Wednesday, 30 November 2016
Corporations Amendment (Crowd-sourced Funding) Bill 2016; Second Reading
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.
That is right: you want brevity; you ain't getting it—not on this. While I do appreciate that you have been a lot more open in recent times and you have accepted some Labor propositions, we moved amendments to increase the assets and turnover cap that were contained in this bill. What you had originally was the government saying, 'You can only access with asset and turnover caps of five mill.'
The last time this bill was considered, we recommended via an amendment that it go up to $10 million. You have now increased it to $25 million. So it is now open to a broader range of companies—and that is a good thing. If it forms an alternate platform for people to be able to access capital, that is a good thing. By the way, the government has never acknowledged that this is as a result of the amendments that Labor put forward. I am not heartbroken about it. I think we can live. But it is interesting, Assistant Minister, that the last time you stepped forward, the government said that this was a great bill and that it was reflective of broad consultation and broad agreement, and we then put it to a Senate inquiry process and you saw that agreement unravel and you saw people indicating in very forceful terms how bad that framework was. You made the amendments, which is a good thing, but I think you should take this a step further.
I certainly recognise how wretchedly difficult and risky this is for a government. Changing the Corporations Law in this way, particularly where public companies have been central to the operation of the Corporations Law, is difficult. But guess what? That is what disruption is about. In this age, where everyone talks about digital disruption, that is what this is going to do. It requires us to think differently. You have set up and you promote regulatory sandboxes as being oversighted by ASIC and you say, 'This is a good thing,' but you are not prepared to actually create a safe harbour within this legislation to allow private companies to work.
We had suggested previously to the government a way to overcome this issue. We appreciate that this is a significant hurdle. This is not a political issue per se within government; this is about risk management—and I totally get that. But you could easily sidestep this, in that, once a company, a small business or a start-up elects to use an intermediary, a crowdfunding platform, the usual expectations triggered under the Corporations Act are suspended and are replaced by another set of expectations. We put that forward by way of an amendment the last time, and it has not been picked up this time. Apparently, it is too hard. It is not; it could be done.
Why we signalled our preparedness to work in a bipartisan way with the government on this was to say, 'We're not going to play games on this issue; we understand the risks that are involved, but there is a way around it.' Frankly, we as an opposition are not prepared to countenance this; we think a smarter way to do it is to get this right the first time. This does smack a bit of the government just trying to chalk up a win. They just want to get this legislation through and chalk up a win and have the halo effect of a win and then next year come along and say, 'Now it is time to fix it'—which is just crazy. It is going to take ages to get this framework up anyway. I reckon you have at least a six-month lead time to get this done. So why do it that way?
We got caught out through the way in which some of the previous orders of the day had been managed and we did not get a chance to circulate the second reading amendment that we are intending to move, where we basically indicate that, while not declining to give the bill a second reading, we are calling on the government to present on the first day of the autumn sitting of the House legislation that contains a genuine and comprehensive framework for the introduction of equity crowdfunding that, firstly, can actually be used effectively by both unlisted public companies and privately held firms; secondly, provides improved protections for retail investors, stronger than those currently proposed by the government; and, thirdly, avoids placing a heavy regulatory or investor relations burden on start-up enterprises and small businesses.
We are not comfortable, and we are going to put on the public record that we are not comfortable, with the watering-down of the protections from five to two days, and we think that you need to avoid placing a heavy regulatory or investor relations burden on start-up enterprises and small businesses. We think that there is a better way that this can be managed and that it should be done properly the first time. As soon as I get my colleague to countersign the amendment, we will be on our way. We certainly think that the amendment needs to be considered by the government because, as I said earlier, we are going to be coming back anyway to fix this.
I understand that the Treasurer is very energetically pressing the case for Treasury to consider this very quickly and thoroughly—and I take the Treasury representatives who briefed us on this at their word that this happening—and the Treasurer mentioned it in his second reading speech. Once Treasury gets its advice to government, and this is going to be changed. So get it right the first time and do not deny the ability for a new stream of funding to support early stage innovation companies or small businesses. And, again, do not compel companies or firms as to when they go public. As a Labor representative, I am here saying that it is not the role of government to force the arm of small businesses as to when they make the decision to go public—because, as you well know, once they make that decision, it is hard to wind it back. It does take time to wind it back, and the conditions and circumstances in which that occurs are completely different.
