Doug Cameron (NSW, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

Well, we finally made it! The Senate can finally consider the government's Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. It's been nearly four years in the making, but the government has finally put forward some legislation that might meaningfully give effect to equity crowdfunding in Australia. The problem is that the government have been so diverted by the muppets across the chamber, so diverted by the extremists in their own party, that they really can't get on and deal with the issues that are important to the Australian economy and to the Australian people. Taking four years to get a bill to the Senate floor on crowdfunding just demonstrates how incapable this government is of actually focusing on the real issues of government.

This bill removes a range of government imposed regulatory blocks stopping proprietary companies, especially start-ups and small businesses, from using crowdsourced equity funding. By way of brief explanation, equity crowdfunding uses the internet to harness the financial support of investors to back a business, and in return those investors get a stake in that business. I open by referencing the tortuous journey this reform has been forced to experience under the coalition. It is worth recalling some history. In government, Labor tasked the Corporations and Markets Advisory Committee to start scoping out a framework for equity crowdfunding in May 2013. A full year later in May 2014, following the change of government, CAMAC handed its report to the new coalition government, and all action subsequently stalled due to endless rounds of further consultation throughout 2014-15 and endless self-recrimination within the Liberal Party, which is stuck in an absolutely chaotic position—a government that has been incapable of governing.

Meanwhile various reports continued to identify the potential of equity crowdfunding to improve access to finance for small to medium enterprises: for example, the government's Industry innovation and competitiveness agenda report, released in October 2014; the final report of the Murray inquiry into Australia's financial system, released in December 2014; the Business set-up, transfer and closure Productivity Commission draft report, released in May 2015; the government's National Innovation and Science Agenda, released in December 2015; and the government's own fin-tech statement, released in March 2016—more reports, more analysis, less action. That has been this government through and through.

The government eventually introduced its bill in 2015, but it was roundly criticised for being too cumbersome for the sector. After ultimately withdrawing that bill, those opposite introduced a new version in 2016 with roughly similar flaws. This is our government: you point out the problems; it looks at the bill and brings it back with the same problems still in it—totally incompetent. No wonder the Prime Minister describes his own party as the muppets!

Finally in March last year the government used its numbers to force the bill through and sign into law an equity crowdfunding framework that it knew full well would have to be fixed before the year was out. The reality was that the current framework was racing towards one milestone and one milestone only: extinction. Sure enough, here we are in 2018 considering yet another attempt by this dysfunctional government, a government of muppets, to fix mistakes of its own making. The title of this bill is worth noting. It is the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill—2017! The bill has been stuck in parliament for a year because the government couldn't be bothered bringing on debate and getting this bill moving. Not only that; those opposite have had their own internal little problems in the meantime, carving each other up, knifing each other, changing the Prime Minister—complete dysfunction, complete chaos. This country needs a government that can focus on the issues that are important for the Australian people, and it is not the muppets sitting across the chamber. It is taking a new Treasurer to make it happen. The incompetence of this government is extraordinary.

In the other place the former Treasurer, now Prime Minister, lamely attempted to paper over this by suggesting his hand had been forced by shareholders to bring in new changes to its flawed equity crowdfunding framework. He said:

Submissions expressed widespread support for the extension of the crowd-sourced equity funding framework to proprietary companies.

This is not a surprise. This is not a new revelation. Stakeholders have said this for years. That is because the government was repeatedly told that its equity crowdfunding regime was highly restrictive and unlikely to get business support. They were told they needed to bring in a regime that would be usable by proprietary companies. They were warned of this years ago by a range of people.

The most damning assessment, provided by the Faculty of Law at the University of New South Wales, argued that the 2015 bill and its successors excluded, and I quote:

… over 99.7% of companies from accessing CSF.

…   …   …

… the current proposed model in front of the Parliament is too restrictive and excludes the majority of Australian companies from relying on CSF.

The government get up here and lecture everyone on how they know about business, how they can really push business along in this country and, at the same time, they can't even get the basics right in a very simple bill. They are a bunch of frauds. They are a bunch of muppets. Even their own Prime Minister has got the adjective right about them—absolute muppets; economic incompetents and absolute political incompetents. This is a government well past its use-by date.

