated with this Bill are $50.3 million for the CSF model, and a further $0.6 million for the changes to the AML regime. This has been fully offset from within the Treasury portfolio.[110]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[111]

The Government identifies only one potential impact on human rights, which arises from the provisions in the Bill that seek to protect retail clients from advertisements that could induce them to make investment decisions without having all the necessary information.[112] The Government considers that, to the extent that the Bill thereby restricts the freedom of expression, this is justified because it is a reasonable, necessary and proportionate consequence of protecting investors by ensuring that they can access sufficient information about the CSF offer.[113]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights considers that the Bill does not raise human rights concerns.[114]

Key issues and provisions

The legislative and regulatory frameworks for crowdfunding in Australia are quite new, while several other advanced countries have had a lead time of several years in this area. While this means that Australia has some catching up to do, it gives Australia the chance to cherry-pick the best aspects of different plans and introduce additional modifications/features.

The key theme that comes through in the proposed legislation is that the CSF provisions should be carefully targeted to those who would gain the most benefit from them, and who would otherwise struggle to obtain the necessary financing.

Item 14 of Schedule 1 to the Bill inserts a proposed Part 6D.3A into the Corporations Act to create a framework to facilitate CSF in Australia. A brief explanation of the major elements of this framework is provided under ‘Overview of features of the proposed CSF regime’, above. Very basically, without proposed Part 6D.3A, companies seeking to raise funds by issuing securities would need to comply with the more stringent information disclosure requirements set out at Part 6D.2 of the Corporations Act and the prohibitions, liabilities and remedies relating to offers of securities, set out at Part 6D.3 of that Act.

The Bill includes provisions governing:

the eligibility of companies to crowd-fund (proposed section 738H)
the role and eligibility of a CSF intermediary, defined at proposed section 738C as a financial services licensee who is authorised to provide a crowd funding service
investor protections (Division 6 of proposed Part 6D.3A)[115] and
regulatory obligations for issuers and intermediaries.

Eligible CSF company

One of the requirements that must be fulfilled before an offer of securities may be made under proposed Part 6D.3A of the Corporations Act (referred to as a ‘CSF offer’—proposed section 738B) is that the company seeking to issue the securities is an ‘eligible CSF company’. ‘Eligible CSF company’ is defined at proposed section 738H as a company:

is an unlisted public company limited by shares that does not have a substantial purpose of investing in securities or interests in other entities or schemes[116]
has its principal place of business in Australia and a majority of its directors ordinarily reside in Australia[117]
satisfies the ‘assets and turnover test’.[118]

Proprietary companies cannot come within this definition, as they are explicitly excluded from the definition of ‘public company’ at section 9 of the Corporations Act.

Key issue: change from 2015 Bill—increase in assets and turnover thresholds

The ‘assets and turnover test’ limits the size of companies that can access CSF. This restriction is to limit the CSF regime to companies that would most benefit from it, and which would otherwise struggle to raise the needed capital. The 2015 Bill imposed a cap of $5 million each for annual turnover and total assets, but the 2016 Bill proposes caps of $25 million each. The Explanatory Memorandum to the Bill states that this change was made following the 2016 Senate Economics Committee inquiry into the 2015 Bill, and the Government’s consultations with its FinTech Advisory Group and ‘will increase the range of small and early-stage companies able to use the lower-cost fundraising option available through CSEF and increase CSEF investment options for investors’.[119] As set out above, Labor’s Dissenting Report on the 2015 Bill recommended increasing the caps to $10 million each.[120] As set out under ‘Position of major interest groups’ the increase in the caps from $5 million to $25 million is supported by the Australian Small Scale Offerings Board.[121] Chartered Accountants Australia and New Zealand supports increasing the turnover cap to $25 million, but considers that the asset threshold should be $12.5 million, to ensure the thresholds are aligned with the corresponding small company reporting thresholds.[122]

Key concern: limiting access to CSF to public companies

As noted earlier, given that the majority of companies in Australia are proprietary companies[123], a key concern of some stakeholders, the Opposition and Greens is the exclusion of proprietary companies from the regime proposed by the Bill.

