Bills Digest no. 82, 2017–18
PDF version [281KB]
Daniel Weight
Economics Section
23 February 2018
Contents
Purpose of the Bill
Background
Committee consideration
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
50 non-employee member limit
Debate about auditing threshold
Post implementation review
Financial implications
Statement of Compatibility with Human
Rights
Key issues and provisions
Formal clauses and the schedule of
amendments
Main rules for proprietary companies
in the CSF regime
Defining those proprietary companies
that are ‘eligible’ to access the CSF regime
Carve-out from the maximum number of
members proprietary companies may have to allow for CSF shareholders
Allowing proprietary companies to
raise funds from the public if it is by way of a CSF offer
Enhanced reporting requirements for
small proprietary companies with CSF capital
Annual reports and directors’ reports
would be required for small proprietary companies with CSF capital
Annual reports to be lodged
Auditing of proprietary companies
with CSF capital
‘CSF audit threshold,’ and a
requirement for financial reports to be audited when exceeded
Need to appoint when ‘CSF audit
threshold’ exceeded
ASIC may appoint an auditor if none
appointed
Auditor independence requirements
enhanced for small proprietary companies with CSF capital
Restrictions on related party
transactions extended to proprietary companies with CSF shareholders
Minor amendments related to
proprietary companies with CSF capital
Update of the Small Business Guide
Requirement to notify ASIC of
commencing and ceasing to have CSF shareholders
Concise reports requirements modified
Proprietary companies with CSF
shareholders excluded from takeover provisions
Other amendments
Grandfathering of limited governance
requirements
Public companies to also only require
an auditor when they have CSF capital in excess of $3 million
Clarify that CSF may not be listed on
a foreign exchange, in addition to an Australian exchange
Reduced period for people to withdraw
an application and receive a refund because of a defective CSF offer document
Date introduced: 14
September 2017
House: House of
Representatives
Portfolio: Treasury
Commencement: If
passed, the Bill would commence the day after Royal Assent. The main provisions
of the Bill would commence six months after the date of 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 2018.
Purpose of
the Bill
The Bill would extend the existing crowd-sourced funding (CSF)
regime to proprietary companies.
Background
The Corporations Amendment (Crowd-sourced Funding) Act
2017 amended the Corporations Act 2001 to allow unlisted public
companies to raise monies via the mechanism known as ‘crowd sourcing’. That Act
received royal assent on 28 March 2017, and the amendments commenced on 28
September 2017.[1]
The main features of the current CSF regime are explained in
the ASIC Regulatory Guide 261 Crowd-sourced funding: Guide for public
companies.[2]
That guide sets out the main features of the current CSF regime as follows:[3]
- unlisted
public companies (excluding investment companies) with less than $25 million in
consolidated assets and annual revenue that have their principal place of
business and a majority of directors in Australia are eligible to participate
in the CSF regime
- eligible
companies can raise up to $5 million in any 12-month period (the ‘issuer cap’)
- retail
investors have an investment cap of $10,000 per company in any 12-month period
(the ‘investor cap’) and a cooling-off period allowing them to withdraw from a
CSF offer up to five days after making an application. A prescribed general
risk warning statement must be provided in the CSF offer document and on the
CSF intermediary’s platform. Retail investors must acknowledge that they have
read and understood the warning before applying for shares. Advertising of CSF
offers is permitted, subject to certain rules designed to direct investors to
the general risk warning and CSF offer document for the offer
- CSF
offers can only be made via a licensed CSF intermediary’s platform
- companies
making CSF offers must prepare a CSF offer document that includes prescribed
minimum information. There are consequences if the disclosure is defective
- the
CSF intermediary:
- must
hold an Australian financial services (AFS) licence with an authorisation to
provide a crowd-funding service
-
performs
checks on the offering company, its directors and the CSF offer document
-
performs
checks on investors, including assessing whether an investor is a retail
client, and holds investor money on trust
-
operates
a platform for CSF offers and
- has
an obligation to suspend or close a CSF offer in certain circumstances (e.g.
where the CSF offer document is defective).
