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CorporationsAmendment(CrowdsourcedFunding) Database
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ExplanatoryMemoranda

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2016

THEPARLIAMENTOFTHECOMMONWEALTHOFAUSTRALIA

HOUSEOFREPRESENTATIVES

CORPORATIONSAMENDMENT(CROWDSOURCEDFUNDING)BILL2016

EXPLANATORYMEMORANDUM

(Circulatedbyauthorityofthe
Treasurer,theHonScottMorrisonMP)

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Table of contents
Glossary..............................................................................................................1
General outline and nancial impact............................................................ 3
Chapter 1 Background...........................................................................7
Chapter 2 Eligibilityrequirements......................................................11
Chapter 3 TheroleandobligationsofaCSFintermediary...........23
Chapter 4 ProcessformakingaCSFoffer.......................................43
Chapter 5 DefectiveCSFofferdocuments......................................55
Chapter 6 InvestorProtections...........................................................69
Chapter 7 CorporateGovernanceConcessions.............................83
Chapter 8 ExemptionsfromregulatoryrequirementsrelatingtoAustralianMarketLicencesand

clearingandsettlementfacilitylicences...............93
Chapter 9 Regulationimpactstatement.........................................101
Chapter 10 StatementofCompatibilitywithHumanRights..........153
Index............................................................................................................... 155

Glossary
Thefollowingabbreviationsandacronymsareusedthroughoutthisexplanatorymemorandum.
Abbreviation

Definition

TheAct

CorporationsAct2001

AML

AustralianMarketLicence

ASIC

AustralianSecuritiesandInvestments
Commission

ASICAct

AustralianSecuritiesandInvestments
CommissionAct2001

AFSL

AustralianFinancialServicesLicence

Bill

CorporationsAmendment(Crowdsourced
Funding)Bill2016

CAMAC

CorporationsandMarketsAdvisoryCommittee

CSF

Crowdsourcedfunding

CSEF

Crowdsourcedequityfunding

IICA

IndustryInnovationandCompetitiveness
Agenda

ICCPR

InternationalCovenantonCivilandPolitical
Rights

General outline and nancial impact


Overview
Crowdsourcedfunding(CSF)isanemergingformoffundingthatallowsentrepreneurstoraisefundsfromalargenumberofinvestors.Ithasthe
potentialtoprovidefinanceforinnovativebusinessideasandadditionalinvestmentopportunitiesforretailinvestors,whileensuringinvestorscontinue
tohavesufficientinformationtomakeinformedinvestmentdecisions(Chapter1).

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Schedule1totheCorporationsAmendment(CrowdsourcedFunding)Bill2016(theBill)amendstheCorporationsAct2001(theAct)toestablish
aregulatoryframeworktofacilitateCSFbysmall,unlistedpubliccompanies.TheCSFregimeincludes:
eligibilityrequirementsforacompanytofundraiseviaCSF,includingdisclosurerequirementsforCSFoffers(Chapter2)
obligationsofaCSFintermediaryinfacilitatingCSFoffers(Chapter3)
theprocessformakingCSFoffers(Chapter4)
rulesrelatingtodefectivedisclosureaspartofaCSFoffer(Chapter5)and
investorprotectionprovisions(Chapter6).
Schedule1totheBillalsomakesconsequentialamendmentstotheAustralianSecuritiesandInvestmentsCommissionAct2001(ASICAct)toincludea
crowdfundingservice,asdefinedintheCorporationsAct,intherangeoffinancialservicescoveredbytheASICAct
Schedule2totheBillprovidesnewpubliccompaniesthatareeligibletocrowdfundwithtemporaryrelieffromthereportingandcorporate
governancerequirementsthatwouldusuallyapply(Chapter7).TheseconcessionsprovidetemporaryrelieftothesecompaniestosupporttheCSF
regimebyreducingthepotentialbarrierstoadoptingtherequiredpubliccompanystructure.

Schedule3totheBillamendstheActtoprovidegreaterflexibilityintheAustralianMarketLicence(AML)andclearingandsettlementfacility
licencingregimes.Underthechanges,theMinisterwouldbeabletoprovidethatcertainfinancialmarketandclearingandsettlementfacilityoperators
areexemptfromsomeoftherequirementsinChapter7oftheAct.Providingforthisflexibilityisnecessarytoenablesecondarytradingmarketsfor
CSFsecuritiestobelicensedoncetheCSFregimeisestablished.Theflexibilitywouldalsofacilitatethedevelopmentofotheremergingorspecialised
marketsastheywouldbesubjectedtoaregulatoryregimetailoredtobestaddresstheiractivities.
Dateofeffect:TheamendmentsinSchedules1and2tothisBillwillcommenceonadaytobefixedbyProclamation.Iftheamendmentsdonot
commencewithinsixmonthsfromthedateofRoyalAssent,theywillcommenceonthedayaftertheendoftheperiodofsixmonthsafterRoyal
Assent.TheamendmentsinSchedule3willcommenceonthedayafterRoyalAssent.

Proposalannounced:Themeasureswereincludedaspartofthe201516Budget.
Financialimpact:Themeasurehasthefollowingfinancialimpact:
201516

201617

201718

201819

1.2

3.1m

1.7m

1.6m

Thefinancialimpactincludesamovementoffundsfrom201516to201617aspartofthe201516MidYearEconomicandFiscalOutlook.
Humanrightsimplications:Humanrightsimplications:ThisBillraisesahumanrightsissue.SeeStatementofCompatibilitywithHumanRights
Chapter10,paragraphs10.110.12.

Compliancecostimpact:ThecompliancecostsassociatedwiththisBillare$50.3millionfortheCSFmodel,andafurther$0.6millionforchanges
totheAMLregime.ThishasbeenfullyoffsetfromwithintheTreasuryportfolio.

Summary of regulation impact statement


Regulation impact on business
Impact:ThisBillwillremoveregulatorybarrierstoCSF,andwillmakeavailableanewfundingsourceforbusinesses.Itisexpectedthatthe
overallperbusinesscompliancecostsforissuersthatparticipateincrowdsourcedfundingwilldecline.However,giventhelikelygrowthin
thenumberofbusinessesraisingfundsthroughthesearrangements,theaggregatecomplianceburdenovertheeconomyisexpectedtoincrease.

Mainpoints:
ThismeasurerecognisesthatregulatoryimpedimentsaretheprimarybarriertoCSFinAustralia.ThisBillprovidesamodeltoreducethese
regulatorybarriers.

ThreemodelsarediscussedintheregulationimpactstatementthemodelproposedbytheCorporationsandMarketsAdvisoryCommittee
(CAMAC)2013reviewofcrowdfundinginAustralia,themodeladoptedinNewZealand,andapostconsultationmodel.Theseare
consideredagainstthestatusquo.

ThemodelintheBillisthepostconsultationmodel,whichhasthegreatestnetbenefit.
Theregulationimpactstatementdetailsthestagesofconsultationundertakenover2014,2015and2016inconsideringandrefiningthis
model.ThisincludedanoptionspaperreleasedinDecember2014,adetailedconsultationpaperwithaproposedmodelreleasedinAugust2015,
targetedconsultationonthedraftlegislationinNovember2015andpublicconsultationondraftregulationsreleasedinDecember2015.

TheframeworkwillbeimplementedthroughthisBillandassociatedregulations.TheGovernmentandtheAustralianSecuritiesand
InvestmentsCommission(ASIC)willcontinuetomonitortheregimetoensurethechangestothelawareoperatingasintended.

Chapter 1

Background

Outline of chapter
1.1ThisChapterprovidesanoverviewoftheCorporationsAmendment(CrowdsourcedFunding)Bill2016.
1.2Unlessotherwisestated,allreferencesinthisChapterrelatetotheCorporationsAct2001.

Context of amendments
Policy Background
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1.3Productivitygrowthisacoredriverofeconomicgrowth.Fosteringinnovationisanimportantwayofunlockingproductivity,both
throughinnovativeproductsandwaysofdoingthings,andthroughgeneratingknowledgespilloversfromresearchanddevelopmentthataddto
thegenerallevelofknowledgeintheeconomy.

1.4Newfundingmodelsthatflexiblysupportemergingfirmshavethepotentialtofacilitateinnovationandcontributetoproductivity
growth.AnumberofrecentreviewshaveidentifiedthepotentialofCSFtoprovidenewandinnovativebusinesseswithaccesstothefinancethey
needtodeveloptheirproductorserviceandgrow.

TheGovernmentsIndustryInnovationandCompetitivenessAgenda,releasedinOctober2014,calledforconsultationonaregulatory
frameworkforCSF.

TheMurrayInquiryintoAustraliasfinancialsystem,releasedbytheGovernmentinDecember2014,specificallyrecommendedreducing
regulatoryimpedimentstocrowdfundingbyintroducinggraduatedfundraisingregulation.InitsresponsetotheInquiry,releasedinOctober2015,
theGovernmentacceptedthisrecommendation.

TheProductivityCommissionsBusinessSetup,TransferandClosuredraftreport,releasedinMay2015,alsosupportedtheintroductionofa
CSFframework.

TheGovernmentsNationalInnovationandScienceAgenda,releasedinDecember2015,identifiedCSFasareformthatwouldmakeiteasier
forsmallbusinessestoraiseequityfundsfromthepublic.

TheGovernmentsFinTechStatement,releasedinMarch2016,includedCSFasaFinTechpriority.
1.5CSFisaninnovativetypeoffundraising,typicallyonline,thatallowsalargenumberofindividualinvestorstomakeasmallfinancial
contributiontowardsacompany.

1.6CSFwillprovideanadditionalfundingoptionforsmallbusinessesandstartupsinparticular,thatmayotherwisestruggletoobtain
affordablefinance.

Existinglegislativearrangementscanbeabarriertosmallbusinessesandstartupsmakingsecuritiesoffers:
Forproprietarycompanies,alimitof50nonemployeeshareholdersandprohibitionsonmakingpublicoffersofsecuritiesmeansuch
companiesarenotabletoaccessthelargenumberofsmallscaleinvestorsthatwouldtypicallybetargetedunderanequityCSFcampaign.

Publiccompaniesarenotsubjecttotheserestrictions,butmustcomplywithsubstantiallyhighercorporategovernanceandreporting
obligationsthatmaybetooexpensivetobeanoptionforsmallbusiness.Publiccompaniesmakingequityordebtoffersmustgenerallyalsousea
disclosuredocument,whichcanbecostlyandtimeconsumingtoprepare.

1.7WhiletherearecurrentlyasmallnumberofoperatorsofonlineplatformsofferinginvestmentinAustralianstartupsandsmall
businesses,thecurrentlegislativearrangementsoutlinedabovesignificantlylimitthetypeofservicetheycanoffer,anddonotfulfilthecrowd
elementofCSF.