Whilst the Bill does not address these concerns, the Government has indicated its intention to develop and introduce a framework allowing proprietary companies to access CSF ‘as a priority’ and expects that the framework proposed by the Bill will be extended by another Bill in the ‘near future’.[124]

CSF intermediary

Under the proposed CSF regime, all CSF offers must be made through a ‘CSF intermediary’ (proposed section 738L). As a result, CSF intermediaries occupy ‘a central role in the CSF regime’ and are required to comply with a number of obligations.[125] One key requirement is that a person or company wanting to act as a CSF intermediary must acquire an appropriate Australian Financial Services Licence (AFSL) that authorises them to provide a crowd funding service (proposed section 738C). Other obligations and requirements include:

to ensure that a prominent risk warning appears on all CSF offer platforms (proposed subsection 738ZA(1))
to ensure that, at all times, while the offer is open, the ‘application facility’ allows for the making of applications pursuant to the CSF offer (proposed paragraph 738ZA(3)(a))
to ensure that, at all times, whilst the offer is open or suspended, provide a communication facility that allows people who access the CSF offer document to:
- make posts relating to the offer
- see posts relating to the offer made by others
- ask the company making the offer, or the intermediary, questions relating to the offer and
- see responses from the company or the intermediary to such posts or questions (proposed subsection 738ZA(5)).
to ensure that the specified cooling-off rights warning appears prominently on the offer platform at all times while the offer is open or suspended (proposed subsection 738ZA(8))
to ensure that the fees the intermediary charges the company making the offer, along with any direct or indirect pecuniary interest that the intermediary, or an associate of the intermediary, has or expects to acquire in the company or a related party of the company are disclosed and prominently displayed (proposed subsection 738ZA(9)).

Key issue: change from 2015 Bill—decrease in cooling-off period

As discussed under ‘Overview of features of the proposed CSF regime’, above, the current Bill would allow retail investors to withdraw an application for the issue of securities pursuant to the CSF offer, within 48 hours of making the application.[126] In contrast, the 2015 Bill proposed a cooling-off period of five business days.[127] The Explanatory Memorandum to the Bill states that the reduced cooling-off period ‘will provide issuers and intermediaries with greater certainty about the amount raised via a CSEF offer while retaining a reasonable period for investors to withdraw after making an investment’.[128] As set out under ‘Position of major interest groups’ the reduction in the cooling-off period is supported by the Australian Small Scale Offerings Board and opposed by Chartered Accountants Australia and New Zealand.[129]

Conclusion

The Bill can be reasonably expected to meet its intended goals. However, there are other, broader issues and problems that may be regarded as inadequately dealt with:

1. The limited information that is available from other countries indicates that equity crowd-funding has been successful, if measured in terms of the total amounts raised. In fact, most of the published information focusses only on how many fund raising campaigns take place, the money actually raised per year through this, and the growth in this. The absence of alternative data, for example on successful outcomes, prevents a more thorough analysis.

However, the available information does not indicate what the success rate is: that is, how many companies would like to raise funds and how many are actually achieving their fund-raising goals, and how beneficial these ventures are for their investors. Related to this, it is difficult to ascertain what other constraints may exist for other firms.

2. In addition to the performance in raising money, there is also the issue of the sustained operational success of the firm. Unlike the former, this would require effective management, marketing, and governance capabilities, which are quite independent of the initial need for funds.

It is also too early to determine the overall, long-term success or profitability of firms that used CSF in their formative years, how many of these would actually survive over a five-year period, or how effectively the interests of individual investors can be safeguarded against fraud or poor governance. This in turn would make it difficult to determine the average rate of return for investors or how this would compare with the returns from traditional stock-market indices like ASX, FTSE or the Dow. Another unresolved issue appears to be the level of representation or feedback that individual investors can expect from the companies that they invest in.

A more significant problem appears to be the role played by crowdsourcing intermediaries. As illustrated by a UK example [130] of a company purporting to manufacture palm-sized drones, this can lead to problems when crowdfunding platforms fail to do proper due diligence on the companies seeking to raise funds, or inadvertently give an impression to retail investors that they are involved in the development of the project/product itself. In this case, the company raised 20 times the amount that was initially targeted, but failed to manufacture the advertised product. It eventually went into voluntary liquidation, and investors effectively lost their entire investment.[131]

The Bill seeks to impose certain obligations and restrictions on intermediaries. This would seem appropriate, since in more traditional areas like bank lending or stock markets, the banks and stock exchanges would be expected to conduct due diligence and act with an appropriate duty of care towards those whose funds they administer.

3. Finally, as alluded to by Australian Private Equity and Venture Capital Association Limited (AVCAL) in its submission to the Financial Services Inquiry, [132] the funds raised by CSF are likely to be limited to small amounts only. This is consistent with the pattern observed internationally. What this effectively means is that the funds raised through CSF are only a small part of what would otherwise be needed over the longer term for the growth of firms. In other words, it would help them ‘get off the ground but not fly’. It is to be expected that the small firms or start-ups would use these funds to get to a point where they could approach venture capital firms, stock markets or banks for more substantial equity or debt-based funding. The position of CSF as simply a step in a larger process is something that must be borne in mind when contemplating the likely effects of the Bill.