- companies
making CSF offers that also meet certain eligibility criteria do not have to
comply with certain reporting, audit and AGM obligations that would usually
apply to public companies, for up to five years. The concessions cease to apply
where a company no longer meets the eligibility requirements or does not
complete a successful CSF offer within a 12-month period. The audit concession
ceases in the above circumstances or when a company raises over $1 million
through CSF offers.
At the time the Bill for the Corporations Amendment
(Crowd-sourced Funding) Act 2017 was debated in the Parliament, the Treasurer
advised the House that he had ‘instructed Treasury to continue developing a
framework for proprietary companies as a priority’ and that he expected to
expand the CFS regime to proprietary companies in the ‘near future’.[4]
This Bill would provide for the extension of the CSF regime
to proprietary companies as foreshadowed by the Treasurer.
Committee
consideration
At the time of writing, the Bill had not been referred to a
Committee.
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills had
no comment on the Bill.[5]
Policy
position of non-government parties/independents
There has been little public commentary on the Bill, and
non-government parties and independents have not expressed a view of the Bill.
However, in the debate on the earlier Corporations Amendment (Crowd-sourced
Funding) Bill 2016, several parties expressed support for extending the CSF
regime to proprietary companies. For example:
- Shadow
Minister for Small Business and Financial Services, Senator Gallagher (ALP),
stated:
We believe a crowdsourcing funding resume needs to be easily
accessible, fair and backed up with reasonable investor protection. Businesses
should not be forced to change to public companies to access equity
crowdfunding —simple as that. The decision to make a company publicly listed
should be made by businesses when they are good and ready and not by the
government. Why should smaller businesses spend a lot a money just to raise
some money?[6]
- Senator
Xenophon (NXT) spoke in support of extending the CSF regime to proprietary
companies.[7]
However, Senator Whish-Wilson (Greens) expressed some
concerns about extending the CSF regime to proprietary companies:
There are a number of extra
risks associated with the proprietary limited structure versus the publicly
listed structure. I still have some concerns about publicly listed structures
in this overall debate and how easily they may be manipulated by unscrupulous
promoters—but at least they have reporting requirements. ... I welcome the
government continuing to work on the issue of giving broader access to
proprietary limited companies, but at this point in time I think that is even
risker than the proposal that we have in front of us.[8]
Position of
major interest groups
A draft of the Bill was released for public consultation
on 10 May 2017.[9]
Submissions closed on 6 June 2017 and 21 public submissions were received.[10]
The submissions were all supportive of the extension of
the CSF regime to proprietary companies. However, the submission raised several
issues with the draft legislation.
50
non-employee member limit
The draft legislation would have included any CSF
shareholders within the 50 non-employee shareholder limit applying to
proprietary companies generally, which would have forced any proprietary
company that began to have more than 50 non-employee shareholders because of a
CSF offer to convert to a public company—effectively removing any benefit from expending
the CSF regime to proprietary companies. Moreover, under the draft legislation,
shares acquired otherwise than via an initial CSF offer would have not been CSF
shares for the purpose of the CSF regime, and therefore would have then counted
towards the 50 non‑employee shareholder limit. CSF shares affected might
have included CSF shares that were inherited, or that were purchased in a
secondary market.
Several submissions called for changes to the Bill that
would have prevented these anomalous or undesirable consequences.[11]
The Bill as introduced has addressed these issues by carving out CSF
shareholders from the 50 non-employee shareholder limit.[12]
Debate
about auditing threshold
The draft legislation proposed a $1 million CSF capital
threshold under which proprietary companies would not be required to be
audited.
The Australian Institute of Company Directors proposed
removing the audit threshold altogether, or reducing it substantially:
The AICD is concernd [sic] about the proposed exemption from
any audit or annual review requirement for proprietary companies until they
raise more than $1 million from CSEF [crowd-sourced equity funding] offers.
