Matt Keogh (Burt, Australian Labor Party) Share this | Hansard source

Labor has long recognised the importance of early stage innovation to drive economic growth in Australia, and Australia's start-ups have already proven their potential here and abroad. Some were even born in my electorate of Burt, such as Spookfish. During the federal election campaign the then shadow minister for digital and start-ups, Ed Husic, and I met with the fantastic team at Business Station in Gosnells, including the chairman, David Duncanson; the CEO, Kim Charles; the general manager, Mark South; and a Mr Mike von Bertouch, director and founder of Spookfish. Spookfish is an integrated suite of state-of-the-art technologies enabling the capture, processing, archiving and delivery of geospatial imagery and data over truly vast areas. Spookfish began with a single, radical idea to bring the real world to life with outstanding next-generation imagery. It started as a local small business and now is providing its advanced satellite imagery information to the world.

We need to encourage the growth of successful start-ups like this, especially considering that the majority of jobs that will be created over the next decade are going to come from companies that do not even exist yet. That is why it is important have policies in place that will help grow as many of these new start-up businesses as possible. They need policies to help remove some of the barriers to that growth, and particularly being able to access capital. Australia has always been an importer of capital. So, unlocking new sources of capital, especially domestically, is very important for start-ups. While traditional sources of funding for early-stage innovation and start-ups traditionally has come from venture capital and angel investors, equity crowdfunding has emerged as an alternative way of raising capital. For small companies, access to capital that does not involve the time, costs and regulatory burdens of a full IPO is desirable, providing, though, that the appropriate consumer protections are in place.

In the case of equity crowdfunding, the internet would become a platform for start-ups and other small businesses to raise funds in return for an equity stake in those businesses. As I think has already been described, the origins of this bill start with a decision taken by a Labor government, where the work was commenced under the Corporations and Markets Advisory Committee, otherwise known as CAMAC, which was tasked to advise on an appropriate framework to allow equity crowdfunding in Australia. If I may just stick to this point about CAMAC, because I think it is worth highlighting. The work that CAMAC did here is vitally important, because corporate regulation in Australia, as it is around world, is very complex, highly complicated and very detailed. We have been blessed in this nation, as part of the formation of a national corporate regulator, to have the body CAMAC. Unfortunately, as part of the disastrous 2014 budget handed down by this government, CAMAC was abolished. They somehow managed to get some agreement from the states and territories that the abolition of this body would be a good idea. That, I think, has been to the great detriment ever since of the development of good corporate regulatory policy and future law in Australia. I see that as indeed being a very sad fate for that body. However, fortunately, at about the same time—in fact in the same budget that CAMAC was abolished—the Abbott government decided to pick up that committee's recommendations, and this is what has led to this bill here today.

Despite the claims of promoting innovation and agility, though, it has taken another one and a half years for the Turnbull government to finally introduced legislation, in 2015, to enable this. And, of course, we have had to wait for nearly a whole year to see the revised version of this legislation. The government was rightly criticised for proposing a framework that would be too unwieldy and lock out many start-ups and small businesses from accessing crowdfunding. They have now introduced this bill, which amends not only the Corporations Act but also the Australian Securities and Investments Commission Act.

As the amendments suggest, we remain very open to working with the government to ensure that we can develop a viable equity crowdfunding framework. We also note of course that some of the areas Labor believed needed amendment in the original draft have been made to this bill. But we remain concerned about the requirement to convert to an unlisted public company without further tailored alternative regulation or that it is too onerous on business to present crowd-sourced funding as a realistic option for equity funding for start-ups.

Some start-up founders have looked at this issue of switching to being a public company and, for them, they could not avail themselves of that opportunity. They see it as unthinkable and unworkable. We are concerned by this and we are also concerned by moves to water down protections for mum and dad investors—for instance, the production of a five-day to a two-day period for withdrawal from such an investment. But, in addition to start-ups, this legislation appears to provide a new equity raising opportunity for speculative mining exploration companies, if they choose to go down the route of becoming a public company, or if they are no-liability company, as many of the speculative mining companies are, they can convert to becoming a public company. This would not be the traditional option taken by these entities, but it appears to provide a new route for them for raising equity. I know that many of these speculative mining companies in Western Australia are finding it very difficult to raise capital, so this could be a good thing. But it strikes me as possibly being an unintended consequence or result of the legislation. It does not seem to have been addressed in any of the literature I have read in respect of it. If this is not the intended result, I believe that needs addressing. If it was intended, then consideration should also be given to whether the scope of the legislation should be expanded to deal specifically with no-liability companies.