1.8FacilitatingCSFwouldalsoprovideadditionalinvestmentopportunitiestoretailinvestors,whoaregenerallyunabletogaindirectaccess
toearlystagefinancingactivities.However,smallbusinessesandstartupsgenerallypresenthigherrisksforinvestorscomparedtolarger,more
establishedcompanies.CSFinvestmentsmaybelargelyilliquid,reducingtheabilityofinvestorstoexittheirinvestment.

1.9InorderforCSFtobesustainable,anyregulatoryframeworkneedstobalancereducingthecurrentbarrierstoCSFwithensuringthat
investorscontinuetohaveanadequatelevelofprotectionfromfinancialandotherrisks,includingfraud,andsufficientinformationtoallowthemto
makeinformeddecisions.

1.10Theregulatoryregimeforoperatorsoffinancialmarketsandclearingandsettlementfacilitieswasdesignedtoaddressrisksassociated
withtheoperationoftraditionalexchangessuchastheAustralianStockExchangeorothersignificantfinancialmarketsandwhichmaynotbe
appropriateforoperatorsofemergingandspecialisedmarkets.AmendingtheAustralianMarketLicenceandclearingandsettlementfacility
licensingframeworkstoprovidetheMinisterwiththepowertoexemptcertainmarketoperatorsfromsomeoftheobligationsundertheseregimes
willensurethattheregulatoryrequirementscanbetailoredtoparticularmarketsandfacilitatetheirdevelopment.

Summary of new law


1.11TheamendmentsestablishanewCSFregimeby:
insertinganewPartintoChapter6D,whichdealswith:
eligibilityrequirementsforacompanythatwantstomakeanofferundertheCSFregime
theprocesstomakeaCSFoffer,includingtheroleandobligationsoftheCSFintermediaryand
theprohibitions,liabilitiesandinvestorprotectionsapplyingtoCSFoffers,includingrulesrelatingtodefectivedisclosuredocumentsand
advertisingrestrictions.

1.12TheamendmentsgenerallydisapplyPart6D.2,whichcontainsprovisionsrelatingtoprospectusesandotherexistingdisclosure
documents,andPart6D.3,whichdealswithprohibitions,liabilitiesandremediesrelatingtooffersofsecurities,bystatingtheydonotapplytoCSF
offers,unlessexpresslyprovidedfor.

1.13Part6D.4,whichsetsoutASICspowersinrelationtooffersofsecurities,hasbeenamendedsothatitappliesasrequiredtoCSFoffers.
1.14Theamendmentssetouttemporaryconcessionsfromcertainpubliccompanycorporategovernanceandreportingrequirementswhich
areavailabletoanewpubliccompanylimitedbyshares(includingaproprietarycompanythatconverts)thatiseligibletomakeaCSFofferand
satisfiescertaineligibilitycriteria.

1.15TheexemptionpowersinParts7.2,7.2A,7.3and7.5havebeenamendedtoprovideastreamlinedapproachtograntingsomeemerging
orspecialisedfinancialmarketsandclearingandsettlementfacilities,andtheiroperators,withexemptionsfromcertainregulatoryrequirements.

Chapter 2

Eligibilityrequirements

Outline of chapter
2.1ThisChaptersetsouttheeligibilityrequirementsformakingaCSFoffer.
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2.2Unlessotherwisestated,allreferencesinthisChapteraretotheCorporationsAct2001andtheCorporationsRegulations2001.

Summary of new law


2.3TheamendmentsestablishthataCSFofferisanofferthatisexpresslystatedtobemadeundertheCSFregimeandthatiseligibletobe
madeundertheregimebymeetingalloftherelevantrequirements.

2.4TheamendmentsprovidethattherelevantrequirementsformakingaCSFofferare:
theoffermustbefortheissueofsecuritiesofthecompanymakingtheoffer
thecompanymakingtheoffermustbeaneligibleCSFcompanyatthetimeoftheoffer
thesecuritiesmustsatisfytheeligibilityconditionsspecifiedintheregulations
theoffermustcomplywiththeissuercapand
thecompanymustnotintendthefundssoughtundertheoffertobeusedbythecompanyorarelatedpartyofthecompanytoanyextentto
investinsecuritiesorinterestsinotherentitiesormanagedinvestmentschemes.

2.5TheamendmentsalsoprovidearegulationmakingpowertopermitothereligibilityrequirementsforaCSFoffertobeprescribed.

Comparison of key features of new law and current law


Newlaw

Currentlaw

ACSFofferisanofferthatisexpressly
statedtobemadeundertheCSFregime
andthatiseligibletobemadeunderthe
regime.

Anofferrequiringdisclosureisanoffer
madeunderPart6D.2thatmustcomply
withtherequirementsinParts6D.2and
6D.3.

Anofferwillbeeligibletobemade
undertheCSFregimewhere:

Anofferrequiringdisclosureisanoffer
madeunderPart6D.2thatmustcomply
withtherequirementsinParts6D.2and
6D.3.

theofferisfortheissueof
securitiesofthecompanymaking
theoffer

thecompanymakingtheoffer
isaneligibleCSFcompanyatthe
timeoftheoffer

thesecuritiessatisfythe
eligibilityconditionsspecifiedinthe
regulations

theoffercomplieswiththe
issuercapand

thecompanydoesnotintend
thefundssoughtundertheofferto
beusedbythecompanyora
relatedpartyofthecompanytoany
extenttoinvestinsecuritiesor
interestsinotherentitiesor
managedinvestmentschemes.

Detailed explanation of new law


Establishment of a CSF regime
2.6TheamendmentsestablishtheCSFregime:anewdisclosureregimethatcanbeusedbyeligibleCSFcompaniestomakecertainoffers
ofsecuritiesforissue.[Schedule1,Part1,item14,section738A]

2.7TheamendmentsprovidethatacompanymakingaCSFofferisalsoabletooffersecuritiesofthesameclasspursuanttoanofferthatis
exemptfromdisclosureundersection708.Thisallowsacompanyto,forexample,makeaCSFofferofsharesviaanintermediarytocrowd
investorsbutalsomakeanofferofsharestoinvestorsforwhomdisclosureisnotrequired(suchasventurecapitalfundsandangelinvestors).
[Schedule1,Part1,item14,section738E]

Offers eligible to be made under the CSF regime


2.8ACSFofferisanofferthatisexpresslystatedtobemadeundertheCSFregimeandthatiseligibletobemadeundertheregime
bymeetingalloftherelevantrequirements.[Schedule1,Part1,item14,section738B]
2.9Part6D.2,whichcontainsthegeneralrulesregardingwhendisclosureisrequiredforoffersofsecurities,doesnotapplytoCSFoffers
exceptasexpresslyprovidedfor.[Schedule1,Part1,items7,8,9and10,headingtoPart6D.2,section703B,section704,and
section706]

2.10Part6D.3,whichcontainstheprohibitions,liabilitiesandremediesthatusuallyapplytooffersofsecuritiesrequiringdisclosure,doesnot
applytoCSFoffersexceptasexpresslyprovidedfor[Schedule1,Part1,items11and12,headingtoPart6D.3andsection725A].Thisis
appropriateastheCSFregimeestablishestheprohibitions,liabilitiesandremediesrelatingtoCSFoffers.Thereis,however,anexpressprovision
thattheCSFregimedoesnototherwiseaffectanyliabilitythatapersonhasunderanyotherlaw[Schedule1,Part1,item14,section738ZH]
.

Eligibility requirements for a CSFoffer


2.11TherelevanteligibilityrequirementsforaCSFofferaresetoutindetailbelow.
Offerofsecuritiesforissue
2.12Thefirstcriterionisthattheoffermustbefortheissue,notthesale,ofsecuritiesthatis,aCSFoffercanonlycoverprimaryissuances.
[Schedule1,Part1,item14,paragraph738G(1)(a)]

EligibleCSFcompany
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2.13ThesecondcriterionisthatthecompanymakingtheoffermustsatisfythedefinitionofaneligibleCSFcompany.[Schedule1,Part1,
item14,paragraph738G(1)(b)].

2.14AcompanywillbeaneligibleCSFcompanywhereitsatisfiesthefollowingconditions:
thecompanyisapubliccompanylimitedbyshares,withitsprincipalplaceofbusinessandmajorityofdirectorsinAustralia[Schedule1,
Part1,item14,paragraphs738H(1)(a),(b)and(c)]

thecompanysatisfiesthegrossassetsandturnovercaps[Schedule1,Part1,item14,paragraph738H(1)(d)]
neitherthecompany,noranyrelatedparty,isalistedcorporation[Schedule1,Part1,item14,paragraph738H(1)(e)]and
neitherthecompany,noranyrelatedparty,hasasubstantialpurposeofinvestinginsecuritiesorinterestsinotherentitiesormanaged
investmentschemes[Schedule1,Part1,item14,paragraph738H(1)(f)].

Publiccompanylimitedbyshares
2.15Apubliccompanylimitedbysharesincludes:
apubliccompanywithsharecapitalregisteredunderChapter2A(includingaproprietarycompanythatconvertstobecomeapubliccompany
limitedbyshares)and

abodycorporatethatisregisteredasapubliccompanyunderPart5B.1oftheAct.
2.16AbodycorporatethatisregisteredasapubliccompanyunderPart5B.1canincludeanincorporatedforeigncompany.Suchacompany
has,ineffect,transferreditsincorporationsothatitcannoweffectivelyberegardedasapubliccompanyregisteredundertheAct.

2.17ThefollowingentitiesareineligibletoaccesstheCSFregimeastheywillnotsatisfythedefinitionofpubliccompanylimitedbyshares:
proprietarycompanies,astheyareexplicitlyexcludedfromthedefinitionofpubliccompanyinsection9
foreigncompaniesandregistrableAustralianbodiesthatareregisteredunderPart5B.2,astheywillnotmeetthedefinitionofacompany
undersection9and

publiccompaniesthatdonothavesharecapital(forexample,publiccompanieslimitedbyguarantee).
PrincipalplaceofbusinessandmajorityofdirectorslocatedinAustralia
2.18GivenoneofthepolicyobjectivesunderpinningtheCSFregimeistosupportAustralianbusinessesaccesstocapital,oneoftheeligibility
requirementsisthatacompanyseekingtoaccesstheCSFregimemusthaveaprincipalplaceofbusinessinAustraliaatthetimeitisdetermining
itseligibilitytocrowdfund.

2.19Forsimilarreasons,anothereligibilityrequirementisthatthecompanymusthaveamajorityofdirectors(notcountingalternative
directors)thatordinarilyresideinAustralia.

Complieswithconsolidatedgrossassetsandturnovercaps
2.20AstheCSFregimeisintendedtoassistsmallscalebusinesses,therearerestrictionsonthesizeofcompaniesthatcanaccessthe
regime.

