08 Dec 2016
Crowd control: regulating crowd-sourced funding, part 5
By Geoff Hoffman, Noni Nelson, Patrick Barkachi
More companies could now be eligible for crowd-sourced funding ‒ or could they?
The Government has for the second time, introduced legislation to regulate crowd-sourced funding (CSF) in Australia after the 2015 Bill was blocked by the Senate earlier this year ‒ but little appears to have changed.
The new Corporations Amendment (Crowd-sourced Funding) Bill 2016 remains largely the same (go here for a more in-depth analysis of the proposed legislation). Two notable changes however are:
$25m assets or annual turnover cap
Under the new Bill, unlisted public companies with less than $25 million of gross assets or $25 million annual turnover will be able to access the scheme ‒ a significant increase from the $5 million cap previously proposed. A larger pool of small and early-stage companies could therefore be eligible for CSF.
48 hour cooling-off period
The cooling-off period for CSF investments has also been reduced from 5 business days to 48 hours. This strikes a new balance between certainty for companies and CSF intermediaries and the need to protect investors.
Much of the same…
While more, larger, companies may now be able to participate in the regime, those intending to do so should remember the restrictions that would still apply. In particular:
- The CSF available will remain capped at $5 million in any 12-month period (inclusive of any raisings under the small scale offerings exception).
- Investment will also remain capped at $10,000 per company per 12-month period. There is no cap on investment across different companies.
As to the other parts of the regime, remember:
Key points for eligible companies
- Companies will have to use a specific CSF offer document for offerings.
- Companies can only have one CSF offer open at any one time.
- CFS offers will remain open for a maximum of three months.
- A CSF offer can only be published on a single platform.
- Making a CFS offer does not prevent the company from also offering securities of the same class in the normal way.
Key points for CFS Intermediary Platforms
- CFS intermediaries will need to hold specific financial services licences.
- The CFS intermediary must display prominently on the platform at all times a general risk warning, a cooling-off period notice, and information on the fees charged to and interests taken in the issuer companies.
- CFS intermediaries act as gatekeepers. Any published CFS offer must meet requirements relating to the identity, good fame, character and conduct of the company's directors which must not be misleading or deceptive.
Where to from here? Investors and companies still face lengthy delays
Whatever happens, CFS legislation is still a long way off. Whether or not the Bill passes the Senate this time round remains unclear. If the Bill is passed it will still take at least six months to come into force.
Further still, small businesses will still need to become public companies to take advantage of the new laws and proprietary companies are still completely excluded from the regime.
The bottom line? Investors and companies face lengthy delays in accessing any CSF regime, and even then many restrictions will remain on those who can access it.