Wednesday, 8 February 2017
Corporations Amendment (Crowd-sourced Funding) Bill 2016; Consideration in Detail
We passed a critical milestone yesterday. In the amendment that we put forward, we had said to the government: 'Drop this half-baked bill; bring in one proper bit of legislation, and do it by the first sitting day of the parliament.' That did not happen. On one level, I can appreciate why—the coalition had a lot on their hands yesterday, and they were probably not in a position to be able to introduce new legislation that would fix this the first time. But the problem is this: we now have a situation where we are going to wait for another bill to come along—another bill to correct, effectively, the shortcomings of this bill. It has always been the case with this reform, particularly in terms of equity crowdfunding, that there has been delay, stumble, and delay.
It is worth remembering that this reform in relation to equity crowdfunding was first flagged when Labor—when in government—referred this to the Corporations and Markets Advisory Committee back in 2013. CAMAC brought down their report in May 2014. We were told that this would be subject to consultation, which was good. There were a lot of contentious elements to what CAMAC put forward, and they needed to be sorted out. We had flagged back in December 2014 that, while we were broadly supportive of what CAMAC was doing, and while we thought it was an important first step, there were a lot of things that were very heavy-handed in what they were putting forward. The government put through their discussion paper on equity crowdfunding as well; they then said that they were going to do all this consultation, and that they would do whatever they could to bring this legislation in with as much speed as possible. When they did bring in the legislation, it ended up here in December 2015. So we went from May 2013 to December 2015, and when they brought the legislation in it was widely criticised because it was too restrictive and the caps in place were too onerous in terms of assets and turnover. It has also been indicated that a big stumbling block is the compulsion by the coalition that a company has to turn itself into an unlisted public company to avail itself of this legislation. It is remarkable that the coalition believe that government should force a commercial decision on a private sector player merely to gain access to capital. We said this was not workable and it was not right.
We then had a situation where the bill did not proceed and we got to a point where this new bill was brought forward. This new bill does take on board Labor's recommendations to lift the asset and turnover caps. That is a good thing. We support that. But it fails on one hand to deal with the biggest stumbling block that exists in terms of forcing the creation of an unlisted public company, with no explanation, and it also changes the cooling-off period for investors. It reduces the amount of time that retail investors have to change their mind on whether they will proceed with what will potentially be a big investment in these companies. These are things that are of great concern. There is no explanation as to why, for example, we are still forced to have this unlisted public company regime in place.
We were told another bill is coming. We were told today by the Treasurer that it will be occurring in the near future. But they will make their media drops, they will talk to their favourite outlets, they will get the coverage on suggesting that this new bill will come forward, that everything will be fixed and start-ups will have a much easier pathway to capital, but it will take ages. In fact, I am so confident that the Treasurer is going to take so long to get that bill in place that I will bet him an iTunes card that he will not get it in place by the end of the year. If he thinks that his bill will come to this House and will allow for start-ups to be able to access capital and that, as a result of this bill, all these start-ups will be out there creating their own pathways to consumers or other businesses and they will have their services out there, I would be interested to see that. The problem the whole time has been that Treasury has resisted and has been exceptionally conservative and risk averse in making changes to the Corporations Act to allow for a carve-out, for a safe harbour, in relation to this aspect of capital raising. They cannot get past their minds the notion that disruption is not a concept that just occurs within the private sector and that it also forces government to think differently about the way regulation occurs. We said to the government that we were prepared to work with them on a bipartisan basis on this. I have spoken with other ministers in relation to this matter.
I understand that the Treasurer will allow me to speak for a little bit longer. I want to put some questions to him. We certainly did raise with the government our preparedness to work with them on it because we know this is contentious and sensitive. Anything to do with the Corporations Act is not easy to do, but we wanted to give a green light to exploring how this could all be done. (Extension of time granted) I respectfully say that, while representatives of the Treasurer's office did meet with us, they met with us to say, 'This is the bill that's coming forward to the parliament,' but it still contained some of the objections that people have. They cite support from the sector. I would have to say that support is riding off the wave of resignation. There are people in the sector who support this bill merely because, after waiting for so long, they finally want to get something in place. This bill is half baked. It is a resignation from those opposite, those in government, that they are unable to come up with something that works and they just want to put this in place.
There are some people brave enough within the sector to call out this legislation for what it is. The quote that really stuck out in my mind last year was from Andy Giles, the co-founder of Veromo.com. He said:
Currently, the thought of switching to a public company to avail ourselves of a potential wider investor base is unthinkable ...
In the inquiry that was launched into this that is being done by the other place, the University of New South Wales said:
Currently the Bill excludes over 99.7% of companies from accessing CSF.