2.21Firstly,thevalueoftheconsolidatedgrossassetsoftheissuerandanyrelatedpartiesmustbelessthan$25millionatthetimethe
companyisdeterminingitseligibilitytocrowdfund(grossassetstest).[Schedule1,Part1,item14,paragraph738H(2)(a)]

2.22Thegrossassetscapisbasedonthevalueofconsolidatedgrossassetsofanissuerandanyrelatedpartiesforintegrityreasonsto
ensurethatthecapappliesappropriatelytorelatedpartiesofthesamegroup.

2.23ThemeaningofrelatedpartyfortheCSFrulesissetoutinparagraphs2.45to2.49.
2.24Aswellassatisfyingtheassetstest,thecompanyandanyrelatedpartiesmustalsohaveconsolidatedannualrevenueoflessthan
$25million(turnovertest).[Schedule1,Part1,item14,paragraph738H(2)(b)]

2.25Theturnovercapisbasedontheconsolidatedannualrevenueforthe12monthperiodimmediatelypriortothetimewhendetermining
eligibilitytocrowdfund.Newcompaniesthathavenotbeenoperatingforafull12monthswillstillbeabletocrowdfundaslongas
theirconsolidatedannualreviewfortheperiodisunderthe$25millioncap.

Notalistedcorporation
2.26InordertobeeligiblefortheCSFregime,neitherthecompany,noranyrelatedparties,canbealistedcorporation[Schedule1,Part1,
item14,paragraph738H(1)(e)].Alistedcorporationisabodycorporatethatisincludedinanofficiallistofaprescribedfinancialmarket
(section9).Regulation1.0.02Aliststhefollowingasprescribedfinancialmarkets:theAsiaPacificExchangeLimitedASXLimitedChiXAustralia
PtyLtdNationalStockExchangeofAustraliaLimitedandSIMVentureSecuritiesExchangeLimited.

2.27Therationaleforexcludinglistedcorporationsisthatacompanythatislistedhasdemonstratedanabilitytobearthecostsand
compliancerequirementsassociatedwithlistingonapublicmarket.Thesecompaniesgenerallyhaveaccesstootherformsofequityraisings
becauseoftheirlistedandcontinuouslydisclosingstatus,suchasrightsissuesandsharepurchaseplans.

2.28AnunlistedcompanythatpreviouslymadeanofferrequiringdisclosureunderChapter6D.2isnotexcludedfrommakingaCSFoffer.
AllowingsuchcompaniestoaccesstheCSFregimewillpotentiallyreducethefundraisingcostsofthesebusinessesandprovideanalternativeto
makingatraditionalofferrequiringdisclosure.

Notaninvestmentcompany
2.29Neitherthecompany,noritsrelatedparties,canhaveasubstantialpurposeofinvestinginsecuritiesorinterestsinotherentitiesor
managedinvestmentschemes.[Schedule1,Part1,item14,paragraph738H(1)(f)]

2.30Itwouldbeinappropriateforaninvestmentcompany,whichwillitselfbeinvestinginotherunspecifiedentities,toundertakesuch
activitiesinthelowerdisclosureenvironmentprovidedbytheCSFregime.

Securitiesprescribedintheregulations
2.31ThesecuritiesthatarethesubjectoftheCSFoffermustbesecuritiesofaclassprescribedintheregulations.[Schedule1,Part1,
item14,paragraph738G(1)(c)]

2.32TheGovernmenthasindicatedthatonlyfullypaidordinaryshareswouldbesubjecttocrowdfundingwhentheregime
commences.Thiswillensurethatthereareappropriatelimitsonthesecuritiesmadeavailableundercrowdfundingastheregime

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commencesandbeginstodevelop.AstheCSFregimeisnewandisexpectedtoevolvequickly,thereisaneedtohavetheflexibilitytoquickly
adjustthetypeofsecuritiesthatareeligibleforcrowdfunding.

2.33AscrowdfundingisanewmarketinAustralia,itisimportantthatanychangescanbeimplementedquicklyandinresponsetothe
waythemarketisdevelopingasthiswouldensurethemarketisgiventhebestchanceforsuccess.

2.34AnimportantaspectoftheCSFregimeistoensureinvestorshaveappropriateprotectionswhenparticipatingincrowdfunding.
PrescribingthesecuritieseligibleforcrowdfundingisanimportantaspectoftheCSFregulatoryregime.ItensurestheGovernmentcan
quicklyamendthetypesofsecuritiesavailableoncrowdfundingplatformstopreventasystemicissuefromarisingandmaintaininvestor
confidence.

Offercomplieswithissuercap
2.35ConsistentwiththepolicyintentthattheCSFregimebeusedtoassiststartupsandinnovativesmallbusinessestoaccesscapital,and
recognisingthataCSFofferdoesnotrequirethesamelevelofdisclosureasexistingChapter6Ddisclosuredocuments,thereisacaponthe
maximumamountoffundsthatanissuercompany(andanyrelatedparties)canraiseundertheCSFregime.[Schedule1,Part1,item14,
paragraph738G(1)(d)]

2.36Theamendmentssettheissuercapat$5millioninany12monthperiodwitharegulationmakingpowertoadjustthecapinthefuture
inlightoftheexperiencewithCSF.[Schedule1,Part1,item14,subsection738G(2)]

2.37AcompanyseekingtomakeaCSFoffermustsatisfytheissuercap,whichiscalculatedbytakingintoaccount:
themaximumsubscriptionamountsoughtbythecompanyunderthecurrentCSFoffer
allamountsraisedfromanyotherCSFoffersmadewithinthepast12monthsbythecompanyoritsrelatedpartiesand
allamountsraisedwithinthepast12monthsfromsmallscalepersonaloffers(subsection708(1))andcertainoffersmadeviaanAustralian
FinancialServicesLicence(AFSL)holder(subsection708(10))bythecompanyoritsrelatedparties.

2.38Thetablebelowsummariseswhichofferscounttowardstheissuercap.
Table2.1:Whichofferscounttowardsissuercap
Timingcondition

Howraised

Byissuer

Byrelated
party

Fundssoughtunder
currentCSFoffer

Yes

OnlyifCSFoffer
madewithin12
monthsofcurrent
offer
Onlyiffunds
raisedwithin12
monthsofcurrent
offer

Fundsraisedfromother
CSFoffers

Yes

N/A,asa
companyand
itsrelated
parties
cannothave
morethan
oneCSF
offeropenat
atime
Yes

Fundsraisedfrom
subsection708(1)and
subsection708(10)offers.

Yes

Yes

Fundsraisedfromother
offersthatdonotrequire
disclosure,otherthan
subsection708(1)and
subsection708(10)offers.

No

No

2.39TheissuercaptakesintoaccountthemaximumfundssoughttoberaisedunderthecurrentCSFofferasthisispotentiallytheamount
thatcouldberaisedbytheissuerundertheCSFoffer.

Whichofferswithinthepast12monthscounttowardstheissuercap
2.40Withregardtopreviousoffers,theissuercapdisregardsamountsraisedfromoffersthatareexemptfromdisclosure,suchasoffersto
sophisticatedinvestors(subsection708(8))orprofessionalinvestors(subsection708(11)).Thisreflectsthepolicyintentthattheissuercompany
shouldcontinuetohaveaccesstofundingfromwholesaleinvestors(suchasangelinvestorsandventurecapitalfunds).

2.41Therearetwotypesofoffersthatareexemptfromdisclosurewhichdocounttowardstheissuercap.Theseare708(1)offers
(smallscalepersonaloffers)andsubsection708(10)offers(offersmadeviaanAustralianFinancialServiceslicenseewherethelicenseeissatisfied
onreasonablegroundsthatthepersontowhomtheofferismadehaspreviousexperienceininvestingthatallowsthemtoassessthemeritsand
risksofthecurrentoffer).

2.42Therationaleforincludingtheamountsraisedundersmallscalepersonaloffersandsubsection708(10)offersintheissuercapisthatthe
fundsraisedundersuchoffersmayinvolveretailinvestorswhoareverysimilartocrowdinvestors.Notincludingamountsraisedunder
theseofferscouldmeananissuercompanycould,ineffect,raisefundsinexcessoftheissuercap,withalowerlevelofdisclosurefromcrowd
investorsandotherretailinvestors,whoarenotsophisticatedinvestorsandwouldotherwiserequireadisclosuredocumentunderPart6D.2.

Distinctionbetweenoffersmadeandfundsraised
2.43Inthecaseofpreviousoffers,thereisadifferencebetweenhowamountsraisedunderapreviousCSFofferandamountsraisedundera
previoussubsection708(1)orsubsection708(10)offercounttowardstheissuercap.InthecaseofapreviousCSFoffer,itisnecessarytolookat
whentheofferwasmade,notwhentheamountraisedundertheofferwasreceived.ACSFofferismadewhentheCSFofferdocumentrelatingto
theofferisfirstpublishedontheofferplatformofanintermediary[Schedule1,Part1,item14,subsections738L(6)and738N(1)].

2.44Inthecaseofasubsection708(1)orsubsection708(10)offer,fundsraisedwithin12monthsofthecurrentCSFoffercontributetowards
theissuercap[Schedule1,Part1,item14,paragraph738G(2)(c)].FundsfromnonCSFoffersareincludedbasedonwhenthefundswere
raised,notwhentheofferwasmade,inrecognitionofthefacttheremaybesomedifficulties,inpractice,withidentifyingwhentheofferwasmade
buttherewouldbelessdifficultyinidentifyingwhenfundsrelatingtothepreviousofferwerereceivedbythecompany.

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Example2.1Calculationofissuercappreviousoffers
NewTechLimitedisintendingtomakeaCSFofferon14October2019.Theminimumandmaximumamountsforthatofferare$1millionand$2.3million
respectively.
NewTechpreviouslymadeaCSFofferon10August2018,whichwascompletedon15November2018.Atotalof$2millionwasraisedunderthatoffer.
Intheperiod14October2018to6January2019,NewTechreceivedamountsof$1.7millionfromsmallscalepersonaloffersmadeon23August2018.
Incalculatingtheamountsthatcontributetowardstheissuercap,NewTechwillcountthemaximumamountsoughttoberaisedunderthecurrentoffer,whichis
$2.3million.
Inrelationtothepreviousoffers,NewTechwilldisregardtheamountsraisedundertheCSFofferof10August2018asthatofferwasmademorethan12monthsprior
tothecurrentCSFoffer.Inrelationtotheprevioussmallscaleoffer,NewTechwillincludetheamountof$1.7millionasthiswastheamountreceivedfromsmallscale
offersinthe12monthperiodpriortothecurrentCSFoffer.
Thetotalamountcountingtowardstheissuercapis$2.3million+$1.7million=$4million.Asthetotaldoesnotbreachtheissuercap,thecurrentCSFofferwillbe
aneligibleCSFoffer(subjecttotheothereligibilityrequirementsbeingsatisfied).