The assessment by the University of New South Wales Faculty of Law was made years ago, but it remained the biggest criticism that confronted the government's botched reforms in this area. It is worth remembering that, even last year, speaking in response to the government's 2017 bill, business was critical of the government's efforts, with tech firm Veromo's Andy Giles stating:

… the thought of switching to a public company to avail ourselves of a potential wider investor base is unthinkable.

So businesses are saying that the proposition from this government, who claim that they are the government of business, was 'unthinkable'. What a bunch of amateurs on the other side!

Not embarrassed by criticism that they were continually dragging their feet on this reform over the last four years, the government introduced this bill here in September last year and we debated it 12 months later. Now the government have come up with a bill to plug the gaps they left in March last year. The opposition is largely supportive of the bill. It provides some new allowances in its current form. For example, it permits that investors who acquire shares through crowdfunding offers not be counted towards the shareholder cap currently applied to proprietary companies. The bill exempts proprietary companies with shareholders who acquire shares through a crowdfunding offer from the takeover rules in chapter 6 of the Corporations Act. To provide some safeguard to investors, the bill also contains a regulation-making power. This will give the government the capability to respond quickly by imposing additional conditions on this exemption, if required.

The question remains: is 'quickly' something the government are capable of doing? Well, in some things, the answer is yes. They can quickly get rid of a Prime Minister. They can stab a Prime Minister in the back. They can demolish their own credibility very quickly. They can do all of those things. They can quickly turn on each other. The Liberal Party can turn on the National Party. The National Party can turn on the Liberal Party. The Liberal Party can turn on each other. They can do that very quickly, but can they do anything that supports progress in this country? Not really. They talk a big game and they do nothing.

The bill also intends to impose additional obligations on companies who opt in to the equity crowdfunding regime. For example, proprietary companies with crowdfunding shareholders will be required to provide additional reporting to ASIC, provide information on the company register, prepare financial reports and statements for audit when over $3 million has been raised through crowdfunding offers, and have a minimum of two directors to assist with succession planning.

Again, while we largely support this bill we are mindful of the start-up community's criticisms concerning the further delays baked into the bill by this incompetent government. Notably, the government's current bill would force businesses to wait yet another six months after royal assent before they could access this regime. In our consultations with the sector they called for this delay to be significantly reduced, which is why we pushed for this on behalf of small business and innovative enterprises forced to wait for the new regime. Given the bulk of the regulatory changes that have been put in place, and the extraordinary length of time people have been made aware of the likely arrival of equity crowdfunding, we believe that one month after royal assent is long enough for the government.

To their credit—and I don't give them much credit; they don't give themselves much credit, so let's give them a little bit of credit—the government has taken on board the opposition's concerns and has indicated its willingness to scale back the wait time to one month. While we would have preferred no delay back in May, as the fin-tech sector called for, we recognise this does present challenges for the responsible regulators, so we accept the need to amend the start date accordingly. Having said that, just imagine if the government had scheduled this debate sooner. We may well have had the new regime start earlier. I commend our amendment to the Senate and urge the crossbench to support our commonsense proposition.

Jane Hume (Victoria, Liberal Party) Share this | Link to this | Hansard source

I rise today to speak on the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. It is an absolute joy and a privilege to speak on this bill in the chamber today, particularly after my colleague from across the chamber Senator Cameron—Senator 'Bagpipe Happy Chap'—quite clearly supports this bill.

Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

Senator Hume, that is not appropriate language to be used in the Senate chamber and I'd ask you to withdraw it and refer to senators by their correct titles.

Jane Hume (Victoria, Liberal Party) Share this | Link to this | Hansard source

My apologies. Senator Cameron is always good-natured and always cheerful! This is a bill that the opposition actually supports, and he was miserable giving his not quite 20 minutes to the chamber today on the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. This is a man who, quite clearly, didn't understand the content of the bill. He peppered it with bile, spewing forth throughout, reading the contents of his speech today in the chamber. Quite clearly, Senator Cameron is a man who has invested in nothing in his life. He has taken no risks in investment in his life other than, potentially, investing in whatever might give him a comfortable retirement.

I would like to touch on four areas today: why I support this bill very enthusiastically; the specific provisions of the legislation and what the bill, in fact, does; the broader contribution of crowdfunding, generally, to Australia's economic prosperity; and how this builds on the work that the coalition is doing to support small businesses and start-ups in Australia.