Investors in these companies would be left to rely on the financial reports and
directors’ reports. While these reports must be prepared in accordance with
accounting standards, investors would be without independent assurance that the
financial reports have been properly prepared. Given that CSEF will attract a
wide range of investors, including relatively unsophisticated retail investors,
the AICD believes it is important that adequate protections are in place to
ensure that financial reporting is rigorous, and subject to appropriate independent
scrutiny.[13]
However, other submitters suggested that the proposed $1
million audit threshold would be too restrictive. For example, Georgia Parletta stated:
The Draft Bill and the Amendment Act fail to accommodate the
vastly different needs of CSEF companies of varying sizes. ... The regulatory
requirements imposed on issuers must therefore be proportionate to their
fundraising targets, which can best be accommodated through an adaptation of
the United States’ tiered approach. Imposing audit
requirements on issuers that raise over $1 million is also considered
disproportionate to the amount such companies are seeking to raise. ... It is
therefore recommended that the fundraising amount requiring auditing be
increased.[14]
Likewise, First Planet submitted:
The requirement for onerous annual financial director’s
reports, and audited financial statements for raises exceeding $1M, does not
protect investors. To the contrary, it puts a significant, and unnecessary
financial and time-to execute burdens on these emerging businesses that can
actually increase the risk to investors. All the frothing hysteria around
protecting investor risk by forcing start-ups to pay for financial services,
fails to see the evidence, that Crowd Sourced due-diligence amongst investor
networks is a far more powerful approach to keeping people honest. Founders
make themselves and their companies available for public scrutiny, and are
still subject to laws related to fraud and so forth.[15]
Ultimately, the Bill introduced by the Government proposes
to include in primary legislation a $3 million audit threshold, but also
include a regulation making power that would allow that threshold to be altered
in the future.[16]
Post
implementation review
Two submissions called for a requirement for a post
implementation review into the whole CSF regime.[17]
The Bill as introduced does not propose any statutory requirement to conduct
such a review.
Financial
implications
The Explanatory
Memorandum to the Bill indicates the Bill would have the following
financial impact on the fiscal balance of the Commonwealth:
2017–18 |
2018–19 |
2019–20 |
2020–21 |
-1.3m |
0.2m |
0.0m |
0.0m |
The Explanatory
Memorandum indicates that the financial impact will mostly arise because of
timing mismatches related to the recovery of supervisory costs from regulated
entities.[18]
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 does not engage any applicable rights or freedoms.[19]
The Parliamentary Joint Committee on Human Rights agreed with
the Government’s assessment.[20]
Key issues
and provisions
The Corporations Act 2001 provides for two different
types of companies limited by shares: public companies and proprietary
companies. There were about 28,900 public companies in Australia in November
2017; but the vast majority of companies in Australia were proprietary
companies—about 1.445 million.[21]
Currently, companies are eligible to be registered as
proprietary companies, if—amongst other things—they have fewer than 50
non-employee members (shareholders).[22]
The Corporations Act 2001 imposes different rules and obligations on proprietary
companies; reflecting their smaller number of members and the lower risk to members’
funds that arises from small, ‘closely held,’ companies where members are
likely to have greater knowledge of the operations of that company. Currently,
proprietary companies are unable to raise funds from the public.
The Corporations Amendment (Crowd-sourced Funding) Act
2017 established a regime that allowed unlisted public companies to raise
funds from the public via CSF offers. The main provisions of that Act commenced
six (6) months after Royal Assent of the Bill, which was 28 March 2017. The CSF
regime for public companies has only been operating, therefore, since 28
September 2017; meaning that there is very little evidence of how the existing
CSF regime is operating. The ASIC website provides an overview of the existing
CSF regime.[23]
That Act established concessional governance rules that
allowed proprietary companies to transition to a public company structure so as
to be able to access the CSF regime, however, the cost and administrative
burden of doing so was recognised at the time the Bill for that Act was
debated. The Treasurer, Scott Morrison, therefore, indicated that the
Government wanted to extend the CSF regime to proprietary companies:
Under the framework, public companies
will be eligible to use crowd-sourced equity funding. Following a consultation
paper on proprietary company funding options released in 2015, the government
is continuing to consult on extending the regime to proprietary companies,
which are generally prohibited from offering shares to the general public. 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.
