Equity Crowdfunding in Australia - Planned Regulation

EQUITY CROWDFUNDINGCorporations Amendment (Crowd-sourced Funding) Bill 2015 Corporations Amendment (Crowd-sourced Funding) Regulation 2015

Andrew MacphersonACCREDITED SPECIALIST IN BUSINESS LAW

DIRECTOR

MACPHERSON GREENLEAFW: WWW.MACPHERSONGREENLEAF.COM

E: [email protected] 17 February 2016

http://www.macphersongreenleaf.com/

mailto:[email protected]

Agenda

ASIC media release on regulation of crowdfunding in Australia (August 2012)

Corporations Amendment (Crowd-sourced Funding) Bill 2015 Positives and concerns with the Bill

Corporations Amendment (Crowd-Sourced Funding) Regulation 2015 Positives and concerns with the draft Regulation

Australian Financial Services Licence (AFSL)

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EQUITY CROWDFUNDING © MACPHERSON GREENLEAF 2016

SuperPi: Equity Crowdfunding (ECF) of Real Estate 2

SuperPi One Pty LtdTrustee

Trust 1 Battery Point

Unit Trust

SuperPi Ltd


SensorBull: System for Measuring Leg Drive

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SensorBull – a unique market!

Michael Cheika V Eddie Jones - Silence the haka!


Equity Crowdfunding - Current

ASIC media release on crowd funding (August 2012) includes:

1. Chapter 6D Fundraising – disclosure registration2. Financial products and services – PDS – AFSL3. Management Investment Schemes (MIS) – AFSL4. Markets licence – ASX – AFSL5. Restrictions on publishing details of the offer

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My start-up...…cost…yikes!

DisclosureFinancial products

and services

Managed InvestmentScheme

Market - in equities

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Start-up ECF today

S708(1) – Personal offers

S708(8) – Sophisticated

S708(10) - Consumer

Class Order

2002/273Australian

Small Scale Offerings Board

ASSOB

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Equity Crowdfunding Legislation - NEW

• Corporations Amendment (Crowd-sourced funding ) Bill 2015 introduced on 3 December 2015

• Provides for the addition of new fundraising provisions to the Corporations Act 2001 – permits “consumer investors”

• Corporations Amendment (Crowd-sourced funding) Regulation 2015

• ECF intermediary Australian Financial Services License (AFSL)? – capital requirements not published

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Equity Crowdfunding - PROPOSED CSF Crowd-sourced funding = ECF Equity crowdfunding CSF offer CSF offer document General CSF risk warning Platform and offer platform Maximum and minimum amounts to be raised specified

Eligible CSF company

CSF intermediary

Consumer Investor

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According to the Bill

Investor Acknowledgments – cooling off Limit $10k per offer

Intermediary Must be a public company Must have an AFSL

Issuer Must be a public company Reduced pc compliance $5m in 12 months

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ISSUERSCorporate Governance Concessions

The corporate governance concessions are:

• Exemption from holding an annual general meeting

• Option to provide financial reports to shareholders online only

• No requirement to appoint an auditor

• No requirement to have audited financial reports until more than $1 million has been raised from CSF offers or other fundraising offers requiring disclosure

• Text

Subsection 301(5)

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ISSUERSCorporate Governance

An issuer has corporate governance concessions for 5 years from the date of registration as a public company if at the end of each successive financial year it can show:

• It stated at registration it intends to crowd fund and to have reduced governance;

• It was an eligible CSF company (S738H) and at the end of the relevant financial year; and

• Completes a CSF offer within 12 months of registration

• Text

Division 7 – Section 738ZI

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ISSUERSPrerequisites for a CSF offer

• CSF issuer criteriaPublic company limited by sharesPrincipal place of business Australia / majority of directors AustralianGross assets must be less than $5 millionConsolidated annual revenue must be less than $5 millionNo investing in securities or interests in other entities or MIS

• Type of securities: Fully paid ordinary shares

• Issuer cap: $5 million in any 12 month periodDivision 2 - Section

738H

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ISSUERSThe process of making a CSF offer

For each CSF offer, an issuer must:

• Prepare a CSF offer document containing clear and concise information, presented in an effective manner

• Comply with the Regulation • Obtain the consents of persons associated with the offer document• Publish the offer document on the platform of a single CSF intermediary• Only one CSF offer open and no related party CSF offer

• Text

Division 3 – Sections 738J, 738K, 738L, 738M, and 738R

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INTERMEDIARIESFinancial services licensing requirement

An intermediary must hold an AFSL to provide a CSF service. A person provides a CSF service if:• A CSF offer document relating to securities of a company is published on a

platform operated by the person• Applications may be made to the person for the issue, by an issuer company, of

securities pursuant to the offer

CSF service is provided to:• Potential investors who apply for securities through the intermediary’s platform • The issuer

• Text

Division 4 – Section 766F

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INTERMEDIARIESThe responsibilities of an intermediary

Responsibilities of an intermediary include (but are not limited to):

• Fulfil gatekeeper obligations;• Provide an application facility;• Provide a communication facility; • Closure or suspension the offer as required;• Handle application money appropriately; and• Do not provide financial assistance to a retail client to purchase securities pursuant to the

CSF offer

• Text

Sections 738Q and 738ZE

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INVESTORS

Investors must:

• Apply in response to a CSF offer via the intermediary’s platform

• Provide the application money via the intermediary

• Abide by the general investor protections

• Acknowledge that they may lose their investment and that such a loss would not affect their lifestyle

• Text

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INVESTORSProtections for retail clients only

Additional protections applicable to retail clients only are:

• An investor cap of $10,000 per issuer via an intermediary’s platform within a 12 month period

• The right to withdraw from a CSF offer within 5 business days of making an application• A prohibition on the company and its related parties, and the intermediary and its

associates, providing retail clients with financial assistance to acquire securities under CSF offers

• The requirement for an intermediary to obtain a risk acknowledgement from a consumer investor before accepting the CSF application

• Text

Division 6 – Section 738ZC

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INVESTORSGeneral investor protections

• Persons cannot advertise a CSF offer or publish a statement in relation to a CSF offer– Exception for publishers and the publication of certain reports and notices– Exception for statements made in good faith on the intermediary’s platform

• Persons cannot offer securities for issue or sale through an unsolicited meeting or telephone call

• ASIC has stop order powers for advertising and publications that are misleading, deceptive, or do not draw attention to the CSF offer document or the general CSF risk warning

• Text

Division 6 – Section 738ZG

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Defective CSF offer documentsObligations in relation to defective documents

The following obligations arise when the relevant person becomes aware, while a CSF offer is open, that the offer document was defective:

• Issuer must notify the intermediary• Intermediary must:

- Notify the issuer - Remove offer document from platform and close or suspend offer

• Person liable on the offer document must notify issuer and intermediary

• Text

Division 4 - Sections 738U, 738V, and 738X

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Defective CSF offer documentsInvestor rights

Prospective investors who have already applied for securities under the document will either:

• Receive a supplementary or replacement offer document that corrects the defect and then have the right, for 1 month, to withdraw their acceptance

OR

• Be refunded any application money paid as soon as practicable

• Text

Division 4 – Section 738W

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Equity Crowdfunding - Pluses

1. CSF offer assessment and approval privatised2. Faster and simpler procedure3. Lower cost to the issuer companies?4. A quality assessment introduced?5. Investor limit per company but not limit on number of

companies6. Does not interfere with existing regime7. CSF offer has minimum template requirements

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Equity Crowdfunding - Minuses

1. Confusion – retail client, retail investor, consumer investor2. Use of funds – not sufficiently clear on debts3. False and misleading – reliance – problem with pivots4. False and misleading – currently avoided with caveats5. False and misleading – contradicts “I recognise I could lose all my investment

and it would not affect my lifestyle if I lost my investment”6. Eligible issuer criteria – too limiting and do not advantage issuer, intermediary,

investor or Government7. Advertising – where is the harm?8. Persons who use a communication facility hosted by a CSF intermediary

should not have to prove that they acted in good faith: the onus should be on those alleging lack of good faith

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Equity Crowdfunding in Australia - Planned Regulation

Economy & Finance

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