Why would the government support this particular bill? In Australia we are not simply a nation of dreamers, we are a nation of doers. To provide my colleagues with some context to this: in June 2016 there were 2.2 million businesses trading across Australia. The number of new start-ups in the year prior to that was up 1.2 per cent. Indeed, the coalition's innovation agenda ushered in the promise of easy access for start-ups to crowdsourced equity funding, funding for incubator support programs, and tax incentives for investors.

Prime Minister Morrison has said that those in this country willing to have a go should get a go, and that is fairness. He has been very clear that this bill forms part of the coalition's determination to deliver on that promise. This is in step with many other advanced economies that have embraced crowdsourced equity funding in support of business growth, from the UK's Financial Conduct Authority, which provides compelling and renowned alternatives for funding business development, to Singapore, which has recently made similar changes of its own to ensure a more streamlined and simplified framework for businesses to start up and to invest.

So the legislation that we are discussing today is very much some of the metal behind that vision that the government has set out in that initial work on the innovation agenda. While the title of this bill doesn't sound particularly exciting, it will have an impact on thousands of businesses and individuals who aspire to bring ideas to the market. They will have more access to money to do so and will have their chance to have a go and make their dreams come true. That is truly exciting.

So that's why good government matters. It's about making the changes that genuinely, really count, rather than just whining and complaining all the time and finding something to be miserable about. Extending that good framework for crowdsourced funding is a key example of the former. I honestly think that Senator Cameron has spent way too much time in opposition. I think five years of opposition is beginning to take its toll. He has nothing good to say anymore, even about a genuinely good piece of legislation. Crowdsourced funding enables start-ups and small to medium sized businesses to raise money from the public to finance their businesses. These can be very small amounts from a broad range of investors. There may be quite a large number of investors. Companies that have less than $25 million in assets and annual revenue can raise up to $5 million a year using crowdsourced funding. When I became a senator, I stood in this chamber and said that in 20 years I wanted to be able to look my children in the eye and assure them that my generation did all that it could to create a prosperous and productive Australia. If we get this right, those born after 1992, currently aged 26 and under, not only will lead the entrepreneurial charge but will now be equipped to do so. Legislation like this will help ensure that future generations lead the charge for growth and business development in this country, the like of which we have never known.

Let's talk very briefly about what this bill actually does. Under the existing law, companies must use a crowdsourced funding, or CSF, platform, usually online, to make their investment offer. This is run by an intermediary that must have an Australian financial services licence authorising them to provide crowdsourced funding services. The intermediary acts as a gatekeeper between the company and investors and checks the company and the investment information that the company provides before the offer is placed on the website. For example, the crowdsourced funding website must have a warning for investors about the risks of investing through crowdsourced funding, as well as copies of the offer documents for each investment, which have important information about the business making the offer. The website must also have an online portal that potential investors can use to ask the company and the intermediary questions about the investment.

The bill we're discussing in the chamber today makes an essential legislative amendment to the Corporations Act by extending the legislative framework for crowdsourced equity funding beyond public companies to proprietary companies as well. It builds on an already established crowdsourced funding equity framework for public companies which commences at the end of this month.

'What is crowdsourced funding?' I hear you ask, Acting Deputy President. Crowd-sourced equity funding is a relatively new and innovative concept. It enables businesses to source capital from a very broad range of investors online. Typically, each investor will contribute a small amount of money in return for an equity stake in the business. The coalition consulted at length on this extension of the policy to proprietary companies, and the submissions received as part of this consultation expressed widespread support for extending the crowdsourced equity funding model and framework to proprietary companies. Extending the framework to proprietary companies builds on the existing framework for public companies and, as such, will incorporate many of those existing features of the public company framework that I mentioned earlier, such as the obligations for intermediaries and the process of making crowdsourced funding offers.

In Australia, private companies or proprietary companies are limited to 50 non-employee shareholders, so, to ensure that proprietary companies can effectively access the framework without breaching that cap of 50 non-employee shareholders for proprietary companies, investors who acquire shares through crowdfunding offers will not be counted in that shareholder cap. Subsequent transfers by crowdfunding investors who onsell their shares will also be exempt if the company is not listed on the financial market.