In the meantime, this bill provides
proprietary companies that wish to raise funds from the crowd access to the
option to convert to a public company and receive exemptions from some of the
more costly governance and reporting requirements for up to five years.[24]
This Bill would extend the CSF regime to proprietary
companies, subject to certain enhanced governance and reporting requirements.
The main aspects of the enhanced governance and reporting requirements are as
follows:
- proprietary
companies with CSF shareholders would be required to have at least two (2)
directors, the majority of which must reside in Australia[25]
- small
proprietary companies with CSF shareholders would be required to publish financial
reports and directors’ reports[26]
- propriety
companies would be required to have their financial reports audited when they
have more than $3 million (or another amount set by regulation) in CSF
capital[27]
and
- proprietary
companies with CSF capital would be subject to the related party transaction
rules.[28]
The Bill would also make minor changes to the CFS regime
that would apply to both public and proprietary companies.
Formal
clauses and the schedule of amendments
Clauses 1 to 3 of the Bill are technical in nature,
and deal with the name of the proposed Act, the proposed Act’s commencement, and
the application of the amendments set out in the schedules to the primary Act:
namely the Corporations Act.
Part 1 of Schedule 1 of the Bill sets out the main amendments
proposed to the Corporations Act, which will commence six months after
the date of royal assent. Part 2 of Schedule 1 sets out other amendments
the CSF regime that will commence the day after royal assent.
Main rules
for proprietary companies in the CSF regime
The Bill would amend the Corporations Act to create
special rules that would need to be met before proprietary companies could
access the CSF regime. Certain other provisions of the Corporations Act 2001
that prevent a proprietary company accessing the CSF regime are also proposed
to be amended.
The main elements of the proposed rules are set out below.
Defining those
proprietary companies that are ‘eligible’ to access the CSF regime
The Bill will extend access to the CSF regime to certain ‘eligible’
proprietary companies. In order to be eligible, a proprietary company would require
at least two directors, the majority of which were resident in Australia.
Item 13, proposed subsection 201A(1A) would require
that a proprietary company with CSF shareholders must have at least two (2)
directors, and that either one (1) director (where there are only two
directors) or a majority of directors must ordinarily reside in Australia.
Under section 201A, ordinarily a proprietary company must have at least one
director who must reside in Australia.
Item 41, proposed paragraph 738H(1)(a) establishes
the main rules for CSF regime, to change the types of companies that are
eligible to offer CSF shares to include proprietary companies with at least two
directors. Proposed paragraph 738H(1)(a)(ii) allows regulations to be made
imposing any additional requirements (beyond having two directors) that must be
met before a proprietary company may offer CSF shares. Any such regulations
would be made via the general regulation making power in section 1364 of the Corporations
Act.
Carve-out
from the maximum number of members proprietary companies may have to allow for CSF
shareholders
Currently, a company that has more than 50 shareholders
cannot be a proprietary company. However, shareholders that are also employees
of a company are disregarded (carved-out) for the purposes of working out
whether or not a company has more than 50 shareholders.
Item 6, proposed paragraph 113(2)(c) would provide an
additional carve-out for shareholders that are CSF shareholders by allowing
proprietary companies to have unlimited CSF shareholders so long as they
continue to satisfy the existing limit on the number of shareholders (50
non-employee shareholders). Proposed paragraph 113(2)(d) would also disregard
CSF shareholders of companies that are acquired by a proprietary company,
where:
- the
security was originally issued to another entity pursuant to a CSF offer by the
company
- the
securities have not been traded on a financial market (whether in Australia or
elsewhere) and
- any
requirements prescribed in regulations are met.