While Australia, like many other countries, will have a high failure rate for start-ups, it is not possible to say which of these failed due to lack of financing (even though they deserved financing) and which failed due to poor management and operations. It is also likely, as seen in the UK example mentioned above, that firms may fail despite getting impressive levels of funding through crowdsourcing.

So while the Bill would address some of the information asymmetry problems that preclude the more established sources of finance, it will not be addressing these broader and longer-term problems associated with start-up ventures, including the financial constraints they face.

[1]. N Gupta, Corporations Amendment (Crowd-sourced Funding) Bill 2015, Bills digest, 114, 2015–16, Parliamentary Library, Canberra, 2016.

[2]. The term ‘crowd-sourced funding’ also refers to public appeals for financial support for a wide range of activities and mechanisms. This Bill is confined to equity funding only.

[3]. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, p. 3.

[4]. Ibid.

[5]. Ibid.

[6]. Ibid., p. 4.

[7]. S Morrison (Treasurer), ‘Second reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’, House of Representatives, Debates, 24 November 2016, p. 4305.

[8]. Corporations and Market Advisory Committee (CAMAC), Crowd sourced equity funding report, CAMAC, Sydney, 21 May 2014.

[9]. Explanatory Memorandum, op. cit., especially pp. 110–121.

[10]. In New Zealand, crowd funding is covered by the Financial Markets Conduct Act 2013 (NZ).

[11]. R Powell, ‘Malcolm Turnbull says Australia could follow New Zealand crowdfunding laws’, The Australian Financial Review, (online edition), 19 May 2015.

[12]. A Hawke, ‘Second reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2015’, House of Representatives, Debates, 3 December 2015, p. 14633.

[13]. Morrison (Treasurer), ‘Second reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’, op. cit., p. 4307.

[14]. Proposed subsections 738J(2) and 738L(1) at item 14 of Schedule 1 to the Bill.

[15]. Proposed subsection 738L(2).

[16]. Proposed subsection 738L(3).

[17]. Proposed subsection 738L(4).

[18]. Proposed section 738Y.

[19]. Proposed subsection 738H(1).

[20]. Proposed subsection 738H(2).

[21]. See proposed subsection 738H(2) of the Corporations Amendment (Crowd-sourced Funding) Bill 2015.

[22]. Proposed subsection 738H(1). This means that the company’s shares will not be included on the official list of a securities exchange.

[23]. Proposed subsection 738G(2).

[24]. Proposed paragraph 738G(1)(e).

[25]. Proposed subsection 738H(1).

[26]. Proposed section 738ZI at item 30 of Schedule 1, and Schedule 2 of the Bill. According to the Australian Institute of Company Directors website, a small proprietary company is one where two out of the following three criteria are met: consolidated revenue for the financial year is less than $25 million, value of consolidated gross assets at the end of the financial year is less than $12.5 million, and the company has less than 50 employees.

[27]. Items 3 and 6 of Schedule 2 to the Bill.

[28]. Proposed section 738ZI.

[29]. Proposed section 738C and Chapter 7 of the Corporations Act 2001. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., p. 120.

[30]. Proposed sections 738Q and 738X.

[31]. Proposed subsection 738ZA (9) at item 14 of Schedule 1. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., p. 120.

[32]. A penalty unit is currently equivalent to $180. See section 4AA of the Crimes Act 1914 (Cth).

[33]. See item 34 of Schedule 1 to the Bill and proposed sections 738L(3), 738M(1) to (3), 738N(4), 738P(1), 738Q(1), (5) and (7), 738R, 738V, 738X, 738ZA, 738ZB, 738ZC, 738ZE, 738ZF and 738ZG.

[34]. Proposed section 738ZC.

[35]. Proposed section 738ZD.

[36]. See proposed section 738ZD of the Corporations Amendment (Crowd-sourced Funding) Bill 2015.

[37]. Proposed paragraph 738ZA(3)(b).

[38]. T Abbott (Prime Minister) and I McFarlane (Minister for Industry), Transcript of joint press conference, Parliament House, Canberra: Industry Innovation and Competitiveness Agenda; medicinal marijuana; G20, joint media release, 14 October 2014.

[39]. J Hockey (Treasurer), Release of the Financial System Inquiry report, media release, 7 December 2014.

[40]. Australian Government, Improving Australia’s financial system: Government response to the Financial System Inquiry, Treasury, Canberra, 2015.