Crowdfunding priority companies will be exempt from takeover provisions, also consistent with the light-touch regulatory approach of the equity crowdfunding regime. The takeover rules are in fact very complex and would be very, very costly for proprietary companies using crowdsourced funding to understand and comply with. Recognising that this is in fact an extension is a new approach to the proprietary company framework in Australia. These companies will face some additional obligations, such as a minimum of two directors, financial reporting in accordance with reporting standards, and restrictions on related party transactions. This demonstrates the robust nature of the safeguards contained in the legislation before the chamber today while still embracing new start-up and business ventures and allowing them to grow, to expand and, hopefully, to thrive.

In addition, it is important to know that proprietary companies that raise $3 million or more will also be required to maintain audited financial statements. To ensure consistency with the proprietary company framework, the bill also increases the audit threshold for eligible public companies from $1 million to $3 million. Finally, the bill removes the temporary new public company concessions in the Corporations Amendment (Crowd-sourced Funding) Act 2017. These concessions will be grandfathered for companies that register with a public company status prior to the bill taking effect after royal assent. These changes will not blur the lines between public and proprietary companies. It is perhaps worth noting that 98 per cent of Australian registered companies are in fact proprietary companies, and start-ups in particular adopt this structure. An inflexible approach would result in a much higher regulatory burden that deters business growth.

I'd like to touch on the contribution of crowdsourced funding to the economy. I've already outlined the specific impact of this legislation and the changes in detail. As mentioned, crowdsourced funding enables start-ups and small to medium-sized businesses to raise money directly from the public to finance their businesses and can be sourced from a variety of investors. We're seeing significant good-news stories already in Australia as a result of crowdsourced funding techniques. Indeed, since the equity crowdfunding framework was originally passed, in March last year, Australia has seen its first crowdsource-funded power retail company launched, a company called DC Power Co. It's hoped that this particular company will tap into almost two million solar households, and potentially six million by the year 2050. This solar energy disruptor has claimed a world record for the most people ever around the world participating in a crowdfunded equity raising, with over 17,625 retail investors taking part. It's a brilliant example of the contribution crowdsourced funding can make to Australia's economic prosperity. This particular company intends to seek investment from up to 95,000 people in order to raise a total of $4.75 million. So it's not the future of raising capital; in fact we're already facing the reality of how capital is raised, and this is what this bill specifically acknowledges.

When we look at the bigger picture, crowdfunding offers a foundation for start-ups that automatically creates more job opportunities, which are of course essential to a growing economy. Moreover, generating a buzz around a forthcoming product or service often leads to more sales and more revenue generated. So crowdsourced funding can be a marketing tool as well as an equity-raising tool. The coalition thinks this is a good thing, and the coalition is delivering on legislation to make it possible. Business thinks this is a good thing. Entrepreneurs think this is a good thing. Innovators think this is a good thing. So the coalition thinks this is a good thing too.

There are other ways small businesses and start-ups are being supported by the coalition. Let me turn now to talk about some of those other ways in which small businesses are being supported. The government's support of small businesses and start-ups does not start and end with crowdsourced funding; although it does make it easier, it's only one part of the puzzle. There are a range of initiatives already in place that make entrepreneurship and small business easier in Australia. Let me talk first about the Entrepreneurs' Program, which helps businesses increase productivity and competitiveness, linking them with funds and access to a national network of private sector advisers and facilitators across Australia. This is the government's flagship initiative for business competitiveness and productivity. It provides a range of grants, offering ventures up to 50 per cent of expenditure on a particular project, and applicants can seek free expert advice on ventures to address their knowledge gaps.

Another initiative is the CSIRO Kick-Start program, which is driving innovation by supporting local start-ups. It focuses on the research and testing of companies that have a new idea, a novel product or a service. It gives small to medium enterprises that are in the start-up phase access to the CSIRO's research expertise and capabilities and helps them grow and develop their businesses. Eligible companies have to be registered in Australia for GST, have an annual turnover of $1.5 million or less in the current and past two financial years and have been registered as a company for fewer than three years. They receive dollar-matched funding to research, develop or test a product or a process with commercial potential.

Another one of my personal favourites is the Biomedical Translation Fund, which supports start-ups operating in the area of health and wellbeing. It was established originally as part of the coalition's National Innovation and Science Agenda, and it's armed with over $250 million of Commonwealth capital and an additional $250 million from private sector capital. So far, ten investments have been made through the Biomedical Translation Fund, the BTF, including $7.5 million in a start-up company called Global Kinetics in April this year. Global Kinetics is an extraordinary company. It creates watches that measure movements, whether they be tremors, dyskinesia or other movement disorder symptoms. They collect data on the frequency and severity of those movements, which can change the lives of patients with Parkinson's disease.