These amendments would allow a proprietary company to
have:
- up
to 50 non-employee, non-CSF shareholders
- any
number of employee shareholders and
- any
number of CSF shareholders.
Allowing
proprietary companies to raise funds from the public if it is by way of a CSF
offer
The current subsection 113(3) prevents—subject to some minor
exemptions—proprietary companies from raising funds (fundraising) that would
trigger disclosure under Chapter 6D requirements of the Corporations Act.
Item 7, proposed subsection 113(3) would allow proprietary
companies to make a CSF offer; despite the general prohibition on fundraising.
Enhanced reporting
requirements for small proprietary companies with CSF capital
Small proprietary companies that had CSF capital would need
to satisfy enhanced reporting requirements similar to those applying to all
other proprietary companies.
Annual
reports and directors’ reports would be required for small proprietary
companies with CSF capital
Item 18, proposed paragraph 292(b) would require
any small proprietary company that has CFS shareholders at any time during a
year to prepare annual reports and directors reports.
Item 19, proposed subsection 296(1A) would have the
effect of requiring any financial report of a proprietary company with CSF
shareholders to be prepared according to accounting standards, despite the
current exemptions in section 296 of the Corporations Act, which allow
small proprietary companies to not have their financial reports audited in some
circumstances.
Proposed subsections 298(1AC) and 298(3) would
have the effect of requiring the directors of a small proprietary company
with CSF shareholders to prepare a directors report, despite the current
exceptions set out in section 298 of the Corporations Act, which allow
directors of small proprietary companies to not provide a report in some
circumstances.
Item 23, proposed paragraph 314(1)(a) and item 24,
subsection 314(1AF) would allow small proprietary companies with CFS
share capital to notify their members of the financial report only by making it
available on the internet—to reflect the changes proposed by items 18 to
21.
Annual
reports to be lodged
Item 26, proposed paragraph 319(2)(a) would deny to
small proprietary companies with CSF members the general exemption from being
required to lodge annual reports with ASIC within four (4) months, which is
currently available to small proprietary companies because of the current
subsection 319(2) of the Corporations Act. The effect of this proposed
amendment would be to make it an offence for a small proprietary company with
CSF members to fail to submit its annual report to ASIC.
Auditing of
proprietary companies with CSF capital
Proprietary companies with more than $3 million in CSF capital
would need to be audited.
‘CSF audit
threshold,’ and a requirement for financial reports to be audited when exceeded
Item 22, proposed subsection 301(2) would require a
proprietary company with CSF shareholders to have its financial report audited only
if that company has raised an amount of CSF share capital that is more than the
proposed ‘CFS audit threshold.’
Item 1 would amend the dictionary in section 9 of the
Corporations Act to define the ‘CSF audit threshold’ as either $3
million, or any other amount prescribed by regulation. Item 16, proposed subsection
285(1) (table item 3) would update the overview table of Chapter 2M.1 to
reflect the proposed auditing requirement.
Need to
appoint when ‘CSF audit threshold’ exceeded
Item 30 and proposed subsections 325(2), (3) and
(4) would require small proprietary companies that raise more than the
‘CSF audit threshold’ to appoint an auditor within one month of exceeding that
threshold. Proposed subsection 325(3) would also allow a company up to
one month to replace an auditor if the office of auditor became vacant for
whatever reason.
Proposed subsection 325(4) would impose an obligation
on a company to ‘take all reasonable steps to comply with, or secure compliance
with’ the proposed subsection 325(2). Item 46 would amend the
table in section 116KM of Schedule 3 of the Corporations Act to make
non-compliance with proposed subsection 325(4) an offence subject to a
maximum penalty of 25 penalty units, imprisonment for six (6) months, or both.