That is what they are saying. This bill restricts access to equity crowdfunding through the way it provides this restriction. It is just not acceptable. It is unfathomable that they could not fix this properly with an opposition that are saying they are willing to work with the government. They still cannot find a way to bring it forward and they still make a promise that somehow they will be able to flick a switch and have that eureka moment where they are able to sort this out.
There are a number of questions that I have of the Treasurer. I am grateful for his presence today. Why are you forcing this bill through now? Why are we doing this in a two-step way instead of just doing this all at once and allowing for this to happen, knowing that it will take time for the systems to come into place anyway, the systems that are used by platforms externally will then have to be amended again and there will be red tape or extra work forced on smaller companies and platforms to accommodate a new or updated regime? Why are you still insisting on the unlisted public company regime? What protections do you believe are offered as a result of having an unlisted public company regime? You talk about a regulatory sandbox in the ASIC realm and you have talked quite often about that. Why can't you create a cordoned-off area within the Corporations Act that still requires reporting to investors along the lines of what would be required of a venture capital firm if they were providing support for a small, early-stage innovation company, and put those types of reporting and protection measures in place? Why are you changing the cooling-off period? Why are you reducing the cooling-off period and limiting the amount of time that new investors—retail investors, mum-and-dad investors—have to consider whether or not they will go ahead with a considerable investment? Why are you reducing that?
Why aren't you offering, for example, an alternative? ASIC, as the Treasurer has acknowledged, has been given additional funding to regulate this sector, giving them the teeth to bite down on those companies that are deliberately gaming the system to thwart the fundraising campaigns of others. The reason the cooling-off period reduction has been advocated is that it is a way of sidestepping other companies gaming the system and ruining things for these early-stage innovators. Why are you reducing the cooling-off period and making investors wear that burden instead of the regulator making sure that is in place?
The other question, Treasurer, is: can you give a guarantee that, by the end of this autumn sitting, you will have legislation that you can put forward to the House to allow for a viable equity crowdfunding platform to work in this country? Those are the questions I would like to ask of the Treasurer.
I thank the member opposite for his questions and his contribution. There are a couple of points that I would simply make in response: the subsequent bill that will deal with the proprietary company issues will add to, not detract from, this legislation that is before the House today. It will see an extension to proprietary companies and will add to this bill, not take away from this bill.
The changes that we have made to this Corporations Amendment (Crowd-Sourced Funding) Bill 2016 from that which was available previously are the product of extensive consultation and, in particular, with the very informed members of my FinTech Advisory Committee—though there were many others—who have a keen understanding of the issues that are relevant to these types of funding arrangements and how they can be most effective. We have made a number of amendments to these provisions that improve the bill from where it was previously. We have listened to that advice from the sector and responded accordingly.
In relation to the issues of why now, why the two-step process and the protections and those sorts of issues that the member opposite raises: it has already been too long, in my view, to get to the point we are at today. The opposition themselves played a significant role in frustrating the passage of these measures last year. This is something we see a lot of from the opposition—they go out and call for things that they never did when they were in government, then when we seek to introduce them they seek to delay their introduction. The Leader of the Opposition is like that bloke on the side of the road where the construction is going on. Most of those guys just have a 'stop' and 'go' sign, but Bill Shorten only has a 'stop' sign. That is all he has—it is just stop, stop, stop, stop. That is what we get from the opposition so, even when we bring in measures such as this—which they did not even contemplate when they were in government—their proposition to us is to delay it longer, put it off for even longer, to not do it now. No, we need to do it now, and there will be other measures that will follow that this government will introduce, just like it is this government that is introducing these measures—measures that those opposite, when they were in government, did not even contemplate let alone seek to bring forward legislation into this place that would enable them to come into being.
The member is right to refer to the industry feedback when it comes to issues of cooling-off periods. We think it is better to design the regulation and the system in a way that will avoid gaming of the system, rather than to chew up endless resources in enforcement. Enforcement is not a big strong suit from those opposite, whether it is anything on financial regulation or border protection, or whichever area you choose to nominate. Even the implementation and enforcement of foreign investment regulation was not a strong suit for those opposite. We think it is better to design the regulation in such a way that does prevent that gaming of the system. That was the clear advice we got, and that is what we are acting on.
This government believes that we need to get on with it. Those opposite want to delay again, and they are aware of the frustration in the sector about their delaying tactics. We think it is important that they put that aside. As I said in my closing remarks on the second reading, we are very happy to keep the opposition informed of our progress in bringing in the subsequent bills that deal with the extension to proprietary companies but, frankly, they just have to get on with it. They have to stop the delay, they have to stop the point-scoring and the grandstanding and they just have to get on with it. The government is getting on with it, and I now call on the parliament to get on with it and ensure that we can bring these measures into place. As Treasurer, I will be bringing subsequent measures that build on this bill, but I can tell you that when we started this process we were building on nothing at all—left to us from the now opposition when they were in government—to build on when it came to putting these arrangements in place.