We also have the R&D tax incentive to help all businesses stay ahead of the curve through a tax offset and encourage innovation, even in the smallest of ventures. From 1 July 2016, companies with an annual turnover of under $20 million can claim a 43.5 per cent refundable tax offset against R&D expenditure that amounts to $100 million or less. All other eligible companies can claim a 38.5 per cent non-refundable tax offset. For R&D expenditure under $20,000, companies can only make a claim if it was undertaken with a research service provider or a cooperative centre.

There are a number of other programs run by the government that can provide incentives, whether they be financial or otherwise, to help young companies get off the ground, like the Venture Capital Limited Partnerships program in Australia, which attracts foreign investors to Australia and boosts the local venture capital market with tax benefits. To be eligible for that, funds must register as a venture capital partnership under the Venture Capital Act 2002 and make commercial, non-property, non-construction or non-infrastructure investments and hold them for at least 12 months. Those investments must be in ventures where the total assets are valued at under $250 million, 50 per cent of the assets are located in Australia and at least 50 per cent of the employees are in Australia. Tax benefits for VCLPs include flowthrough taxation treatment, exemption from capital gains tax on the share of profits made by the partnership and the ability to claim carried interest on the capital account instead of revenue.

Another program is the Austrade Landing Pads initiative, which aims to give Australian start-ups a leg-up in the global market by immersing them in one of five world-class innovation hubs. Start-ups accepted into Landing Pads in Singapore, Berlin, Shanghai, Tel Aviv or San Francisco benefit from an on-the-ground presence plus access to networks, talent, mentors and investors. To be eligible, start-ups must demonstrate a strong vision, scalability, traction and differentiation and explain how 90 days in a landing pad in one of those five markets could help their venture. Austrade provides workspace, an accelerator and free services, but participants have to fund their own travel, accommodation, living costs, visas, insurance et cetera. Austrade may also provide funding, potentially, for global start-ups in Australia through Export Market Development Grants.

Without doubt, the Morrison coalition government is doing significant work to put small business and start-up development at the core of its innovation agenda. It requires constant work. It's not something about which any government could afford to be complacent.

As credit becomes tighter, it impacts the viability of some businesses. So it is important—it is absolutely critical—that we, as a government, are constantly looking for better ways to help incentivise development and embrace the future, and crowdsourced funding goes such a long way towards that. It's not the only solution, and I think I've made that clear today. There are other ways to help and encourage young businesses, start-ups, small to medium enterprises, people with a good idea and people with a dream. How do we help them get a chance, get their first foot in the door, get a leg-up? How do we help their businesses grow and thrive and survive? Crowdsourced funding is part of the puzzle.

The Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill strives to balance supporting investment, reducing compliance costs and maintaining appropriate investor protections for proprietary companies as well as for public companies. I believe, and the coalition believes, that this legislation will go a long way to ensuring that Australia embraces crowdsourced funding—the concept of crowdsourced funding, and the opportunities that come with it—as a viable route by which small businesses and start-ups can establish themselves, grow, expand, flourish and, hopefully, employ more Australians, because, when it comes down to it, that's what it's all about. That's why we want businesses to grow. That's why jobs and growth are so important to the coalition. Jobs aren't ends in themselves; they're a means to allow society to grow and to flourish, to survive and to thrive.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I rise to speak about the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017. After listening to the speeches in the chamber today, I can't wait to get out of here and go and sign up to some of these amazing crowdsourced equity projects. It's going to build the nation.

But let's be very clear: what we're talking about here is risk capital—in fact, some of the highest risk capital that we can see being raised through a retail offer. I've raised concerns about this in the past—in fact, this morning, going into this debate, I read my previous speech—and I have looked closely at the bill, and I will say that some of the concerns I have raised previously have been addressed in this bill. But we're talking about risk capital here. We're talking about entrepreneurs raising money—to the $10,000 limit—from an unlimited number of Australians, up to their subscription level. Ten thousand dollars might not be a lot to people in this chamber, or to some people in this chamber, but it is a lot of money to an individual Australian.