It is at this point that it is quite concerning in the context of the exposure that retail investors may have to quite a speculative investment, though that is the nature of the start-up. I think the government should address that issue. Further, how confident is the government that self-certification that an investor is a sophisticated investor will be a sufficient consumer protection, or is it contemplating some other safeguards that will sit along with the online investment model that it is proposing? We definitely need to see some detail around that.

This legislation creates certain exceptions from regulations applying to non-listed public companies but not to others. It needs a whole new regime really, because just proposing to get rid of the holding of AGMs for a number of years actually leaves investors exposed to not getting the regular updates and information they need from the company they have invested in. And let's face it, these are businesses and companies that are in the start-up phase and things may or may not go well, but investors should be kept up-to-date to see exactly how they are responding. If these are companies that are looking at or already have angel investors or venture capital in them, their reporting obligations to those equity investors are going to be higher—not necessarily overly onerous but they are going to have regular reporting obligations. So, if you are going to be removing reporting obligations from the Corporations Act from applying and you are not going to be publishing annual reports then you need to not only say, 'You can put that information on your website,' but you need to provide the mechanisms to compel, to ensure, that notification is given to all of these new members holding equity in these companies. That is very important.

One way of looking at this would be to provide safe-harbours to ensure that the existing obligations are met by these sorts of corporations when they are going through this start-up crowd-sourced funding. Or, given the concern around making these companies become public companies, we could instead provide additional regulation for private companies that avail themselves of this model of funding so that it will apply only to them. It creates a specialist regime, almost like the small business regime for companies that are small businesses but also seek to use crowd-sourced funding. That would provide the added advantage of being very clear about the obligations that are going to apply to these companies, because they are not in a position to comply with overly onerous regulation or particularly complex regulation when it is not clear what they now have to do to avail themselves of crowd-sourced funding. We do want to make this easy. We want to make sure it works and we want to make sure that, as well as consumer protection, it is done in a way that these companies can avail themselves of the opportunity of crowd-sourced equity funding.

The other thing that I do want to see the government address is what would happen if these companies, down the track, revert back to private company status. If they see that private company status is a concern then we need protections to ensure that, if the company moves back to private company status, new investors receive full disclosure continuing under that new status.

When I mention consumer protections, the critical part of this bill is that most of the disclosure obligations are going to be contained in draft regulations, which we have not seen. We have seen the old regulations from the old bill but we need to see the updated proposed regulations with this bill to properly understand what those disclosure obligations are. If we are prepared to have retail investors in this mode—which, admittedly, are at capped amounts and with some restriction—we need to ask the question, what is going to be the arbitrage in disclosure obligations under this model as opposed to under a listed model and, even if the type of protection is different, does the object of the protection still exist? These questions are critical to understanding the true impact and efficacy of investor protections, so it is vital that we get that right and understand it.

If I can illustrate the point that I am trying to make: there are pages of amendments that are going to be made to the Corporations Act and the ASIC legislation under this bill. Understandably, it is complex; it amends many different provisions, it inserts new parts into the Corporations Act and the explanatory memorandum is actually about three times longer. To really understand that, the Corporations Act is the legislation it is proposing to amend. It is not the simplest piece of legislation in the world. For those that are really interested in this, it is a lot shorter than the Income Tax Assessment Act. The Corporations Act and the ASIC Act are vital pieces of legislation to the regulation of companies in Australia, but they are not simple. This could be done more simply to make sure that start-ups can avail themselves of the great opportunity that is crowd-sourced equity funding, but we need to make sure that we get it right. That is why the Treasurer should respond to the queries that I and other Labor members have raised in respect to this legislation. It clearly demonstrates why we proposed that this legislation be reviewed via a Senate inquiry.

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