The Treasurer, frankly, just misled the House. The reason we are here is that we were the ones who initiated this reform process. We were the ones who referred this to CAMAC. It was because of the work at CAMAC that we got here. And what happened?
I will take the interjection from the assistant minister. I do not know why he is here, frankly, as he has enough of a tech-wreck going on, on his side. His DTA is unable to fix the census, the ATO, Centrelink and now child support, but he now wants to interject while he is not out there fixing that tech-wreck. The fact of the matter is that Labor referred this to CAMAC. Labor wanted the framework to be established that would allow this to happen back in 2013. One year after that, in 2014, you had the ability to do it and now—two years later—we are here. The reason this bill has had to change is that we highlighted that after they had done all this great consultation they brought in a bill that is still stuffed and flawed, and we had to fix it up. We had to fix up the assets and turnover capital. We had to press them on that. We had to press them on the fact that that bill was still going to constrict small businesses from actually accessing the regime. You have still got today people saying that this bill in its current form will prevent 99.7 per cent of small businesses from accessing this regime that that Treasurer there wants to bring in.
So the reality is: they have constantly stuffed it up and what they are bringing in is a half-baked effort that they know they will have to fix. They are going to have two regimes in place: they will have this one that does not allow anyone to use it and another one that will, and then they are going to allow that regime to be in place. Everybody knows that the second regime, the one they should be bringing in right now, is what they should be doing. But why don't you have the ability to get it right the first time? Because they are coming back. They know they have to fix this bill up. They know it and they cannot tell you when they are actually going to do it.
The other thing I flagged yesterday is in the context of the Treasury laws amendment that is dealing with changes to employee share schemes. You have got one regime that will prevent disclosure documents from being in the public domain, if an employee share scheme is extended by a firm. If that firm decides to use equity crowdfunding as a platform for extra capital, then they will have to have a public disclosure document. So you are going to have to have two different regimes on reporting for investors in measures that are being put forward in this House. They clearly have not even thought comprehensively about the type of things they are putting forward and they just want to rush this through.
What you are trying, Treasurer, to do now is to push this through and bringing in this regime you know is fundamentally flawed. At its heart, it is weak. At its heart, it is unable to deliver the capital that is required for these start-ups. I have already quoted the start-ups as saying, 'It is nuts, effectively, for us even to contemplate turning ourselves into a public company to do this.' And the ones that are telling us, Treasurer, to do that are the ones that are resigned. They know they are not going to get anywhere with you and they just want this through, because they just know you are not going to deliver. That is the reality.
So when are you going to bring the regime in—the proper one, the one that should be debated by this parliament? How are you going to deal with the conflict on disclosure statements between two different pieces of legislation you have got in this House? When are you going to make that happen? When are you actually going to ensure that when this is in place that people can have the systems developed and not have to be modified, because of something subsequent that is being brought in? It would be interesting to get actual detail as to when you are going to do that, because at this stage it is missing.
I will make it brief for the benefit of the Treasurer. This is a bill, obviously, that is very important to start-ups, and it is very important to start-ups in this country that they have access to the capital that they need to get off the ground.
In my home town of Brisbane, there are a range of firms that are looking to create a situation where they can raise the capital that they need to get off the ground. There is a lot of, I have got to say, optimism in Queensland. The Advance Queensland strategy that the Palaszczuk government has brought in under the shepherdship of Leeanne Enoch, the minister, has inspired a lot of entrepreneurs and start-ups to really kick off their businesses in Queensland. It is incredibly encouraging.
As I said at the outset, access to capital is very important to those firms. It is important to their ability to grow, and to grow early. The crowd source funding equity regime is very important to a lot of start-ups that do want to have this additional arrow in their quiver when they are seeking to raise that capital. Accordingly, it is very disappointing that this model is going to be so useless for so many start-ups, because firms that are just getting off the ground—firms that are getting their ideas together, working out what their minimum viable product is going to be, looking at their marketing, looking at getting their structures in place and recruiting their talent—do not want the extra compliance obligations of becoming public companies. They do not, so they are not going to use this process until that is fixed.
So the question that I have—and, as I said, I will be short—is: what is the point of bringing half-baked, unfinished legislation to this House knowing that it will not be used? Isn't that just window dressing? Isn't that just an attempt to look like you are doing something when you are actually not doing something? Isn't it just another example of this government trying to give the appearance of activity while not actually getting much done? And how will that help those start-up firms in my state, in my town of Brisbane on the south side that I represent, to get access to capital, if the compliance costs just make it uneconomic to use this new regime?
Bill agreed to.