Certainoffersofrelatedpartiesareincludedintheissuercap
2.45Theissuercaptakesintoaccountamountsraisedundercertainpreviousoffersofthecompanysrelatedparties.
2.46ArelatedpartyofacompanyseekingtomakeaCSFofferis:
arelatedbodycorporateofthecompanyor
anentitycontrolledbyapersonwhocontrolsthecompanyoranassociateofthatperson.[Schedule1,Part1,item14,
subsection738G(3)]

2.47Arelatedbodycorporate(definedinsection50)ofanissuercompanywouldbe:
itsholdingcompany
itssubsidiaryor
asubsidiaryoftheholdingcompanyofthebodycorporate(asistercompany).
2.48Anentitycontrolledbyapersonwhocontrolstheissuercompanyoranassociateofthatpersonwillpickupsisterentitiesofthe
companythatarenotbodycorporates.

2.49ThedefinitionofrelatedpartyintheCSFregimeisbasedontheapproachinsubsection709(4)whichappliesforcompaniesseekingto
raisefundsusinganofferinformationstatement(whichhasacapontotalfundsraisedof$10millionwhichappliestothecompany,itsrelated
bodycorporatesandentitiescontrolledbyapersonwhocontrolsthecompanyorassociatesofsuchaperson).

Antiavoidancedeterminations
2.50TheamendmentsprovideASICwithapowertomakeadeterminationthattransactions,assets,orrevenueofcloselyrelatedbodies
shouldbeaggregated[Schedule1,Part1,items20and21,paragraphs740(1)(b)and740(2)(d)].Aconsequenceofthedeterminationis
thatacompanymaynolongerbeeligibletomakeaCSFofferasitwillexceedtheissuercap,grossassetsorturnovertests.

Fundsnottobeusedforinvestinginanotherentityorscheme
2.51ThepolicyintentisthattheCSFregime,givenitinvolvesalowerlevelofdisclosuretoinvestorsthanothertypesofpublicoffers,cannot
beusedtoraisemoneyforblindpools.

2.52ThispolicyintentisachievedbyexcludinganofferfrombeingaCSFofferwherethefundsraisedareintendedtobeusedtoanyextent
forinvestinginsecuritiesorinterestsinotherentitiesorschemes[Schedule1,Part1,item14,paragraph738G(1)(e)].Thecontent
requirementsoftheCSFofferdocument,whichwillbespecifiedintheregulations,couldrequirethecompanytoincludeintheCSFofferdocument
adescriptionofhowitintendstousetheproceedsfromtheoffer.

Consequences where the offer is not eligible to be a CSF offer


2.53WhereanofferdoesnotsatisfytheeligibilitycriteriatobeaCSFoffer,itwilldefaulttobeinganofferofsecuritiesrequiringdisclosure
underPart6D.2,unlessoneoftheexemptionsfromdisclosureinsection708applies.

2.54WhereapersonmakesanofferofsecuritiesrequiringdisclosureunderPart6D.2butdoesnotlodgetherequireddisclosuredocument
withASIC,thepersonwillcommitanoffenceundersubsection727(1),whichcarriesamaximumpenaltyof200penaltyunits,fiveyears
imprisonmentorboth.

Consequential amendments
2.55Consequentialamendmentshavebeenmadetosection9toinsertanumberofnewdefinitionsforconceptsrelevanttotheCSFregime.
[Schedule1,Part1,items1,2,3,4,5,6,section9]

2.56Aconsequentialamendmenthasbeenmadetosubsection1311(1A)toaddthenewPart6D.3A(containingtheprovisionsrelatingtothe
CSFregime).TheeffectisthatapersonwillonlycommitanoffenceundertheCSFregimewhereaspecificpenaltyhasbeensetoutinSchedule3
totheAct.[Schedule1,Part1,item33,paragraph1311(1A)(dba)]

Chapter 3

TheroleandobligationsofaCSFintermediary

Outline of chapter
3.1ThisChaptersetsouttheroleandobligationsofaCSFintermediaryinfacilitatingaCSFoffer.
3.2Unlessotherwisestated,allreferencesinthisChapterrelatetotheCorporationsAct2001andtheCorporationsRegulations2001.

Context of amendments
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3.3TheCSFintermediaryoccupiesacentralroleintheCSFregime.Undertheregime,allCSFoffersmustbemadeviatheplatformofa
CSFintermediary.

Summary of new law


3.4Apersonthatintendstooperateacrowdfundingplatform(theintermediary)willberequiredtoholdanAustralianFinancial
ServicesLicence(AFSL)andmayalsoberequiredtoobtainanAustralianMarketLicence(AML).

3.5ForintermediariesrequiredtoobtainanAFSL,theBillcreatesanewtypeoffinancialservice,beingthecrowdfundingservice.
3.6TheintermediaryhasanumberofobligationsundertheCSFregime,including:
gatekeeperobligations(whichsetoutwhentheintermediarymustnotpublishorcontinuetopublishanissuersofferdocument)
theobligationtoprovideacommunicationfacility
theobligationtoprominentlydisplayontheplatformtheCSFriskwarning,informationoncoolingoffrights,andfeeschargedtoandinterests
inanissuercompany

theobligationtoensureretailclientsreceivethebenefitoftherelevantinvestorprotections(coolingoffrights,theinvestorcap,therisk
acknowledgement)andthattheobligationtocomplywiththeprohibitiononprovidingfinancialassistanceisadheredtoand

theobligationstocloseorsuspendtheofferasrequired,andhandleapplicationmoniesappropriately.

Comparison of key features of new law and current law


Newlaw

Currentlaw

Apersonthatintendstooperatea
crowdfundingplatform(the
intermediary)willberequiredtoholdan
AustralianFinancialServicesLicence
(AFSL)andmayalsoberequiredto
holdanAustralianMarketLicence
(AML).

Noequivalent.

Anewfinancialservicehasbeen
created:acrowdfundingservice.

Noequivalent.

ACSFintermediaryhasanumberof
obligationsundertheCSFregime,
including:

Noequivalent.

gatekeeperobligations
theobligationtoprovidea
communicationfacility

theobligationtoprominently
displayontheplatformtheCSFrisk
warning,informationoncoolingoff
rights,andfeeschargedtoand
interestsinanissuercompany

theobligationtoimplement
systemstoensureretailclients
receivecertainadditionalinvestor
protectionsand

theobligationstocloseor
suspendtheofferasrequired,and
handleapplicationmonies
appropriately.

Detailed explanation of new law


Overview the role and obligations of an intermediary
3.7TheamendmentsdefinetheroleoftheCSFintermediary,thelicensingrequirementsforanintermediaryandthevariousobligationswith
whichtheintermediarymustcomply.Theamendmentsareexplainedindetailbelow.

The CSF intermediary must be licensed


3.8TheBillcreatesanewtypeoffinancialservice:acrowdfundingservice.Apersonthatintendstoprovideacrowdfunding
servicemustholdanAFSLthatexpresslyauthorisestheprovisionofacrowdfundingservice[Schedule1,Part1,items14and25,
section738Candparagraph766A(1)(ea)].Dependingonthenatureoftheactivitiescarriedoutbytheperson,theycouldalsobeconsidered
tobeoperatingafinancialmarketandthereforeberequiredtoholdanAustralianMarketLicence(AML).

3.9Thepolicyintentisthattheprovisionofthecrowdfundingserviceshouldbesubjecttotheobligationsandprotections,particularly
astheyapplytoretailclients,oftheAFSLregime(refertoparagraphs3.17to3.18).Therefore,apersonthatholdsanAMLwouldnotsatisfythe
definitionofCSFintermediaryunlesstheyalsoheldanAFSLthatexpresslyauthorisedtheprovisionofthecrowdfundingservice.This
meansthatapersonthatholdsanAMLcannotrelyontheexemptioninparagraph911A(2)(d)forincidentalfinancialservicestoprovideacrowd
fundingservice(astheywouldnotsatisfythedefinitionofCSFintermediary).UndertheCSFregime,aCSFoffercanonlybemadeby
publishingaCSFofferdocumentonaplatformofaCSFintermediary[Schedule1,Part1,item14,section738L].

3.10TheMinisterhasapowerundersection791CthatcanbeusedtoexemptoperatorsfromtheobligationtoholdanAML.Schedule3to
theBillprovidestheMinisterwithadditionalexemptionpowersthatcanbeusedtoexemptcertainfinancialmarketoperatorsfromspecifiedAML
obligations,allowingtheAMLregimetobetailoredtoparticularmarkets,whichcouldincludeintermediariesprovidingcrowdfunding
services.

Meaning of crowd -funding service


3.11Apersonwillprovideacrowdfundingserviceif:
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aCSFofferdocumentforaCSFofferofsecuritiesofacompanyispublishedonaplatformoperatedbythepersonand
applicationsmaybemadetothepersonfortheissue,bythecompany,ofsecuritiespursuanttotheoffer.[Schedule1,Part1,items22
and27,section761Aandsubsection766F(1)]

3.12AcrowdfundingserviceisalsotakentoincludeperformingallaspectsoftheroleofCSFintermediaryasrequiredundertheCSF
regime[Schedule1,Part1,item27,subsection766F(2)].Thismeans,forexample,thataCSFintermediarywillbetakentoprovidea
crowdfundingservicewhereitperformsitsgatekeeperobligations,holdsapplicationmoneyontrustandoperatesthecommunicationfacility.

3.13Deemingsuchactivitiestobepartofthecrowdfundingservicemeansthatthegeneralobligationsinsection912A(suchasthat
thefinancialservicemustbeprovidedefficiently,honestlyandfairly)willapplytotheCSFintermediaryinrespectofallactivitiesitperformsaspart
ofitsroleofCSFintermediary.

3.14Whilethereisnoexplicitcarveoutfromthedefinitionofcrowdfundingserviceapplyingtoagentsoremployeesofa
CSFintermediary,agentsandemployeeswillnotberequiredtoobtainaseparateAFSLastheywillcomewithinthescopeoftheexemptionin
paragraph911A(2)(a).ThisparagraphprovidesthatapersonwhoprovidesafinancialserviceasarepresentativeofanAFSLholderwhoselicence
coversthefinancialserviceisexemptfromtherequirementtoholdanAFSLinrelationtothefinancialservice.Arepresentativeincludes:an
authorisedrepresentativeanemployeeordirectorofthelicenseeoranyotherpersonactingonbehalfofthelicensee(paragraph910A(a)).A
personwhooperatesaplatformforacrowdfundingservice,otherthananemployeeorofficerofthelicenseeorarelatedbodycorporateof
thelicenseewillnotbeabletorelyonthisexemptionasaCSFoffercanonlybemadebypublishing,onaplatformofaCSFintermediary,aCSF
offerdocumentthatcomplieswithsection738J.

