Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Hansard source

This has been a matter that has been considered by the House for quite some time. It has been considered by two governments—both the Labor government and this government—since 2013. It was Labor that first referred the matter of how to introduce equity crowd funding into Australia to the Corporation and Markets Advisory Committee for it to consider. Equity crowd funding is a method by which start-ups or small businesses are able to raise capital over the internet. In return for that capital, people will get an equity stake in those start-ups and small businesses.

This had been a vexed issue. It is one that is fraught with problems because it does challenge and disrupt the way in which the Corporations Act will operate, particularly where you may have a number of investors that go over the 50 shareholder mark, which would normally require a number of other things to be met to ensure that that could proceed legally. As a result, CAMAC investigated a number of jurisdictions and looked at a number of places to see and observe the way in which equity crowd funding is managed. It was a very comprehensive report. We welcomed the report when it was finally brought down in May 2014 because it had, in a most comprehensive way, looked at the way that other jurisdictions had managed this and had determined a number of vehicles and mechanisms that could be used to do this.

Both sides of the House consulted with stakeholders about what CAMAC had proposed. We on this side had had some reservations about some of the things that were being put forward, and we believed that they were potentially going to be difficult to put forward in a way that would be easy to manage. We had said that we needed to see some changes, and we have advocated some through a discussion paper that Labor had put forward. So CAMAC brings down its report in May 2014, and we had a situation where it had taken up until December 2015 for the government to respond. They issued a number of discussion papers. They had said, for instance, that there were three options that they were looking at: what CAMAC put forward; what New Zealand put forward; and the do-nothing option which, frankly, was ridiculous as no-one was proposing that we do nothing. But we certainly thought that what happened in New Zealand was probably far too liberalised for our circumstances, and we thought that the CAMAC proposition was going to be difficult to put forward because, as I indicated a few moments ago, it was cumbersome. We believed a midway point needed to be reached.

The legislation that was suddenly prepared and put forward to the House in December 2015 was, as we had indicated at the time, done without genuine consultation with the opposition. We had had a very good discussion with then minister, Bruce Billson, but, as a result of the change in ministerial arrangements, he no longer had carriage for that legislation anymore and, when we suddenly had the legislation produced, we expressed our displeasure with that. To their credit, the Turnbull government had changed approach and had spoken with us about some of the amendments to the bill that had been put forward. Bear in mind that the bill that had been considered previously by this place, the 2015 bill, had been roundly criticised because it was still too cumbersome. It had been criticised because it was continuing to maintain a requirement that we have a situation where companies, small businesses or start-ups would be required to convert themselves into unlisted public companies.

We had expressed a number of concerns about that, not the least being that there would be a cost requirement triggered by that. Also—and I think it is a surprise that Labor representatives have to indicate this to their coalition opposition—why is it that government forces a requirement on companies or small businesses as to when they go public? That decision should be made by businesses when they are good and ready. When they are ready to go public, they should do it. They should not do it as a requirement to enable them to access equity crowdfunding. If private companies want to remain private and access equity funding, then they should do so, but they should not be compelled to convert into a public company.

Unfortunately, that provision still remains in this bill and, when this was considered by a Senate inquiry, a number of stakeholders indicated that putting this requirement in would limit, lower and prevent the number of small businesses that the coalition envisages will use this funding platform, or that start-ups would not do it. In fact, some have said so publicly. There have been people who have said publicly that to go through the process of becoming an unlisted public company for the purpose of accessing this funding regime would be ridiculous, so they are saying that they will not use it. So why would we do this?

I understand from the Treasurer's second reading speech, and from comments—and I am not betraying any confidences here—that the government is contemplating a further change down the track to determine whether or not they would be able to introduce a system by which privately-held companies could access equity crowdfunding. That is a good thing, but my concern is: why would we do two things—introduce and support this legislation now with a view to amending it down the track, pending whatever Treasury recommends to the government should be done in this area? I think that is unwieldy. I do not think that is a smart thing. I can say that, in times past, we have demonstrated our preparedness to work with the government in this area, and to be constructive and bipartisan on it. We have said we are willing to do this. For instance, we had reservations at the conclusion of the last parliamentary term about some aspects of the government's changes to the taxation arrangements for angel investment and some of the venture capital changes that they wanted to make, but we did not hold that up. We said, 'Let's just get the bills through and see how it works'. It will be interesting to see the take-up of that.

But in this area, with this space now, it does not make sense to put forward a bill that you know you are going to have to change anyway, largely because, I think, deep in the hearts and minds of the government, they know that this system will be unwieldy. I think this will create a problem because we are going to have two systems in place instead of just getting one system up and running. I believe there are some stakeholders who support this bill simply because of fatigue; that is, because it has taken so long—from 2013 to 2016—and we do not even have a regulatory framework in place. So some people just want to see the bill introduced. Frankly, I do not agree with that proposition. You need to get this done right the first time, and there is a way in which this can be done.