I have indicated that we are going to move a second reading amendment, which will be seconded by the member for Eden-Monaro, and we are seeking that that be considered as part of this process. I repeat: we are very prepared to work with the government on this. We have a demonstrated record of bipartisanship in trying to support this early. There was a moment when that broke as a result of the government rushing through legislation without consulting genuinely with us. They have attempted to do that, albeit they had already made up their minds and they were communicating a decision that had been made, rather than actually entertaining a proposition that they would alter the most fundamental objection that we have on this in terms of the way in which it is being closed up.
We do believe this needs to be referred to a Senate inquiry to determine whether or not the changes contained in this bill will allow the system to be used in a much broader way, which we are concerned is the case. We also want to test whether or not it is wise for us to water down investor protections, as envisaged by this bill, as opposed to another regulatory response that could alleviate the concerns that have been expressed by some that campaign gaming will be used in a disruptive and wilful way against small enterprises, start-ups, small businesses and the like. There has to be another way to fix that. Again, if there is any way that we can lighten the burden on small enterprises and start-ups so that they do not have to have very complex or complicated investor relations management regimes, that would be good too.
Again, we are just as keen as the government to see an equity crowdfunding platform or framework in place. We referred to CAMAC the actual investigation or inquiry in the first place. We supported the government in progressing this further, even though after some great work by CAMAC, which is acknowledged by those opposite, they then, insanely, tried to shut down and abolish CAMAC, which plays a vital role in advising governments in complicated areas like this. Anyhow, we think that it still has a role to play, as evidenced by its equity crowdfunding investigation. Having said that, we are committed to working with the government, we do not want to play games on this and we hope that the government will play ball. I move:
That all the words after "That" be omitted with a view to substituting the following words:
"Whilst not declining to give the bill a second reading, the Australian Government is required to present on the first day of the Autumn sitting of the House legislation that contains a genuine and comprehensive framework for the introduction of equity crowdfunding to Australia, that:
(1) can be used effectively by both unlisted public companies and privately held firms;
(2) provides improved protections for retail investors, stronger than those currently proposed by the Government; and
(3) avoids placing a heavy regulatory or investor relations burden on startup enterprises and small businesses.
The original question was that this bill be now read a second time. To this the honourable member for Chifley has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. If it suits the House, I will state the question in the form that the amendment be agreed to. The question now is that the amendment be agreed to.
I start by saying, in response to the previous speaker, that there is no limit to what somebody can achieve if they do not mind who takes the credit. So we do not need the constant references to who has done what at different points and thinking that is a necessary part of this debate, when, hopefully, we are all trying to improve the state of the country and the regulation that surrounds enabling businesses of the 21st century to excel. We should not be focused on trying to grab a credit; we should be focused on trying to do the right thing by the country.
When it comes down to it, this bill is enormously important because it fits straight into the objectives of the election of the Turnbull Liberal-National coalition government, which is committed to creating the jobs and growth potential of the future by backing the intellectual capital of every Australian. That is the objective, that is the purpose and that is what it seeks to deliver. I congratulate the minister and the assistant minister for their work in bringing this forward, because it is a very important part of the future economy to build the 21st century of Australia. By placing the economy at the centre of its policy agenda, the government is ensuring that we can continue to be a successful country by securing our sources of growth for the next 25 years and beyond. This bill, the Corporations Amendment (Crowd-sourced Funding) Bill 2016, is another part of the government's pro-growth agenda, intended to help transition the Australian economy into one that is more diversified, broader based and resilient, particularly in dealing with the opportunities that are presented to us by technology as a method of reforming business models to create economic opportunity and remove the barriers to people wanting to set up new businesses. That is what we should want and aspire to. This bill is intended to make way for the types of capital funding that are most relevant to the 21st century—funding that allows pioneering Australians to kickstart their ideas into enterprise opportunities and take that intellectual capital, commercialise it, take it to market, test the market and grow Australia.
Any measure which boosts investor confidence is a good thing for all of us. As we become increasingly reliant on service based exports, it is crucial that we promote productivity gains in our existing service industries as well as back new enterprises to innovate and take advantage of our ambitious trade agenda. That is what this bill seeks to do. This bill amends the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 to facilitate crowdsourced equity funding in Australia, and implements the commitment made by the government in the 2015-16 budget as part of our Growing Jobs and Small Business package.