ASIC may
appoint an auditor if none appointed
Items 35 to 39 propose amendments to sections
327E, 327F and 327G that would allow ASIC to appoint an auditor if a proprietary
company was required to do so under the Act but had not done so. This provision
would apply to all proprietary companies, not just small proprietary companies
that have exceeded the ‘CSF audit threshold.’ Under the proposed amendments,
an auditor appointed to a proprietary company would hold office until the company’s
next general meeting.
Auditor
independence requirements enhanced for small proprietary companies with CSF
capital
Division 3 of Part 2M.4 of the Corporations Act deals
with auditor independence. Sections 324CE, 324CF, and 324CG impose specific
requirements with respect to auditor independence on individual auditors, audit
firms, and audit companies respectively. Section 324CH defines ‘relevant
relationships’ for the purposes of working out whether the requirements in
sections 324CE, 324CF, and 324CG have been met.
Currently, the items 1 to 19 in the table in subsection
324CH(1) define certain types of relationships that are ‘relevant
relationships’ for the purposes of sections 324CE, 324CF, and 324CG, but also
provide that it is not a ‘relevant relationship’ if the audited body is a small
proprietary company; meaning that the relationship does not engage the auditor
independence requirements set out in sections 324CE, 324CF and 324CG.
Items 27 to 29 would have the effect of ensuring that
the relationships set out in the first nine (9) items in the table in
subsection 324CH(1) were ‘relevant relationships’ for the purpose of the
auditor independence requirements in sections 324CE, 324CF and 324CG if the
small proprietary company had raised more CSF capital than the ‘CSF audit
threshold.’ Because of these proposed amendments, the persons with certain familial,
employment or financial relationships to officers or audit-critical employees
of small proprietary companies could not be an auditor of a small proprietary
company with CSF capital above the CSF audit threshold (as they would have a ‘relevant
relationship’ with the small proprietary company).
Restrictions
on related party transactions extended to proprietary companies with CSF
shareholders
Chapter 2E of the Corporation Act imposes certain restrictions
on public companies undertaking transactions with related parties. Section 207
of the Corporations Act provides that the purpose of these restrictions
is ‘to protect the
interests of a public company’s members as a whole, by requiring member
approval for giving financial benefits to related parties that could endanger
those interests.’ Item 45, proposed section 738ZK would extend
those restrictions to proprietary companies with CSF shareholders.
Minor
amendments related to proprietary companies with CSF capital
The Bill also proposes the following minor amendments that
would affect proprietary companies with CSF capital.
Update of
the Small Business Guide
Items 3 to 5 would update the Small Business
Guide in Part 1.5 of the Corporations Act to reflect the amendments
proposed by the other clauses of Schedule 1, Part 1 of the Bill.
Requirement
to notify ASIC of commencing and ceasing to have CSF shareholders
The amendment to subsection 243X(1) proposed by item 14
and subsection 254Y(1) proposed by item 15 would require a proprietary
company with CSF shareholders to:
- notify
ASIC to when the company begins to have those CSF shareholders and
- notify
ASIC if the company cancels all CSF shares and ceases to have CSF shareholders.
Item 9, proposed subsection 196(6AA) (item 10), and
proposed paragraph 178A(1)(ix) (item 11) require that proprietary
companies’ share registries maintain a record of CFS offers and CSF shareholders.
Concise
reports requirements modified
Item 25, proposed subsection 314(2A) would have the
effect of:
- only
requiring the outcome of an audit and the qualifications of the auditor to be
included in a concise report where that small proprietary company is actually
required to be audited in a given year (that is, because it has CSF share
capital greater than the proposed ‘CFS audit threshold’) and
- removing
the general requirement in subsection 314(2) of the Corporations Act that
a concise report must include an offer to provide the full financial report and
auditor’s report to a member free of charge for small proprietary companies
with CSF members. This amendment appears consistent with proposed paragraph
314(1)(a) (item 23) and subsection 314(1AF) (item 24) that
would allow members to be informed of the contents of a financial report by
that report being made available on the internet only.