Unfortunately, my experience, from having worked in equities markets both here and overseas, is: I've seen the best and the worst. I've seen the kind of unscrupulous behaviour that leads to severe hardship and loss of money. I campaigned, and my party campaigned, for four years to get a royal commission into misconduct in the banking and financial services sector. That's happening now, and we've seen a whole range of examples raised of how things can go wrong—and they're not necessarily even in high-risk products; quite often they're in things like superannuation and insurance. But what we're dealing with here is the highest risk spectrum of fundraising for retail investors.

In the past, before crowdsourcing became a thing in recent years, entrepreneurs who had a risky project at a very early stage of development—which, by definition, often makes it risky—would go to angel investors. Angel investors are highly sophisticated investors. They understand risk. They understand that the majority of these projects will never be commercialised. They will never be commercialised. Some of them aren't designed to be commercialised, I agree with that. In my first speech on this bill, I gave the example of a honey-making technology in Byron Bay—a friend of mine was involved in that. That was designed to create a backyard honey-making operation. It wasn't really designed to make a lot of money, but it's been quite a successful crowdsourcing venture.

I've seen what happens when you let sharks into the pool. There's plenty of burley being thrown in the water here with this legislation, let me tell you. I've seen, in particular, the high-risk end of the equities market. I've seen unscrupulous company directors mining shareholders for many years, continually raising equity capital on the promise that they were going to deliver high returns—blue-sky mining at its best. I'm concerned that the same kind of people that continually make a living out of being shysters—and it astounds me how they keep coming back—will look at this structure before us and will say: 'Yes, I'm going to participate in this. I don't need to have my accounts audited until they're at $3 million.' There is a list of things they'll have to comply with, but at the end of the day we are talking about blue-sky projects; we are talking about things at the early stages of development, which, who knows, may or may not get up. If an investor understands the risk—an investor is diversified, and they're happy to put $10,000 into a project that they either support on a personal or a philosophical level, or they don't mind losing $10,000 if it doesn't get up—that's fine. If they put in the $10,000 and they understand they may lose it but also that they might potentially get a very high return in the future, that's also fine. But, once again, whether it was the FOFA laws that we debated in here years ago, or the long and winding road to a royal commission, we can't make the assumption that investors will get that asymmetric information and a whole range of other things we looked at in detail in committees.

I have a few questions, if I get to be around when we go in committee, Acting Deputy President Bernardi, but I may be sitting in your chair, so it may not happen. So I would like to put on record the things I don't believe have been addressed in this bill. I'm still very concerned about secondary markets for these, let's call them, parcels or investment units in crowdsourced funding operations or companies. Whether it's a public company or a proprietary company, what is the secondary market? Is there one for these investments? We know that there's an appointed intermediary who has to have a licence and that they are going to be regulated by ASIC, but, once again, I ask people to look at the landscape here. We're getting a lot of revelations from the royal commission about how difficult it is for our regulators to get on top of these issues, even in big, well-respected blue-chip corporations.

Once again, we are dealing with extremely high risk equity capital here—the highest risk financing that I can see in the spectrum. So, putting aside any doubts I might have about whether ASIC have the resources and the powers to do their job properly in relation to these kinds of things and whether they will, I'm still very concerned that one of the key indicators of risk in any investment is liquidity. How will I get out of my investment if I choose to? Who will price that? Am I locked in, in perpetuity? What is the exit strategy for an investor in these businesses? Is it that, because they're investing in something, they can receive a unit of it, like the physical delivery of a product in the case of the honey-making product that my friend in Byron Bay was involved in? People invested their money so that they could actually get a unit of it. It was like a down payment on getting it once it was produced. Is it an investment to purely make a capital return? If so, how do I trade out of my shares, my units in these investment companies? If the company goes public—and, I think, in a diversified portfolio of high-risk angel investors, you might expect one in 20 or 30 companies to be successful. If my company were successful and it went on to become, for example, a listed company on the stock market because the technology had taken off, who prices the original unit holders? How is that process enacted? Do unit holders get access to an IPO? What happens if the company that has been set up through CSF decides that it wants to sell the company or sell the asset? I understand there are restrictions here on takeovers, but what if the company voluntarily decides to sell its technology to a third party, which quite often happens? Who prices the exit strategy for those CSF investors in that business?