Whenandtowhomisacrowdfundingserviceprovided
3.15TheBillmakesitclearthatthecrowdfundingserviceisprovidedtoboththepersonseekingtoapplyfortheCSFsecuritiesandthe
companymakingtheCSFoffer.[Schedule1,Part1,item27,subsections766F(3)and(4)]

3.16InthecaseofapersonseekingtoapplyforCSFsecurities,thecrowdfundingserviceisprovidedatthetimewhenthepersonfirst
usestheapplicationfacilitytoapplyforanoffer[Schedule1,Part1,item27,subsection766F(3)].Inthecaseofanissuercompany,the
crowdfundingservicewillbeprovidedatthetimethecompanyentersintothehostingarrangementfortheoffer[Schedule1,Part1,item
27,subsection766F(4)].

3.17Theintermediarymustdetermine,attherelevanttimethecrowdfundingserviceisprovided,whetherthepersontowhomthe
serviceisprovidedisaretailclient.ThisisimportantascertainadditionalprotectionsandobligationsunderChapter7areapplicabletoretail
clients.

3.18Apersonthatisprovidedacrowdfundingserviceasaretailclientwillbeentitledtocertainadditionalprotectionsunder
Chapter7.Theintermediarymustensurethatthey:

provideaFinancialServicesGuidetoanapplicantorissuerthatisaretailclient,generallyassoonaspracticableafteritbecomesapparentto
theintermediarythatthefinancialserviceislikelytobeprovided(subsections941A(1)and914D(1))

haveacompliantinternaldisputeresolutionschemeandareamemberofanASICapprovedexternaldisputeresolutionscheme
(paragraph912A(1)(g)andsubsection912A(2))and

havearrangementsforcompensatingretailclientsforlossordamagesufferedbecausethelicenseebreacheditslicensingobligations
(section912B).

3.19AninvestorconsideredtobearetailclientunderChapter7inrelationtothecrowdfundingservicewillalsobearetailclientforthe
purposeoftheCSFoffer,whichwillentitlethemtocertainadditionalinvestorprotectionssuchascoolingoffrights,riskacknowledgmentsandthe
investorcaps[Schedule1,Part1,item23,subsection761G(8)].TheseprotectionsarediscussedinfurtherdetailinChapter6ofthe
ExplanatoryMemorandum.

3.20Apersonthatisnotconsideredtobearetailclientwillbeawholesaleclient(andwouldnot,forexample,besubjecttotheinvestorcap).
Whenacrowdfundingserviceisprovidedtoapersonasaretailclient
3.21Subsection761G(7)containsthetestsfordeterminingwhenapersonwillbearetailclientinrelationtothecrowdfundingservice.
Thepersontowhomthecrowdfundingserviceisprovidedwillbearetailclientunlessoneormoreofthefollowingtestsaresatisfied:

theproductvaluetest:thepriceofthefinancialproduct(thesecuritiesonoffer)orthevalueofthefinancialproducttowhichthefinancial
servicerelates,equalsorexceeds$500,000(paragraph761G(7)(a)andRegulations7.1.18and7.1.19)or

thesecuritiesorcrowdfundingserviceisprovidedforuseinabusinessotherthanasmallbusiness(paragraph761G(7)(b)).Asmall
businessisdefinedasabusinessemployinglessthan20people,unlessthebusinessincludesthemanufactureofgoods,wherethebusinessmust
employlessthan100people(subsection761G(12))or

wherethesecuritiesorthecrowdfundingserviceisnotprovidedforuseinconnectionwithabusiness,thepersonacquiringthe
securitiesorcrowdfundingservicegivestheintermediaryacertificatepreparedbyaqualifiedaccountant(definedinsection9)withinthe
precedingsixmonthsthatstatesthatthepersonhasnetassetsof$2.5million,orgrossincomeinthelast2financialyearsofatleast$250,000
(paragraph761G(7)(c)andRegulation7.1.28)or

thepersontowhomthecrowdfundingserviceisprovidedisaprofessionalinvestorasdefinedinsection9(paragraph761G(7)(d)).A
professionalinvestorincludesanAustralianfinancialserviceslicensee,alistedentity,abank,orapersonthathasorcontrolsgrossassetsofat
least$10million.

3.22Subsection761G(8)providesthat,inthecaseofaprosecutionforanyoffencebasedonaprovisioninChapter7,ifthedefendant(inthis
casetheintermediary)allegesthatthefinancialservicewasprovidedtothepersonasawholesaleclient,thedefendantwillberequiredtoraise
evidencethatthepersontowhomthecrowdfundingservicewasprovidedwasnotaretailclient.Imposingtheevidentialburdenonthe
defendantisappropriategiventhepolicyintentistoensurethatpersonsthatacquirefinancialproductsandfinancialservicesasretailclientshave
thebenefitoftheadditionalprotectionsintheCSFregimeandChapter7moregenerally.

3.23Inthecaseofnoncriminalproceedings,subsection761G(9)providesthatthepresumptionisthatthefinancialproductorcrowd
fundingserviceisprovidedtoapersonasaretailclientunlessthecontraryisestablished.

3.24TheBillprovidesthatsection761GA,whichwouldotherwiseprovideamechanismwherebyafinancialserviceslicenseecouldcertifythat
aclienthassufficientexpertisetobetreatedaswholesale,doesnotapplytotheprovisionofacrowdfundingservice[Schedule1,Part1,
item24,section761GA].

Dealingdoesnotincludeprovidingacrowdfundingservice
3.25CertainactivitiesofaCSFintermediary,whichrelatetoarrangingfortheissueofsecurities,wouldalsofallwithinthedefinition
ofthedealingfinancialserviceinsection766C.Toaddresstheoverlap,theBillcarvesoutacrowdfundingservicefromthedealing
financialservice[Schedule1,Part1,item26,subsection766C(2A)].TheresultisthataCSFintermediarywillneedonlyoneAFSLauthorisation

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tooperateacrowdfundingplatformandwillonlyneedtoconsiderwhenandtowhomthecrowdfundingserviceisprovidedfor
thepurposesoftheirobligationsundertheCSFregimeandChapter7moregenerally.
Carveoutfromthedefinitionofmanagedinvestmentscheme
3.26Theamendmentsexcludetheprovisionofacrowdfundingservicefromthedefinitionofamanagedinvestmentscheme
(MIS).ThisistoensuretheCSFintermediaryisnotsubjecttoobligationsunderboththeCSFregimeandtheMISrules.[Schedule1,Part1,
item2,section9]

Obligations of a CSF intermediary


3.27ThelegislationimposesanumberofobligationsontheCSFintermediary,referredtoasaresponsibleintermediaryinrelationtoa
particularCSFoffer[Schedule1,Part1,item14,subsection738L(5)].Theintermediarymustcomplywith:

thegatekeeperobligations(whichsetoutwhenanintermediarymustnotpublish,orcontinuetopublish,theofferdocumentofanissuer
companyonitsplatform)

theobligationtoprovideacommunicationfacility
theobligationtodisplaytheCSFriskwarning,displaycoolingoffrightsandappropriatelydisclosefeesandinterestsinanissuercompanyon
theplatform

theobligationtoimplementsystemsandproceduressothatretailclientsreceivetheadditionalinvestorprotectionsintheCSFregime
(coolingoffrights,investorcap,theriskacknowledgementandtheprohibitiononprovidingfinancialassistance)and

theobligationstocloseorsuspendtheofferasrequired,andhandleapplicationmoneyappropriately.
Gatekeeper obligations
3.28Anintermediarymustcomplywithcertaingatekeeperobligations[Schedule1,Part1,item14,section738Q].
Intermediarymustconductprescribedchecks
3.29Priortopublishinganofferdocumentonitsplatform,anintermediarymustconductcertainchecks,whichwillbespecifiedinthe
regulations(prescribedchecks).[Schedule1,Part1,item14,subsection738Q(1)]

3.30Theintermediarymustconductthecheckstoareasonablestandard[Schedule1,Part1,item14,subsection738Q(1)].The
amendmentsincludearegulationmakingpowerthatcouldbeusedtoprescribewhatwouldbeconsideredareasonablestandardforsomeorallof
thechecks,therebyprovidingcertaintytointermediariesconductingthechecks[Schedule1,Part1,item14,subsection738Q(2)].

3.31Anintermediarythatfailstoconductthechecks,orfailstoconductthecheckstoareasonablestandard,willcommitastrictliability
offence,punishablebyamaximumpenaltyof50penaltyunits[Schedule1,Part1,item14and34,subsection738Q(3)anditem245Ein
thetabletoSchedule3].

3.32Strictliability,andthelevelofpenalty,isappropriate,because:
theintermediaryhasacentralroleintheCSFregimeandtheobligationtoconducttheprescribedcheckstoareasonablestandardis
necessarytomaintaintheintegrityoftheCSFregime

conductingthechecksandthestandardtowhichthechecksareconductedisentirelydependentontheconductoftheintermediarywhois
liablefortheoffence

theproposedpenaltyfortheoffenceisconsistentwiththeGovernmentsGuidetoFramingCommonwealthOffences,InfringementNotices
andEnforcementPowerswhichspecifiesthatastrictliabilityoffenceshouldbepunishablebyamaximumpenaltyof60penaltyunitswithnoterm
ofimprisonment.

3.33Whereanintermediaryfailstoconductacheck,orfailstoconductachecktoareasonablestandard,theintermediaryistakentohave
knowledgeofanymatterthattheywouldhavehadknowledgeofhadtheyconductedthechecktoareasonablestandard[Schedule1,Part1,
item14,subsection738Q(4)].Thisdeemedknowledgeisrelevantindeterminingwhethertheintermediaryhascompliedwithitsobligationsto
notpublish,ornotcontinuetopublish,theCSFofferdocument(discussedbelow).

3.34WhiletheregulationswillprescribethechecksthatmustbeconductedbyanintermediarypriortopublishingaCSFofferdocument,they
arenotintendedtolimitthechecksorinformationthatmaybesoughtbyanintermediaryfromtheissuercompanyoritsofficers.

3.35Theamendmentsmakeitanoffenceforanofficeroremployeeofacompanytoprovideinformationthattheyknowtobefalseor
misleadinginamaterialparticular,orthatomitsamatterorthingwhichrenderstheinformationmisleadinginamaterialparticular.
[Schedule1,Part1,item32,paragraph2(1)(c)]

Intermediarymustnotpublishorcontinuetopublishofferdocumentifnotsatisfiedastocertainmatters
3.36ACSFintermediarymustnotpublish,orcontinuetopublish,anofferdocumentifit:
isnotsatisfiedastotheidentityofthecompanymakingtheofferorofitsdirectorsorotherofficers
hasreasontobelievethatanyofthedirectorsorotherofficersofthecompanyarenotofgoodfameorcharacter
hasreasontobelievethatthecompanyordirectorsorotherofficersofthecompanyhave,inrelationtotheoffer,knowinglyengagedin
conductthatismisleadingordeceptiveorlikelytomisleadordeceive

hasreasontobelievethattheparticularofferisnoteligibletobemadeasaCSFoffer[Schedule1,Part1,item14,subsection738Q(5)]
.