[41]. Productivity Commission (PC), Business Set-up, Transfer and Closure, Draft report, PC, Canberra, May 2015.

[42]. National Innovation and Science Agenda (NISA), ‘Welcome to the ideas boom’, NISA, [3 December 2015].

[43]. S Morrison (Treasurer), Supporting Australia’s FinTech future, media release, 21 March 2016.

[44]. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., pp. 7–8.

[45]. Treasury, Crowd-sourced equity funding, discussion paper, Treasury, Canberra, December 2014.

[46]. CAMAC, Crowd sourced equity funding report, op. cit.

[47]. Treasury, Facilitating crowd-sourced equity funding and reducing compliance costs for small businesses, consultation paper, Treasury, Canberra, 4 August 2015.

[48]. K O’Dwyer, ‘Second reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2015’, House of Representatives, Debates, 10 February 2016, p. 1290.

[49]. A Hawke, ‘Second reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2015’, op. cit.

[50]. CAMAC, Crowd sourced equity funding report, op. cit., p. 5.

[51]. The policy rationale refers to the importance of addressing this issue, and the follow-on consequences or problems that might arise if this does not happen.

[52]. G Withers, N Gupta, L Curtis and N Larkins, Securing Australia's future: Australia’s comparative advantage: final report, Australian Council of Learned Academies, Melbourne, August 2015, p. 121.

[53]. Firms that are innovation-active and those that are not actively engaged in innovation.

[54]. G Withers et al, Securing Australia's future: Australia’s comparative advantage: final report, op. cit., p. 121.

[55]. CAMAC, Crowd sourced equity funding report, op. cit., p. 6.

[56]. S Morrison, ‘Second reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’, House of Representatives, Debates, 24 November 2016, p. 4305.

[57]. The economic rationale refers to the underlying causes of the problem.

[58]. Externalities refer to the cost or benefit that affects a party who did not choose to incur that cost or benefit. In other words, this refers to the impact of one party’s actions on another, even though the latter did not have anything to do with the original action.

[59]. G Akerlof, ‘The market for “lemons”: quality uncertainty and the market mechanism’, The Quarterly Journal of Economics, 84(3), August 1970, pp. 488–500.

[60]. CAMAC, Crowd sourced equity funding report, op. cit., pp. 11–12.

[61]. CAMAC, Crowd sourced equity funding: discussion paper, CAMAC, Sydney, September 2013.

[62]. CAMAC, ‘The crowd sourced equity funding: submissions received’, CAMAC website.

[63]. Inquiry homepage, Senate Standing Committees on Economics, ‘Corporations Amendment (Crowd-sourced Funding) Bill 2016’.

[64]. Selection of Bills Committee, Report, 16, 2015, The Senate, 3 December 2015, p. 7.

[65]. Economics Legislation Committee, Corporations Amendment (Crowd-sourced funding) Bill 2015 [Provisions], The Senate, February 2016.

[66]. Ibid., p. 5.

[67]. Ibid., p. 14.

[68]. Ibid., p. 40.

[69]. Ibid., pp. 39–40.

[70]. Ibid., pp. 42–43.

[71]. Ibid., p. 43.

[72]. Ibid.

[73]. Senate Scrutiny of Bills Committee, Alert digest, 1, 2016, The Senate, 3 February 2016, pp. 9–11.

[74]. Senate Scrutiny of Bills Committee, Report, 2, 2016, The Senate, 24 February 2016, pp. 64–72.

[75]. Senate Scrutiny of Bills Committee, Alert digest, 10, 2016, 30 November 2016, pp. 2–3.

[76]. Senate Scrutiny of Bills Committee, Alert digest, 1, 2016, op. cit., p. 9.

[77]. Ibid., pp. 9–10.

[78]. Senate Scrutiny of Bills Committee, Report, 2, 2016, op. cit., pp. 65–66.

[79]. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., p. 41.

[80]. Senate Scrutiny of Bills Committee, Alert digest, 1, 2016, op. cit., p. 10.

[81]. Senate Scrutiny of Bills Committee, Report, 2, 2016, op. cit., p. 67.

[82]. Senate Scrutiny of Bills Committee, Alert digest, 10, 2016, The Senate, 30 November 2016, pp. 2–3. See paragraphs 2.32 to 2.33 at page 16 of the Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016.

[83]. Senate Scrutiny of Bills Committee, Alert digest, 10, 2016, op. cit., p. 3.

[84]. Senate Scrutiny of Bills Committee, Alert digest, 10, 2016, op. cit., pp. 10–11.

[85]. Senate Scrutiny of Bills Committee, Report, 2, 2016, op. cit., pp. 68–71.