Crowdsourced equity funding is a groundbreaking model. It allows entrepreneurs to access capital from a large number of investors from all around the world—and something that is very close to the heart of the Turnbull government is attracting foreign investment to build this country's future. It is managed through an online platform, where each investor typically contributes a small amount of money in return for an equity stake in the enterprise. According to a recent report by Massolutions, the crowdsourced industry is set to account for more funding than venture capital this year. That is a very welcome trend because it removes the costs and barriers for investment but, equally, opens up the opportunities for those with brilliant ideas to take them to market. In 2010, the relatively small crowdfunding market saw an overall investment of approximately US$900 million. Last year, we saw over $34 billion crowdfunded. That is an extraordinary growth in a relatively short period of time and comes from so many people, who may not have huge amounts of capital to invest but might want to secure and take risk in exactly the way that we should want to. This is the animal spirit of the market working. The World Bank estimated that crowdfunding would reach $90 billion by 2020, but, if the current growth continues, it is more likely to reach $90 billion by next year.
The crowdfunding industry is also beginning to diversify across several types of funding models, including rewards, donations, equity as well as lending. In the United States, some venture capital firms have already begun integrating equity crowdfunding as a component of their investment strategy. Isn't it an exciting thing to have an environment where anybody can buy into the future of building a business where they have confidence in the idea, the people, the skills and the strategy, and are able to go on and invest not just in their own future but in creating the jobs of the 21st century. We have seen the success of this investment model in agriculture, civic projects, science and technology, film, and real estate. In Australia, however, crowdfunding has been limited by the regulatory impediments in the Corporations Act, which impose an excessive compliance cost for start-ups and other small businesses.
This bill addresses these obstacles by establishing a legislative framework for crowdsourced equity funding that addresses the regulatory impediments identified in the Corporations and Markets Advisory Committee's report. The proposed framework will allow public companies to issue equity through crowdsourcing with reduced disclosure compared to what is required under full public equity fundraising activity. For newly registered or converted public companies that meet the assets and turnover tests, the framework provides concessions from some corporate governance and reporting obligations. To ensure investors are able to make informed investment decisions and not be exposed to excessive potential losses, the framework sets out the minimum disclosure requirements and a $10,000 per issuer per 12-month period investor cap for retail investors. It also sets out a number of obligations that intermediaries will need to perform as part of providing a crowdfunding service.
Crucially, crowdsourced funding will promote competition among lenders. Existing funding options for small businesses, including bank debt products, will need to adapt and increase their attractiveness and competitiveness, and I think that is a particularly exciting thing because, while we hear a lot of things from the opposition about the banks, it is competition that drives them to perform and prove better. That is what we should seek to achieve, and that is part of what this bill seeks to achieve. The crowdsourced equity funding regime set out in this bill will allow eligible companies to fundraise up to $5 million per year from the crowd. This will act as a springboard for entrepreneurs, ensuring their good ideas are able to find some clear air to compete for commercial success and enrich those people who seek to invest.
The time spent on regulatory compliance is time our small business men and women could be using to collaborate and to refine their business model. This bill will allow crowdfunded companies to offer equity securities to retail investors with lower disclosure than required at present. A full disclosure document requirement can be costly and time-consuming to prepare and is one of many hurdles which prevent enterprising Australians from getting their ideas to market. While reduced disclosure can be unnerving, the framework will ensure that investors have access to the key facts about the company, its structures and the fundraising. Investors will be able to interact directly with the company to ask questions relating to an offer. The government has consulted widely with small business and investors to ensure the balance is right between investor exposure and cumbersome regulatory compliance.
This bill will help foster innovative economic activity and unlock new sources of funding to ensure good ideas are able to be commercialised. The economic environment in this coming century will be more collaborative than ever, and that is a fundamentally exciting thing. Automation and the internet have provided opportunities to scale businesses like never before. This bill harnesses the changing environment and gives our entrepreneurs access to a whole new group of investors to share in their success. Most importantly, when small business succeeds, so does our great country. It is not the role of government to pick winners; it is the government's responsibility to foster the right economic environment for entrepreneurial spirit to be fully unleashed. By removing unnecessary regulatory barriers, we are backing the intellectual capital of Australians and their ideas.
I note the previous speaker has raised a number of issues around different proposals and amendments that they might seek to propose in the future. One of the great challenges, when you are dealing with regulation around different types of technology and how that operates within a market environment, is that the market is constantly changing, and that innovation and ideas continue to come through to shape its direction. So, while it is easy to say that we should just hold off until we can get it perfectly right, that completely dismisses and misunderstands the environment that we are in. There is constant change, and there will need to be a review of different pieces of law in the future. That is not a sign of the current law particularly failing or the government getting anything wrong, but quite the opposite; a recognition of a government that is nimble, agile—innovative, some might say—that responds to and recognises the changing market environment that this economy should be seeking to embrace, and so should our laws be respectful and mindful of that.