3.37Thepurposeofthegatekeeperobligationsisnottorequiretheintermediarytoconductexhaustiveduediligenceonthecompany,its
directorsorotherofficers,orthecompanysbusiness.Suchanobligationwouldimposearelativelyhighburdenonanintermediary,withpotential
flowoncostsforissuersseekingtoaccesstheintermediarysplatform.

3.38Rather,thegatekeeperobligationsareintendedtoensurethatanintermediarydoesnotpublish,orcontinuetopublish,theoffer
documentinfourspecificcircumstances.Thebasisfornotpublishingorcontinuingtopublishtheofferdocumentisdependentontheactual
knowledgeoftheintermediary(thatis,whethertheyweresatisfiedastocertainmattersorhadreasontobelievecertainthings)andwhatthe
intermediaryshouldhavebecomeawareoffromconductingtheprescribedcheckstoareasonablestandard.Aspectsofeachsituationwherean
intermediarymustnotpublishorcontinuetopublishanofferdocumentarediscussedbelow.

Notsatisfiedastotheidentityofthecompanyoritsdirectorsorotherofficers
3.39Thefirstsituationwhereanintermediarymustnotpublishorcontinuetopublishtheofferdocumentiswheretheintermediaryisnot
satisfiedastotheidentityofthecompany,itsdirectorsorotherofficers.[Schedule1,Part1,item14,paragraph738Q(5)(a)]

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3.40Forthepurposeofthisrequirement,therelevantdefinitionofofficeristhedefinitionofficerofacorporation(section9)whichisbroad
enoughtoalsoincludeapersonwhoisnotadirectorofthecompanybutwhoexertssignificantinfluenceoverthecompanyoritsdirectors.

Hasreasontobelievethatanyoftheofficersarenotofgoodfameorcharacter
3.41Thesecondsituationwhereanintermediarymustnotpublishorcontinuetopublishtheofferdocumentiswheretheintermediaryhas
reasontobelievethatanyoftheofficersoftheissuercompanyarenotofgoodfameorcharacter.[Schedule1,Part1,item14,
paragraph738Q(5)(b)].

3.42Theamendmentsdonotdefinegoodfameorcharacter.However,thetermisusedinthelicensingprocessasoneofthepreconditions
priortoASICgrantinganAFSL.Specifically,subsection913B(4)statesthatASICmustbesatisfiedthatthereisnoreasontobelieve:theperson
applyingfortheAFSL(whereanaturalperson)ortheresponsibleofficers(wheretheapplicantisabodycorporate)oranyofthepartnersor
trustees(wheretheapplicantisapartnershiportrust)arenotofgoodfameorcharacter.

3.43Subsection913B(4)providesthatASICmust,inassessingwhetherthereisreasontobelieveapersonisnotofgoodfameorcharacter,
haveregardtocertainmattersincludingcertaincriminalconvictionsapersonmayhavehad,whetherthepersonheldanAFSLthatwascancelledor
suspended,whetherabanningordisqualificationorderunderDivision8waspreviouslymade,oranyothermatterASICconsiderstoberelevant.

Hasreasontobelievethatthecompanyoritsofficershave,inrelationtotheCSFoffer,knowinglyengagedinconductthatismisleadingor
deceptiveorlikelytomisleadordeceive
3.44Whereanintermediaryhasreasontobelievethatanissuerhasknowinglyengagedinconductthatismisleadingordeceptive,orconduct
thatislikelytomisleadordeceive,theintermediarymustnotpublishorcontinuetopublishtheofferdocument[Schedule1,Part1,item14,
paragraph738Q(5)(c)].Forexample,ifanintermediaryinconsideringwhethertohostanofferofacompanyhas,initsdealingswiththe
directors,reasontobelievethatthedirectorsrepresentationsinrelationtotheCSFofferaredishonest,theintermediarymustnotpublishtheoffer
document.

3.45Inthecaseofanofferthatisalreadyopen,iftheintermediaryhasreasontobelievethatthedirectorshave,forexample,knowingly
providedmisleadinginformationinresponsetoapostonthecommunicationsfacility,theintermediarymustnotcontinuetopublishtheoffer
documentandmustclosetheoffer.

3.46Theobligationtoclosetheofferwillonlyarisewheretheintermediaryhasreasontobelievetheissuerknowinglyengagedinmisleading
ordeceptiveconduct.Theinclusionofknowinglyrecognisesthattheremaybecaseswhereanissuermayhave,forexample,unintentionally
providedinformationthatismisleading.Insuchcircumstances,itwouldbeinappropriateiftheintermediarysonlycourseofactionwastoremove
theofferdocumentfromtheplatformandclosetheCSFoffer.

3.47Iftheintermediaryhasreasontobelievethattheissuercompanyknowinglyengagedinconductthatwasmisleadingordeceptive,or
thatwaslikelytomisleadordeceive,theintermediarymustremovetheofferdocumentfromtheplatformandclosetheoffer.

Interactionwithprovisionsrelatingtodefectiveofferdocuments
3.48Wheretheconductthatismisleadingordeceptive,orthatislikelytomisleadordeceive,isinrelationtoadefectiveofferdocumentthat
containsamisleadingordeceptivestatement,anomission,orwheretherehasbeenanewcircumstancethathasarisensincethedocumentwas
publishedthatwouldhavebeenrequiredtohavebeenincludedinthedocumenthaditarisenbeforepublication,thespecificrulescovering
defectiveofferdocumentswilltakepriorityoverthegatekeeperobligations.[Schedule1,Part1,item14,subsection738Q(6)]

3.49TheprovisionsrelatingtodefectiveofferdocumentsarediscussedinChapter4andrequireanintermediarytoeithercloseorsuspendan
offerwhenitisawarethattheofferdocumentisdefective.Whereitsuspendstheoffer,thecompanywillhavetheopportunitytopreparea
supplementaryorreplacementofferdocumenttocorrectthedefect.Ineffect,therulesregardingdefectivedisclosuredocumentswilltakepriority
overthegatekeeperobligations.

3.50However,whereanofferdocumentisdefective,forexample,becauseitcontainsamisleadingstatement,butthecompanyalso
knowinglymakesanothermisleadingstatementonthecommunicationfacility,theintermediarywillberequiredtoclosetheofferasthegatekeeper
obligationswillapplyinrelationtothecompanysconductrelatingtothecommunicationfacility,eveniftheydonotapplyinrelationtotheoffer
document.

HasreasontobelievethattheofferisnoteligibletobemadeasaCSFoffer
3.51Anintermediarymustnotpublishorcontinuetopublishanofferdocumentwhereithasreasontobelievethattheofferisnoteligibleto
bemadeasaCSFoffer.[Schedule1,Part1,item14,paragraph738Q(5)(d)]

3.52ThisobligationisintendedtoensurethatissuersthatpurporttobeeligiblefortheCSFregime,butarenotinfacteligible,areexcluded
frommakingaCSFoffer.Forexample,iftheintermediaryhasreasontobelievethattheproposedofferdoesnotcomplywiththeissuercap,the
intermediarymustnotpublishtheissuersofferdocument.

Offences
3.53Anintermediarythatfailstocomplywithitsgatekeeperobligationswillcommitanoffence,punishablebyamaximumpenaltyof60
penaltyunits,orimprisonmentforoneyear,orboth[Schedule1,Part1,item34,item245FinthetabletoSchedule3].

3.54Arelatedobligationisthatanintermediarymusthaveinplaceadequatearrangementstoensurethatitcomplieswithitsgatekeeper
obligations[Schedule1,Part1,item14,subsection738Q(7)].Thismeansthatanintermediarymusthaveinplacepolicies,systemsand
procedurestoensurethatitcomplieswithitsgatekeeperobligations,andmustensurethatthosepolicies,systemsandproceduresareadheredto.
Thismustbedocumentedinwriting.Failuretodosoisanoffence,punishablebyamaximumpenaltyof30penaltyunitsorimprisonmentfor6
monthsorboth[Schedule1,Part1,item34,item245GinthetabletoSchedule3)].

Other obligations of CSF intermediaries relating to their platform


3.55TheCSFregimesetsoutanumberofotherobligationsthataCSFintermediarymustcomplywith.Thesearethattheintermediary:
mustensuretheCSFriskwarningappearsprominentlyontheplatformatalltimeswhiletheofferisopenorsuspended[Schedule1,Part1,
item14,subsection738ZA(1)]

mustprovideanapplicationfacility,rejectanyapplicationsmadeotherthanviatheapplicationfacilityandnotallowanapplicationtobe
madewhileanofferissuspendedorclosed[Schedule1,Part1,item14,subsections738ZA(3)and(4)]

mustprovideacommunicationfacilityforeachCSFoffer[Schedule1,Part1,item14,subsection738ZA(5)]
mustensurethatinformationrelatingtoaretailinvestorscoolingoffrightsappearsprominentlyontheofferplatformwhileanofferisopen
orsuspended[Schedule1,Part1,item14,subsection738ZA(8)]and

mustdisclosefeespaidtoitbytheissuerandanyinterestthattheintermediaryhasorintendstotakeintheissuercompanyprominentlyon
theplatform[Schedule1,Part1,item14,subsection738ZA(9)].

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3.56Failuretocomplywithanyoftheobligationssetoutabovewillmeantheintermediarywillcommitanoffence,punishablebyamaximum
penaltyof60penaltyunits,oneyearsimprisonment,orboth[Schedule1,Part1,item34,item245NinthetabletoSchedule3].The
penaltyof60penaltyunitsandoneyearsimprisonmentisinaccordancewiththefine/imprisonmentratioof5:1specifiedintheGovernments
GuidetoFramingCommonwealthOffences,InfringementNoticesandEnforcementPowers(section3.1.3oftheGuiderefers).

Riskwarning
3.57TheintermediarymustensurethattheCSFriskwarningisdisplayedprominentlyontheofferplatform.Thepurposeoftheriskwarning
istoalertpotentialinvestors,particularlyretailinvestorsofthepotentialrisksassociatedwith,andhighfailureratesof,startupsandemerging
companies,whicharemostlikelytobemakingCSFoffers.

3.58TherequiredwordingofthegeneralCSFriskwarningwillbespecifiedintheregulations[Schedule1,Part1,item14,
subsection738ZA(2)].Theintermediarymustensurethattheriskwarningappearsprominentlyonitsplatformatalltimes,includingwhilean
offerissuspended[Schedule1,Part1,item14,subsection738ZA(1)].