[86]. Ibid., pp. 69–72.

[87]. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., p. 65.

[88]. Labor Senators, Dissenting report, Senate Standing Committees on Economics, Corporations Amendment (Crowd-sourced Funding) Bill 2015 [Provisions], The Senate, Canberra, 1 March 2016, p. 43.

[89]. Ibid., p. 43.

[90]. Ibid., p. 43.

[91]. P Wong, ‘Corporations Amendment (Crowd-sourced Funding) Bill 2016—amendments to be moved by the Opposition’, Senate, sheet 7865, 29 February 2016.

[92]. A Bandt, ‘Second reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2015’, House of Representatives, Debates, 10 February 2016, p. 1281.

[93]. E Husic, ‘Second reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’, House of Representatives, Debates, 30 November 2016, p. 4995.

[94]. Ibid.

[95]. Senate Standing Committee on Economics, Submissions, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2015 [Provisions], The Senate, Canberra.

[96]. Australian Stock Exchange (ASX), Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2015 [Provisions], submission no. 11, 5 February 2016, pp. 1–2.

[97]. Senate Standing Committee on Economics, Corporations Amendment (Crowd-sourced Funding) Bill 2015 [Provisions], op. cit., p. 14.

[98]. VentureCrowd, Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2015 [Provisions], submission no. 5, 4 February 2016, p. 2.

[99]. Ibid., pp. 2–3.

[100]. Australian Small Scale Offerings Board (ASSOB), Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2015 [Provisions], submission no. 9, 5 February 2016, p. 14.

[101]. Ibid., p. 1.

[102]. Australian Small Scale Offerings Board (ASSOB), Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2016, submission no. 9, 9 January 2017, p. 1.

[103]. Chartered Accountants Australia and New Zealand, Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2015 [Provisions], submission no. 14, 5 February 2016, p. 1.

[104]. Chartered Accountants Australia and New Zealand, Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2016, submission no. 3, 21 December 2016, p. 1.

[105]. Ibid.

[106]. Australian Private Equity and Venture Capital Association Limited, Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced funding) Bill 2015 [Provisions], submission no. 3, 2 February 2016, p. 2.

[107]. Ibid., pp. 2–3.

[108]. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., p. 4.

[109]. Ibid.

[110]. Ibid.

[111]. The Statement of Compatibility with Human Rights can be found at page 153 of the Explanatory Memorandum to the Bill.

[112]. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., pp. 153–54.

[113]. Ibid., p. 154.

[114]. Parliamentary Joint Committee on Human Rights, Report 10 of 2016, The Senate, Canberra, 30 November 2016, p. 8.

[115]. Proposed sections 738ZC to 738ZE.

[116]. Proposed paragraph 738H(1)(a) and (f).

[117]. Proposed paragraph 738H(1)(b) and (c).

[118]. Proposed paragraph 738H(2).

[119]. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., pp. 116 and 131.

[120]. Senate Standing Committee on Economics, Corporations Amendment (Crowd-sourced funding) Bill 2015 [Provisions], The Senate, February 2016, p. 43.

[121]. Australian Small Scale Offerings Board (ASSOB), Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2016, submission no. 9, 9 January 2017, p. 1.

[122]. Chartered Accountants Australia and New Zealand, Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2016, submission no. 3, 21 December 2016, p. 1.

[123]. Australian Institute of Company Directors (AICD), ‘Organisation definitions’, AICD website.

[124]. S Morrison (Treasurer), ‘Second reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’, House of Representatives, Debates, 24 November 2016, p. 4305.

[125]. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., p. 24.

[126]. Proposed section 738ZD.

[127]. See proposed section 738ZD of the Corporations Amendment (Crowd-sourced Funding) Bill 2015.

[128]. Explanatory Memorandum, Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit., p. 132.

[129]. Australian Small Scale Offerings Board (ASSOB), Submission to Senate Economics Legislation Committee, Inquiry into the Corporations Amendment (Crowd-sourced Funding) Bill 2016, op. cit.; Chartered Accountants Australia and New Zealand, Submission to Senate Economics Legislation Committee, op. cit.

[130]. K Lachance Shandrow, ‘Crowdfunding platforms need to be better watchdogs, says journalist who investigated Kickstarter’s biggest European failure’, Entrepreneur website, 21 January 2016.

[131]. M Harris, ‘How Zano raised millions on Kickstarter and left backers with almost nothing’, Medium website, 18 January 2016.

[132]. Australian Private Equity and Venture Capital Association Limited, Submission to the Financial System Inquiry (FSI), Financial System Inquiry, Sydney, March 2014.

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