Proprietary
companies with CSF shareholders excluded from takeover provisions
Chapter 6 of the Corporations Act regulates the
takeover of listed companies and unlisted companies that have more than 50
members. Subsection 606(1) in Part 6.1 or Chapter 6 of the Corporations Act
establishes a general prohibition on acquisitions that involve a person
acquiring any more than 20 per cent of a listed company or an unlisted company.
Section 611 in Chapter 6, however, set out when the prohibition in subsection
606(1) does not apply; in effect, those transactions or entities that do not
have to comply with the takeover provisions.
Item 40 would add a proposed table item 19A to
the table in section 611 that would exclude acquisitions of proprietary
companies with CSF shareholders from the takeover provisions. Proposed table
item 19A would also allow additional requirements that must be met before
such an acquisition is excluded from the takeover provisions to be prescribed
by regulation.
Other
amendments
The following amendments would apply to public, or both
public and proprietary companies, in the CSF regime.
Grandfathering
of limited governance requirements
Section 738ZI currently sets out those public companies that
are eligible to access the limited governance requirements in the existing CSF
regime. Items 42 to 44 propose to amend section 738ZI to
limit the limited governance requirements to public companies that were
registered, or converted from proprietary companies, prior to the commencement
of these provisions. The Explanatory
Memorandum to the Bill advises that, because upon the commencement of the
proposed amendments proprietary will be able to access the CSF regime, the
limited governance requirements originally established to make it easier for
proprietary companies to convert to public companies will no longer be
required.[29]
The limited governance requirements will remain available for companies already
in, or entering into, the CSF regime until the commencement of the amendments
in Schedule 1, Part 1. Item 2 of the table in section 2 would
make those proposed amendments commence six months after the Bill receives the
Royal Assent.
Public
companies to also only require an auditor when they have CSF capital in excess
of $3 million
Items 47 to 49 of Schedule 1, Part 2 of
the Bill would raise the audit threshold for companies that are already part of
the CSF regime (public companies), which is set in subsection 301(5) of the Corporations
Act. The threshold would be increased from circumstances where a company
has raised more than $1 million via CSF offers to circumstances where the
company has raised more than $3 million via CSF offers. While this increased
threshold aligns with the proposed $3 million audit threshold for proprietary
companies with CFS share capital, it would not be able to be altered via
regulation. The increased audit threshold for public companies would commence
on the day after the Bill received the Royal Assent.[30]
Clarify
that CSF may not be listed on a foreign exchange, in addition to an Australian
exchange
Proposed paragraph 738H(1)(e) would clarify that, in
order to be an eligible CSF company, an entity must not be listed on a foreign
stock exchange. Currently, the Corporations Act only prohibits CSF
companies being listed on an Australian stock exchange.
Reduced period
for people to withdraw an application and receive a refund because of a
defective CSF offer document
Division 4 of Part 6D.3A of
the Corporations Act provides for ‘defective’ CSF offer documents to be corrected
in some circumstances. Currently, where a defective offer document has been
provided, any person who has applied under that defective offer may, within one
(1) month of being notified that the offer document was defective, withdraw
their application and any their monies paid repaid. Items 51 52 of Schedule
1, Part 2 of the Bill would reduce the period in which applications may be
withdrawn and monies are to be repaid to 14 days. The proposed change would
only apply to CSF offers made after the commencement of the Schedule 1, Part
2; which item 3 of the Bill would make the day after the Bill
receives Royal Assent.
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. Corporations
Amendment (Crowd-sourced Funding) Act 2017, s. 2.
[2]. Australian Securities and
Investments’ Commission (ASIC), Crowd-sourced
funding: guide for public companies, ASIC, Regulatory guide,
261, September 2017.
[3]. Ibid., p. 6.