The need to create a proper regulatory environment for crowdfunding in this country comes up regularly when I speak to the investors and small business people in my great electorate of Goldstein. In Goldstein there are many people who want to come up with new ideas, test them in the marketplace, challenge the status quo, be disruptive—I say 'be disruptive' in the most exciting way possible—find new ways to do more with less, and disrupt existing large market players, particularly as avenues to secure new capital, because they want to invest in their ideas, they want to go out and sell their ideas to the world and they want the economic opportunity for people to come along and back them. That is what we are doing with this bill. We are backing the people who want to invest in the future of this country. We are the ones who are backing the intellectual capital of this great nation, and we are the ones who are going to create the economic environment for the 21st century. That is why this bill should be supported, and that is why we should continue to back Australia's future. I highly recommend the bill to the House.
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.
It is with pleasure that I rise to speak today in support of the Corporations Amendment (Crowd-sourced Funding) Bill 2016. This bill is important for the future opportunities of small businesses and start-ups in our economy because one of the issues that they face every single day is how to raise funds to grow their businesses. That is the main policy rationale around which this legislation is built. It is built around the idea of supporting, promoting and facilitating innovation in the Australian economy, particularly for our small firms and start-ups, because it is true that these firms and these start-ups, as we have seen over many years, can become the large businesses in our country.
Innovation, by its very nature, is highly dependent on access to adequate levels of finance. It is so important for these small businesses. When I speak to businesses around my electorate of Forde—businesses like Supapeg, Merino Country, Technical Fabric Solutions, Beovista and VAC Group—I can have a discussion with them for a long period of time about the capital requirements to grow and develop their businesses. There are many more businesses such as these in my electorate, and in electorates right around the country.
It is these discussions, and evidence from many other sources, that show that inadequate access to finance is the biggest impediment to innovation for small and medium enterprises. The Australia Council of Learned Academies' 2012 survey—which was also conducted by the ABS—Securing Australia's future: Australia's comparative advantage, showed that 43 per cent of small firms and 20 per cent of medium-sized firms identified funding as the biggest impediment to innovation. This contrasted with only 12½ per cent of large firms that noted funding was a constraint.
However, for firms that were focused on innovation and developing new ideas, these constraints are even more acute. I have had many an occasion when I have had people come to visit me in my office seeking assistance with an idea and how to find money to develop it and take it to the next stage. This is where we see this bill helping companies in that early stage of development. Some 66 per cent of small firms consider financing to be the biggest impediment. That is where this bill seeks to create the framework to allow these businesses to raise funds through crowd-sourced equity funding.
It is not that crowd-sourced equity funding is such a new idea. A couple of centuries ago, books were actually funded through crowd-sourced equity funding, through potential readers of the books providing funding to the authors to produce the book. They would then receive the books when they were published. But what we see today is the facilitation of crowd-sourced equity funding on a global scale as a result of technology.
Many of the funding platforms that we see today have only been around for about 10 years or so, but with this bill we want to provide a legislative framework for this to work in Australia—we have seen it work overseas—for our small to medium business sector. The bill is focused on establishing a framework to facilitate crowd-sourced equity funding for small, unlisted public companies; to provide new public companies that are eligible to crowdfund with temporary relief from the reporting and governance requirements that would normally apply; and to enable the minister to provide certain financial market clearing and settlement facility operators who are exempt from specific parts of the Australian market licence with an opportunity to participate.
This bill has been subject to an enormous amount of consultation over the past few years, as other speakers have outlined. It follows on from the bill that was introduced into the House about 12 months ago that lapsed with the election. There have been a number of changes in this bill from the bill that was previously in this House. A couple of those are very important for medium sized businesses. Eligible companies will be able to raise up to $5 million per year under this legislation, but their turnover threshold has also increased, to $25 million. That is important because it provides access to this funding for a much broader range of companies. Some of those that I mentioned earlier will benefit from this increased turnover threshold.
Public companies will be eligible to use crowd-sourced equity funding, as will unlisted or private companies, and they have a period where they can move to become public companies. It gives the opportunity for retail investors now to take part in supporting our small to medium business sector. It gives them the opportunity to invest up to $10,000 per company per 12-month period, with a cooling-off period of 48 hours after making an investment.
The bill also sets out the role of intermediaries in the crowdfunding market, ensuring that they take a quality assurance role, to ensure that there are the necessary protections in place for these retail investors.
This bill and the framework that it provides create tremendous opportunities for businesses in the electorate of Forde but also for small to medium businesses right around our country. If we can create the opportunities for this alternative avenue of funding for our small to medium business sector, it will also create an alternative avenue of finance so they are not always relying on the banks to raise that finance and capital. I commend the bill to the House as it was presented in its original form.