3.59Thewordprominentlyisnotdefinedandwhethertheriskwarningisprominentlydisplayedwilldependontheparticularfactsand
circumstances,includingthedesignoftheofferplatform.

Applicationstoonlybemadeviaanapplicationfacility
3.60Theintermediarymustprovideafacilitytheapplicationfacilityonitsplatformtoenableapersontoapplyforsecuritiesthatarethe
subjectofaCSFoffer.AllapplicationsinresponsetoaCSFoffermustbemadeviatheintermediarysapplicationfacility.

3.61WhereapersontriestoapplyforCSFsecuritiesotherthanviatheapplicationfacility,theintermediarymustrejecttheapplicationand
refundanymoneypaidassoonaspracticable[Schedule1,Part1,item14,subsection738ZA(4)andparagraph738ZB(4)(b)].Requiring
allapplicationsinresponsetotheCSFoffertobemadeviatheintermediaryisameansofensuringthatapplicantsareawareofandreceivethe
variousinvestorprotections.

3.62Theapplicationfacilitymustonlybeavailablewhiletheofferisopenapplicationsmustnotbeabletobemadewhileanofferisclosed
orsuspended.[Schedule1,Part1,item14,paragraphs738ZA(3)(a)and(c)]

3.63WherearetailclientistryingtoapplyforsecuritiesthatarethesubjectofaCSFoffer,theintermediarymustensurethattheinvestor
completesariskacknowledgment[Schedule1,Part1,item14,paragraph738ZA(3)(b)].Therequirementthatapersoncompleterather
thansigntheriskacknowledgmentmeansitwillnotbemandatoryforanintermediarytorequireanapplicanttodigitallysigntherisk
acknowledgment(althoughitcouldchoosetorequirethis).Theriskacknowledgmentmustcomplywiththerequirementssetoutintheregulations
[Schedule1,Part1,item14,paragraph738ZA(3)(b)].

CommunicationfacilityforeachCSFoffer
3.64TheintermediarymustprovideacommunicationfacilityinrelationtoeachCSFofferwhiletheofferisopenorsuspended[Schedule1,
Part1,item14,subsection738ZA(5)].RequiringacommunicationfacilitytobeprovidedinrelationtoeachCSFofferisconsistentwithoneof
thepremisesunderlyingcrowdfunding,whichisthatinvestorscan,inpart,relyonthecollectivewisdomofthecrowdinmaking
theirinvestmentdecision.

3.65Thepurposeofthecommunicationfacilityistoallowpotentialinvestors,theissuerandintermediarytocommunicatewitheachother
aboutaparticularCSFoffer.Specifically,thecommunicationfacilityshouldenableapersonwhoaccessestheofferdocumenttomakeposts
relatingtotheoffer,seepostsrelatingtotheofferandaskthecompanymakingtheoffer,ortheintermediary,questionsrelatingtotheoffer.
Itshouldalsoenablethecompanyorintermediarytorespondtoquestionsandposts.[Schedule1,Part1,item14,paragraphs738ZA(5)(a)
and(b)]

3.66Thecommunicationfacilitydoesnotneedtobeopentothegeneralpublic,butmustbemadeaccessibletopersonsthatareableto
accesstheCSFofferdocument.WhereapersonisunabletoaccessaCSFofferdocumentuntiltheyhaveregisteredonanintermediarysplatform,
thepersonmustbeabletomakeandseepostsonthecommunicationfacilityfortheofferonregistration.

3.67Whilethecommunicationfacilitywillprovideanimportantmechanismforinvestorstocommunicatewitheachotherandwiththeissuer
company,personswhoareofficers,employeesoragentsoftheissuercompany,arelatedpartyoranassociateoftheissuer,orofthe
intermediary,mustclearlydisclosethatfactwhenmakingpostsonthefacility[Schedule1,Part1,item14,subsection738ZA(6)].Failureto
complywiththisrulemeansthepersonmakingthepostwillcommitanoffence,punishablebyamaximumpenaltyof60penaltyunits,orone
yearsimprisonment,orboth[Schedule1,Part1,item34,item245NinthetabletoSchedule3].

3.68Theamendmentsincludeapowertomakeregulationscoveringtheoperation,managementoruseofthecommunicationfacility.For
example,regulationscouldbemadecoveringtheremovalofmaterialfromthecommunicationfacility.[Schedule1,Part1,item14,
subsection738ZA(7)].

3.69StatementsmadeonthecommunicationsfacilitythatrefertotheCSFofferorwouldreasonablybelikelytoinduceapersontoapplyfor
theCSFofferwouldordinarilybesubjecttotheadvertisingrestrictionscontainedintheBill.TheBillincludesacarveoutforstatementsmadein
goodfaithonthecommunicationfacility.Thiscarveoutisdiscussedinmoredetailinparagraphs6.52to6.57.

Coolingoffrightsmustbedisplayedontheplatform
3.70Theintermediarymustensurethattheofferplatformprominentlydisplaysinformationregardingthecoolingoffrightsforretailinvestors
(refertoparagraphs6.18to6.22),includingthemeansbywhichtheinvestorcanexercisetheserights.Thisinformationmustbedisplayedonthe
platformatalltimes,includingwhereanofferisopenorsuspended.[Schedule1,Part1,item14,subsection738ZA(8)]

3.71Whethertheinformationisprominentlydisplayedisaquestionoffactanddegreeandwillvarydependingonhowtheintermediarys
platformisdesigned.

Feesandinterestsmustbeprominentlydisplayedontheplatform
3.72Therearenorestrictions,intheCSFregime,onthefeearrangementsthatmaybeagreedbetweenanissuerandintermediary.For
example,therearenoprohibitionsonanintermediarysfeesbeingcalculatedbasedonfundsraisedundertheofferoranintermediarybeing
remuneratedintheformofsecuritiesinanissuercompanyinlieuofcash.However,itisappropriatethatthefeearrangementsbetweentheissuer
andintermediarybedisclosedtoinvestorsand,therefore,thereisarequirementthatthisinformationbeprominentlydisplayedontheplatform
whiletheofferisopenorsuspended.[Schedule1,Part1,item14,paragraph738ZA(9)(a)].

3.73Similarly,whiletherearenorestrictionsonanintermediaryhavingortakingadirectorindirectpecuniaryinterestinthecompanywhose
securitiesitisofferingonitsplatform,itisappropriatethatthisinformationisdisclosedtoinvestors.Therefore,thereislikewisearequirement
thatthisinformationbeprominentlydisplayedontheofferplatformatalltimeswhiletheofferisopenorsuspended[Schedule1,Part1,item
14,paragraph738ZA(9)(b)].

Intermediarymustdealwithapplicationmoneyappropriately
3.74TheclientmoneyprovisionscontainedinDivision2ofPart7.8willapplytotheintermediaryastheyareanAFSLholder.Broadly,these
provisionsrequireanintermediarytoholdapplicationmoneyinaqualifyingaccount(therequirementsfortheaccountaresetoutinsection981B).

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RegulationsmadeundertheDivisionspecifymatterssuchaswhenmoneymaybewithdrawnfromtheaccount,andhowinterestearnedonthe
accountisdealtwith.

3.75TheBillconfirmsthattheintermediarymustdealwithapplicationmoneyinaccordancewiththeclientmoneyprovisionsbutalsocontains
specificprovisions(discussedbelow)regardingwhenanintermediarymusteitherpaymoneytotheissuerorrefundmoneytoapplicants.
[Schedule1,Part1,item14,subsection738ZB(1)]

Whenmoneymustbepaidtotheissuerorrefundedtotheapplicants
3.76Theintermediarymustpayapplicationmoneytoanissuer,netofanyfeesduetotheintermediary,assoonaspracticableafteranoffer
iscomplete(thatis,theminimumsubscriptionconditionhasbeenmetandallwithdrawalrightshaveexpired,refertoparagraphs4.50to4.53)
andthecompanyhasissuedthesharestotheapplicants[Schedule1,Part1,item14,subsections738L(8)and738ZB(2)].

3.77Theintermediarymustrefundmoneytoapplicantsassoonaspracticableinthefollowingsituations:
theofferwasclosedbecauseitwaswithdrawnbythecompany(paragraphs4.47)orbecausetheintermediarywasrequiredtoclosetheoffer
pursuanttoitsgatekeeperobligations(paragraph4.48)

theofferwasclosedforanotherreason(becausethemaximumofferperiodwasreached(paragraphs4.37to4.43)
ortheintermediaryconsideredtheoffertobefullysubscribed(paragraphs4.44to4.46))butnotcompleteor

anapplicantexercisedtheirwithdrawalrightsthesecouldbestatutoryornonstatutorycoolingoffrights,ortherighttowithdrawanoffer
withinonemonthofreceivingasupplementaryorreplacementofferdocumentrelatingtoadefectiveofferdocument(paragraph5.31)
[Schedule1,Part1,item14,subsections738ZB(3)and(4)].

3.78Anintermediarythatdoesnotcomplywiththeaboveruleswillcommitastrictliabilityoffence,punishablebyamaximumof50penalty
units[Schedule1,Part1,item14,subsection738ZB(5)anditem34,item245PinthetabletoSchedule3].

3.79Strictliability,andthelevelofpenalty,isconsideredappropriatebecause:
therequirementtodealappropriatelywithapplicationmoneyisakeyelementoftheCSFregime
anintermediarythatfailstocomplywiththerules(forexample,bynotrefundingmoneywhencoolingoffrightsare
exercised,orbypayingmoneytoanissuerbeforethesecuritiesareissued),compromisestheinvestorprotectionand
otherelementsthatarecentraltotheCSFregime

exposuretothepenaltyisentirelydependentontheconductoftheintermediarywhoisliablefortheoffenceand
thepenaltyfortheoffencecomplieswiththerequirementsoftheGovernmentsGuidetoFramingCommonwealthOffences,Infringement
NoticesandEnforcementPowers(thatis,themaximumpenaltyisnomorethan60penaltyunitsanddoesnotincludeatermofimprisonment).

Regulationsmaybemaderegardinghowintermediariesaretodealwithapplications
3.80TheamendmentsprovideforaregulationmakingpowerthatcanpermitregulationstobemaderegardinghowCSFintermediariesareto
dealwithapplicationspursuanttoCSFoffers,includinginrelationto:

theorderinwhichapplicationsaretobedealtwith
thecircumstancesinwhichapplicationsmustormayberejectedand
whenapplicationsaretobecountedtowardsthemaximumorminimumsubscriptionamounts.[Schedule1,Part1,item14,
section738ZJ].

