Bert Van Manen (Forde, Liberal Party) Share this | Hansard source

It is with great pleasure that I rise today to speak on the Corporations Amendment (Crowd-sourced Funding) Bill 2015. This bill is designed to help facilitate crowdsourced equity funding in Australia, which is an innovative and increasingly popular concept. Crowdsourcing allows businesses to obtain capital from a large number of investors through online platforms, where each investor typically contributes a small amount of money in return for an equity stake in the business.

It is worthwhile reflecting on one of the reasons that I think this legislation is so important, and this was touched on in the Treasury discussion paper on this particular topic back in 2014. The discussion paper makes the observation that:

Small businesses are a significant driver of productivity and economic growth. However, obtaining affordable finance to fund development of innovative new products is difficult in some cases.

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Difficulties in accessing debt finance can arise as a result of gaps in information between lenders and borrowers. As the provision of debt finance requires an assessment of a business' ability to service the debt, small businesses and start-ups that do not have adequate evidence of past performance or prospects for success can face particular challenges accessing credit.

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Some banks have noted that they decline approximately twice as many loan applications for start-ups as for established small businesses …

That is why this bill is so important to our small business and start-up sector.

We are in a time where our government is encouraging innovation—innovation that creates jobs, creates opportunities and creates economic growth for Australia. Crowdsourcing is an opportunity to provide an alternative funding avenue that unlocks a new way of funding business start-ups. The member for Ryan used a fabulous example, which the Prime Minister had used, in Flow Hive. Equally, in my electorate of Forde, we have fabulous innovative businesses such as Beovista, A1 Rubber, Poppy's Chocolate and Beenleigh Artisan Distillers. While they are a large business not a small business, they are constantly looking to innovate and develop their product, and they are the oldest operating rum distillery in Australia. Recently, Zarraffa's have announced that they are going to move their headquarters to Beenleigh. They are looking at doing some additional, really innovative things in the building that they have purchased. So it is not just an administrative. I am sure that everyone in this House has in their electorates some businesses that are at that cutting edge of innovation and technological development.

It is an innovative economic concept that has helped launch many successful businesses. That is the importance of this crowdsourced equity funding. For retail investors, it creates an opportunity, which they do not currently have, to invest in small companies and start-up companies. Therefore, it is time for the government to catch up and provide a framework that will deliver sound outcomes and opportunities for these businesses and investors to take part in crowdsourced equity funding, and that is what this bill is about.

Crowdsourced equity funding was found by the Corporations and Markets Advisory Committee to be costly and impractical for businesses, due to regulatory impediments in the Corporations Act. This bill responds to those findings by establishing a legislative framework for crowdsourced equity funding that will address these regulatory impacts.

The coalition government made a commitment in the 2015-16 budget, as part of the Growing Jobs and Small Business package, to introduce legislation that facilitates crowdsourced funding in Australia. This government is committed to supporting the growth and success of Australian business. As we continue passing legislation from the jobs and small business package, complemented by the recent launch of the National Innovation and Science Agenda, there really has never been a more exciting time to establish and grow a business in Australia.

The framework our government is introducing in this bill will enable public companies that are issuing equity through crowdsourcing, to do so with reduced disclosure compared with what is required under a full public equity fundraising. For newly registered public companies that meet the assets and turnover tests, this framework provides concessions from some corporate governance and reporting obligations, to ensure that investors are able to make informed investment decisions and are not exposed to excessive losses. The framework also sets out the minimum disclosure requirements and a $10,000 per issuer per 12-month period investor cap for retail investors.

It is not the government's role to help pick a winning concept or business idea. What we can do is create the right economic conditions for small businesses and start-ups to grow and thrive, and take steps to remove unnecessary regulatory barriers. The framework set out in this bill will enable Australia's innovative early-stage businesses to obtain the capital they need to turn good ideas into commercial successes. It is only through turning those good ideas into commercial successes that we grow and develop our economy. The great thing about Australia is that we have a history of innovation, and we should be very proud of that. Yet, we should also be disappointed at the fact that many of those innovations ended up offshore as a result of a lack of capital to help develop and grow them here onshore.

Crowd-sourced equity funding will also offer a new funding option for Australian small business. It will complement other forms of crowdfunding already available, including the rewards based crowdfunding and peer-to-peer lending to offer start-ups a choice in how they fund their operations. It does not take much of a search on the internet these days to find peer-to-peer or crowdfunding options. Many of those are now local but a lot are still overseas. Hopefully, this legislation will also encourage those organisations to set up their operations here in Australia so that the operations are contained here locally. This will serve as both a complement and a source of competition to more traditional funding options for small business, particularly in relation to bank debt products. One of the major issues for our small- to medium-businesses is the gap in the cost of capital compared to large listed entities. That gap in capital cost can in a lot of cases be roughly double. So this option creates an opportunity for our small- to medium-business sector to be able to compete on a more level playing field with the big end of town.

The government has consulted extensively on the design of the proposed crowd-sourced equity funding framework, and the model detailed in this bill strikes the right balance between supporting investment, reducing compliance costs and maintaining an appropriate level of investor protection. Schedule 1 of this bill inserts a new part into chapter 6D of the Corporations Act. This sets out the various elements that comprise a crowd-sourced equity funding framework. Australia's crowd-sourced equity funding regime will allow eligible companies to fundraise up to $5 million per year from retail investors. This amount is higher than that allowed under both the New Zealand framework and the model recommended by CAMAC. The ability to raise higher amounts will enable entrepreneurs of innovative early-stage businesses in Australia to obtain the capital they need to turn good ideas into commercial successes.

Schedule 2 of this bill sets out a number of concessions for newly-registered public companies that have restructured in order to access crowd-sourced equity funding. Provided a company undertakes crowd-sourced equity fundraising within 12 months of registering as a public company, it is eligible for exemptions of up to five years from the requirement to hold an annual general meeting; have annual reports audited if it has raised less than $1 million from crowd-sourced equity funding; and provide its annual reports to investors, other than publishing them on its website. Further, companies fundraising under this framework will be able to offer equity securities to retail investors, with lower disclosure than currently required. This measure will improve access to crowd-sourced equity funding for small businesses and start-ups, as a full disclosure document can be costly and time consuming to prepare.

The government has listened to stakeholders on how to best balance the fundraising needs of business with investor protection. The framework in this bill permits retail investors to invest up to $10,000 per issuer per 12-month period, allowing investors the opportunity to make substantial investments in a product, while also seeking to mitigate the size of their exposure. The bill also provides a regulation-making power to amend this amount as the market develops. Retail investors will not be limited in the total amount of investment in crowd-sourced equity funding they can undertake, allowing them to diversify their investment portfolio. Investors will also be protected in the form of cooling-off rights for a period of five days, after making an investment.

Another element of this bill reflects the importance of intermediaries in the operation of equity crowdfunding. As a gatekeeper, intermediaries provide an important quality assurance role and, in recognition of this, intermediaries will be required to hold an Australian financial services licence. Requiring intermediaries to be licensed will provide issuers and investors alike with confidence in the integrity of the intermediary and their capacity to carry out the obligations of operating a crowd-sourced equity funding platform.

This bill delivers on our government's commitment to foster innovative economic activity by unlocking new sources of funding and equity. I commend this bill to the House.

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