There will be those opposite who say, for example, that you cannot have a situation where privately-held companies are able to access crowdfunding and that that is good for investors, because it denies those investors some protections that help inform investors better to make better decisions and keep a watchful or close eye on the scale of investments that is proposed through this type of framework. I do not necessarily agree with that. I think there are ways in which you can better inform investors that would be aligned with the expectations that would be placed on some of these start-up or early stage innovation companies that would be placed on them by venture capital firms or angel investors. It would be way better for those small enterprises, those start-ups, to get accustomed to and acquainted with the information requirements of venture capital firms early on, such as delivering a business plan, reporting quarterly, being able to answer the questions of investors in what has been done previously or what is currently the case, particularly within the start-up ecosystem. Those are good things.

They will make sure that those companies longer term prosper, survive and grow. Just because you have a company secretary or a registered place of work does not necessarily guarantee that you will be running in tiptop shape. It does not necessarily mean that your investors are any better informed. In fact, having a registered place of work was not the requirement of Steve Jobs or Wozniak in setting up Apple in a garage, or Dell or any of the other firms that did not have a registered place and worked out of a home, as some start-ups would often do. There are better ways to get those protections in place.

I find it ironic and passing strange that a government that was worried about what investor protections would be maintained, if we did not have this mechanism of creating these unlisted public companies, can, on one side of their mouth, talk about what this does to investors and, on the other side of their mouth, talk about how this legislation that we are debating can allow a proposition where investor rights are actually watered down.

This bill will see retail investors put in tens of thousands of dollars and be told, 'You've only got two days to change your mind.' It used to be five; it is now going down to two. So, on the one hand, they are worried about investor protections and, on the other hand, they actually advocate a bill—and this is one of our big criticisms of this bill—that will water down rights. I have had big disagreements, mind you, with the sector over this. There are elements of the sector that want what the government is putting forward. The government is being responsive to some of those views. But, to be honest, to be completely frank, you do not need to do that with this bill. You do not need to water down these investor protections to achieve what is sought.

The reason that elements of the sector—not everyone; elements—want the cooling-off period to go from five days to two days is that they are worried about rival enterprises gaming the system against other businesses. So what happens is rival enterprises would invest, with no intention of seeing through the investment, and pull that investment at the last minute and render useless the actual crowdfunding campaign that is being undertaken by a start-up or a small business. Because there are measures that say that, if you do not complete a crowdfunding round, you do not get a certain number of other measures that are provided for under this bill, that is a big problem. I get that; I totally understand that. And I understand why the government would be responsive to that. But there are other ways to do that.

There are other ways to clamp down on that. ASIC, with enough guidance, could keep a close eye on those investors that do just that—pull out their funding all of a sudden without good reason purely, because this is a disruptive mechanism against other businesses. But you cannot do that under this bill. And I do not know if arrangements have been put in place by the government to be able to identify investors on an individual basis under this bill, under the regulations or under any other measures that are being set up. That is a problem as well.

Instead of contracting the protections that are available to investors, as a mechanism to deal with a genuine concern about gaming, there should be measures to crack down on that type of campaign gaming, and you should crack down hard on people who effectively are willingly, or wilfully, seeking to disrupt other campaigns purely because they want to disrupt a competitor. You should crack down on the people who behave badly, not on the mum-and-dad investors, particularly new investors who, for the first time, will be making an investment of a substantial size, and telling them, 'You've only got two days to change your mind.' That is not right, and I do not think that is smart in an environment where there is much more focus on investor protection, particularly for retail. I am not talking about sophisticated investors; they can look after themselves. They are on incomes that are higher than $250,000; they can wear the losses. Smaller retail investors should not be denied those rights. I think that is a problem too.

The other thing that is a problem is that, for a government that says that it is big on cutting red tape and reducing regulatory burdens, it is going to maintain some burdens in this bill in a way that it does not seem to care about. For example, under this bill, there will still be a situation where start-ups and small enterprises will have to field inquiries from a broad range of potential investors. Instead of allowing streamlined ways to manage those inquiries—a lot of which will be genuine inquiries from new investors—the government is saying that these start-ups and small enterprises should still field those calls from people who may not actually go ahead and invest on the platform. How is a start-up supposed to have a sophisticated investor relations framework to do that? These are small businesses. Why would you compel those start-ups to field that individually? That is what this bill actually envisages: that a lot of these start-ups, not the platform, not the intermediary—from my read of it; and I am happy to be corrected, if I am wrong but it looks like it is an impression that is within the sector as well—are going to have the responsibility of responding to each individual inquiry.

I do not think that is a smart move either. The platforms should be empowered to answer on behalf of those start-ups and small enterprises, obviously, with the approval of the start-up or the SME to provide—they are ultimately going to be responsible for claims made during a period where somebody is contemplating an investment and where that answer actually positively influences an investment decision they like to be taken into.

There are some big concerns. I know you want to rush it now, Assistant Minister, but you have taken your sweet time up until this point.

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