[4]. S Morrison, ‘Second
reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’,
House of Representatives, Debates, 24 November 2016, p. 4305.
[5]. Senate Standing Committee for
the Scrutiny of Bills, Scrutiny
digest, 12, 2017, The Senate, 18 October 2017 p. 6.
[6]. K Gallagher, ‘Second
reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’, Senate, Debates, 20 March 2017, p.
1314.
[7]. N Xenophon, ‘Second
reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’, Senate, Debates, 20 March 2017,
p. 1319.
[8]. P Whish-Wilson, ‘Second
reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’,
Senate, Debates, 20 March 2017, p. 1322.
[9]. The Treasury, ‘Extending Crowd-sourced Equity Funding (CSEF) to
proprietary companies’,
The Treasury website, 10 May 2017.
[10]. Ibid.
[11]. Arnold-Bloch-Leibler,
Submission
to Treasury, Consultation into: extending crowd-sourced equity funding
(CSEF) to proprietary companies, June 2017; Chartered Accountants ANZ, Submission
to Treasury, Consultation into: extending crowd-sourced equity funding
(CSEF) to proprietary companies, 6 June 2017; Small Business and Family
Enterprise Ombudsman, Submission
to Treasury, Consultation into: extending crowd-sourced equity
funding (CSEF) to proprietary companies, 6 June 2017; Institute of
Public Accountants, Submission
to Treasury, Consultation into: extending crowd-sourced equity funding
(CSEF) to proprietary companies, 6 June 2017; Marque Lawyers, Submission
to Treasury, Consultation into: extending crowd-sourced equity funding
(CSEF) to proprietary companies, 9 June 2017.
[12]. Proposed
paragraphs 113(2)(c), (d).
[13]. Australian
Institute of Company Directors, Submission
to Treasury, Consultation into: extending crowd-sourced equity funding
(CSEF) to proprietary companies, 6 June 2017; see also, Fat Hen, Submission
to Treasury, Consultation into: extending crowd-sourced equity funding
(CSEF) to proprietary companies, 6 June 2017.
[14]. G Parletta, Submission to Treasury,
Consultation into: extending crowd-sourced
equity funding (CSEF) to proprietary companies, 6 June 2017.
[15]. First
Planet, Submission
to Treasury, Consultation into: extending
crowd-sourced equity funding (CSEF) to proprietary companies.
[16]. Proposed paragraph
301(5)(b), items 48 and 49.
[17]. Australian Institute
of Company Directors, Submission
to Treasury, Consultation on extending crowd-sourced equity funding (CSEF) to
proprietary companies, 6 June 2017; CPA Australia, Submission
to Treasury, Consultation on extending crowd-sourced equity funding
(CSEF) to proprietary companies, 4 June 2017.
[18]. Explanatory
memorandum, Corporations Amendment (Crowd-sourced Funding for Proprietary
Companies) Bill 2017, p. 3.
[19]. The Statement of
Compatibility with Human Rights can be found at pp. 53–4 of the Explanatory
Memorandum to the Bill.
[20]. Parliamentary Joint
Committee on Human Rights, Human
rights scrutiny report, 11, 17 October 2017, p. 60.
[21]. Data obtained from Australian Business Register website, data is
available from Parliamentary Library upon request.
[22]. Corporations Act
2001, s 113.
[23]. ASIC, ‘Crowd-sourced funding’ op. cit.
[24]. S Morrison, ‘Second
reading speech: Corporations Amendment (Crowd-sourced Funding) Bill 2016’,
op. cit., p. 4305.
[25]. Proposed
subsection 201A(1A).
[26]. Proposed paragraph
292(b).
[27]. Proposed
subsection 103(2).
[28]. Proposed section 738ZK.
[29]. Explanatory
memorandum, Corporations Amendment (Crowd-sourced Funding for Proprietary
Companies) Bill 2017, pp. 19–20.
[30]. Item 52.
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