This is a very immature market. As Senator Hume outlined, we really are at the beginning of a bountiful period, where these kinds of vehicles are going to facilitate entrepreneurial flair and develop the industries of the future. If that's the case, then I would say today that we need to watch this very closely. While the intentions of a lot of people in the fin-tech industry who are trying to do the right thing may be very good, it will attract sharks. Unfortunately, that's a sad fact of life. So how do we actually manage these risks? Is there going to be a secondary market? Do the financial intermediaries—the licence holders—provide any advice to investors? Will they be doing any research? They're handling the transactions. Having been a broker myself, it's very hard to handle transactions, if there is any kind of secondary market, without providing advice. And will that also be regulated under the Corporations Act and by the Australian Securities and Investments Commission? We're dealing with high-risk capital here and with the potential for investors to be ripped off. I'm sure there's potential for investors to be happy and to realise long-term returns but, given how immature this market is, I certainly would like to see answers to these questions.

On that note, I hope that I'll get a chance to ask some of these questions in committee and I will say that the Greens will be supporting this bill primarily because issues like the audit limit are subject to review. There is flexibility built into the legislation to allow these things to be changed as we fine-tune this and watch it very closely, but I do want some confidence in liquidity and the risk that poses to future investors.

Zed Seselja (ACT, Liberal Party, Assistant Minister for Treasury and Finance) Share this | Link to this | Hansard source

I'd like to thank all those senators who have contributed to this debate. This bill gives effect to the government's commitment to extend crowdsourced equity funding to proprietary companies in Australia. Extending the crowdfunding framework to proprietary companies will allow these companies to access an alternative form of finance, with additional obligations in place to protect investors.

Alternative forms of finance are particularly important for innovative, early-stage businesses that may have difficulty accessing funding from traditional sources. As part of this bill, proprietary companies wanting to access equity crowdfunding will no longer have to convert to public company type, with its more onerous obligations. Instead, founders will be able to crowdfund while retaining the greater flexibility of the proprietary model. This extension will enable proprietary companies to access the existing regime that passed the parliament in March 2017. Providing one framework for both public and proprietary companies will reduce complexity, as proprietary companies will use the existing offer document processes and licensing regime for crowdsourced equity funding intermediaries. Investors in crowdfunding proprietary companies will benefit from the intermediary obligations and minimum requirements of the offer document, as set out in the existing crowdfunding framework.

Crowdfunding proprietary companies will be exempt from the takeover provisions that usually apply once a company has more than 50 shareholders. The government listened to stakeholder feedback that the draft legislation's proposed exit arrangements would hamper legitimate capital raising. However, as it is common for proprietary companies to have tag rights in their constitutions, which allow smaller shareholders to participate in a buyout, the government proposes to include in regulations a requirement for companies to disclose these rights in the crowdfunding offer document.

Recognising that proprietary companies generally have lower reporting and governance obligations than public companies, investors in proprietary companies will benefit from appropriate additional protections. These include a minimum of two directors, financial statements prepared in accordance with accounting standards, and auditing of financial statements once a proprietary company has raised at least $3 million through crowdsourced equity funding.

Crowdfunding proprietary companies will also be subject to the related party transaction rules under part 2E of the Corporations Act 2001. These additional company obligations will promote investor confidence in the market by ensuring that companies have a minimum level of transparency with their crowd investors. Transparency of the online market enabled by technology also gives shareholders greater power. Confidence in the market will ensure the sustainability of the equity crowdfunding regime. This will help maintain a diversity of funding options that small businesses need in order to succeed. The government has consulted at length on the extension of this policy to proprietary companies to seek an appropriate balance on the trade-off between the corporate governance and transparency measures that are necessary to protect retail investors and the cost of compliance for small innovative companies.

Submissions expressed widespread support for the extension of the crowdsourced equity funding framework to proprietary companies, although they have diverse views on the detailed design elements. The government has closely listened to this feedback and considers that the bill strikes the right balance between the need for transparency and good corporate governance and the costs of compliance. The extension of the crowdsourced equity funding framework in this bill will take effect six months after it receives royal assent, although I note the amendment from the opposition, which the government will be supporting and which will see the bill take effect earlier than was initially anticipated.

The Australian Securities and Investments Commission received $4.5 million in the 2017-18 budget to implement and monitor the extension of the equity crowdfunding framework. This bill's introduction will enable proprietary companies to obtain the capital they need to turn good ideas into commercial successes while providing Australian investors with a larger pool of choice. I commend the bill to the Senate.

Question agreed to.

Bill read a second time.