Consequential amendments
3.81ConsequentialchangeshavebeenmadetotheASICActtoincludeacrowdfundingservice,asdefinedintheCorporationsAct,in
therangeoffinancialservicescoveredbytheASICAct[Schedule1,Part2,items35and36,subsection5(1)andsubsections12BAB(1C)
and12BAB(1D)oftheASICAct].

3.82Consequentialamendmentshavebeenmadetoextendtwocurrentexceptionstothetakeoverlaws.
3.83Thefirstexceptiontothetakeoverlawsrelatestoanacquisitionthatresultsfromanissueofsecuritiesinacompanytoapromoter
underaChapter6Ddisclosuredocumentandwherecertainrequireddisclosureshavebeenmade.Theamendmentsextendtheexistingexception
tocoveracquisitionsthatarisepursuanttoaCSFofferdocumentwheretherequireddisclosureshavebeenmade.[Schedule1,Part1,item6,
item12inthetableinsection611].

3.84Thesecondexceptiontothetakeoverlawsrelatestoanacquisitionthatresultsfromanissueofsecuritiesinacompanytoan
underwriterorsubunderwriterunderaChapter6Ddisclosuredocumentsolongasthedisclosuredocumentdisclosedtheeffecttheissuewould
haveontheunderwritersorsubunderwritersvotingpowerinthecompany.Theamendmentswillextendtheexceptiontocoverissuesof
securitiespursuanttoaCSFofferinacompanytoanunderwriterorsubunderwriteraslongastherelevantdisclosureshavebeenmadeinthe
CSFofferdocument.[Schedule1,Part1,item6,item13inthetableinsection611].

3.85AsaCSFintermediarycanbeestablishedasapartnershiporatrust,consequentialamendmentshavebeenmadetoensuretherulesin
Chapter7thattreatpartnershipsandtrustsaslegalpersonsgenerallyapplytoCSFintermediariesexceptwheretheruleisexpressedtorelateonly
tospecificpartsofChapter7.[Schedule1,Part1,item14,paragraphs738F(1)(a)and(b),subsection738F(2)]

3.86ConsequentialamendmentshavebeenmadetoextendtheapplicationoftherulesinChapter7thatprovidethatapersonisgenerally
responsiblefortheconductoftheirdirectors,employees,agentstotheCSFregime.[Schedule1,Part1,item14,paragraph738F(1)(c)]

3.87Aregulationmakingpowerhasbeenincludedtopermitregulationstobemadetomodifyhowtheaboverulesapply.[Schedule1,
Part1,item14,subsection738F(3)]

3.88ThismodificationpowerisrequiredtoensurethattheapplicationoftherelevantChapter7provisionstotheCSFregimeisconsistent
withtheexistingprovisionsinChapter7.TheexistingprovisionsinChapter7(sections761F,761FAand769B)allhavearegulationmakingpower
toexcludeormodifytheireffectinrelationtospecifiedprovisions.

3.89InapplyingtheexistingChapter7provisionstotheCSFregime,itisnecessarytoincludeasimilarmodificationpowersothatany
changestotheapplicationoftheexistingprovisionstoChapter7canalsobereflectedintheapplicationoftheseprovisionstotheCSFregime.As
such,themodificationpowerhasbeenincludedtoeliminatetheriskthattherecouldbeamismatchbetweenthewaythecurrentprovisions
operateinrelationtoChapter7ortheintendedapplicationinChapter6DandthewaytheprovisionsapplyinrelationtotheCSFregime.

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Chapter 4

ProcessformakingaCSFoffer

Outline of chapter
4.1ThisChaptersetsouttheprocessofmakingCSFoffers.
4.2Unlessotherwisestated,allreferencesinthisChapterrelatetotheCorporationsAct2001.

Summary of new law


4.3Theamendmentsestablish:
thattheprocessformakingaCSFofferinvolvesaCSFeligiblecompanypublishingaCSFofferdocumentonasingleCSFintermediarys
platform

thatanewdocumentaCSFofferdocumentmustbepreparedforCSFoffers
thatthecompanymustobtaincertainconsentsofpersonsassociatedwiththeofferdocumentpriortoitspublication
thatacompanymakingaCSFofferanditsrelatedpartiescannothavemorethanoneCSFofferopenatatimewhenanotherCSFoffer
previouslymadebythecompanyisopenorsuspendedand

rulesfordeterminingwhenaCSFofferisopen,whenitmayandwhenitmustbeclosed,andtheconditionsthatmustbesatisfiedbefore
anoffercanbecomplete.

Comparison of key features of new law and current law


Newlaw

Currentlaw

CSFoffermustbemadeinaccordance
withtheCSFregime.

Anofferrequiringdisclosuremustbe
madeinaccordancewithPart6D.2.

ACSFofferdocumentmustbeprepared
foraCSFoffer

Adisclosuredocumentmustbeprepared
foranofferrequiringdisclosure.

ACSFofferismadebypublishingthe
CSFofferdocumentontheplatformofa
singleCSFintermediary.

Noequivalent

ACSFofferismadewhentheoffer
documentispublishedontheplatform
ofaCSFintermediary.

Noequivalent.

ACSFofferisopenfromthetimewhen
theofferismadeuntiltheofferis
suspendedorclosedbythe
intermediary.

Noequivalent.

ACSFofferisclosedfromthetime
whenaCSFintermediarygiveswritten
noticeontheofferplatformthattheoffer
isclosed.

Noequivalent.

AcompanymakingaCSFofferandits
relatedpartiescannothavemorethan
oneCSFofferopenatatime.

Noequivalent.

Detailed explanation of new law


A CSF offer must be made in accordance with the CSF regime
4.4TheamendmentsestablishtheCSFregime:anewdisclosureregimethatcanbeusedbyeligibleCSFcompaniestomakecertainoffers
ofsecuritiesforissue.[Schedule1,Part1,item14,section738A]

4.5AnofferthatissubjecttotheCSFregimeisnotsubjecttoPart6D.2,whichcontainsthegeneralrulesregardingwhendisclosureis
requiredforoffersofsecurities,exceptasexpresslyprovidedfor.[Schedule1,Part1,items7,8,9and10,headingtoPart6D.2,
section703B,section704,section706]

4.6AnofferthatissubjecttotheCSFregimeisalsonotsubjecttoPart6D.3,whichcontainstheprohibitions,liabilitiesandremediesthat
applytooffersofsecuritiesrequiringdisclosure,exceptasexpresslyprovidedfor.[Schedule1,Part1,items11and12,headingtoPart6D.3
andsection725A]

A CSF offer document must be prepared for each CSF offer


4.7UndertheCSFregime,aCSFofferdocumentmustbepreparedinrelationtoeachCSFoffer.[Schedule1,Part1,item14,
subsection738J(1)]

4.8TheCSFofferdocumentmustcontainalltheinformationspecifiedintheregulations[Schedule1,Part1,item14,
subsection738J(2)].TheCSFofferdocumentcanalsocontaintheCSFoffer[Schedule1,Part1,item14,subsection738J(1)].

4.9TheaboveapproachhasbeendraftedinrecognitionofthefactthatitispossibleforaCSFofferdocumenttosatisfythecontent
requirementsspecifiedintheregulations(forexample,byincludinginformationaboutthecompanyanditsbusiness,thesecuritiesonoffer,how
theproceedsfromtheCSFofferwillbeused)butnotcontaintheactualCSFoffer(theofferbythecompanyofsecuritiesforconsideration).In
practice,however,itisexpectedthataCSFofferdocumentwouldcontaintheCSFofferaswellastheinformationrequiredtobeincludedbythe
regulations.

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4.10Theinformationcontainedintheofferdocumentmustbewordedandpresentedinaclear,conciseandeffectivemannerandcomplywith
anyotherrequirementsspecifiedintheregulations.[Schedule1,Part1,item14,section738K]

4.11WheretheinformationinaCSFofferdocumentdoesnotcomplywiththeaboverequirements,ASIChasstoporderpowers[Schedule1,
Part1,item15,paragraph739(1)(e)]whichwillenableittoorderthatnoissuesofthesecuritiesbemadewhiletheorderisinforce
[Schedule1,Part1,item16,paragraph739(1A)(a)].ThisissimilartothepositioninrelationtoexistingChapter6Ddisclosuredocuments
whereASIChasstoporderpowerswherethedisclosuredocumentisnotwordedinaclear,conciseandeffectivemanner.Unlikeotherdisclosure
documents,however,theCSFofferdocumentwillnotneedtobelodgedwithASIC.

How to make a CSF offer


4.12TheamendmentsprovidethattheCSFoffermustbemadebyaCSFeligiblecompanypublishingaCSFofferdocumentontheplatformof
asingleCSFintermediary.[Schedule1,Part1,item14,subsection738L(1)]

4.13TherequirementthattheCSFofferbemadeviatheplatformofanintermediaryisakeyelementoftheCSFregime.Anofferofeligible
securitiesbyaCSFeligiblecompany,whereexpressedtobemadeundertheCSFregime,wouldqualifyasaCSFoffer(astherequirementsin
Division2ofPart1totheBillwouldbesatisfied).However,itisnotappropriatethatcompaniesbepermittedtomakeCSFoffersotherwisethan
throughtheplatformofalicensedCSFintermediary,giventheintermediaryscentralroleinadministeringanumberofaspectsoftheregime(refer
Chapter3).

4.14Theamendmentsrequiretheofferdocumenttobepublishedontheplatformofasingleintermediary.Limitingtheissuertousingone
offerplatformforeachCSFofferisappropriateasitsupportscompliancewithotherrulesintheCSFregime(forexample,theissuercapand
investorcap).

Offermustbecontainedin,orbepublishedtogetherwith,theofferdocument
4.15Asnotedabove(paragraphs4.8and4.9)itispossiblefortheCSFoffernottobecontainedintheofferdocument.However,iftheCSF
offerisnotcontainedintheCSFofferdocument,theCSFoffermustbepublishedontheintermediarysplatform.[Schedule1,Part1,item14,
subsection738L(1)]

Applicationsandapplicationmoneymustbehandledviaintermediary
4.16AllapplicationsinresponsetotheCSFoffermustbemadeviatheintermediarysofferplatform.Thisensuresthatinvestors,particularly
retailclients,areprovidedwiththevariousprotectionsintheCSFregime(suchasthecommunicationfacility,riskwarningandcoolingoffrights).
ItisalsointendedthatallapplicationmoneyinrespectofapplicationstotheCSFofferbehandledbytheintermediary.Thisensuresthat
applicationmoneyishandledappropriately,astheintermediary,beinganAFSLholder,willbesubjecttotheclientmoneyprovisions(aswellas
obligationsintheCSFrulesforwhenmoneymustbepaidtotheissuercompanyandrefundedtotheapplicants)(refertoparagraphs3.74to
3.79).

4.17Theobligationtoensurethatapplicationsandapplicationmoneyarehandledviatheintermediaryisgiveneffectbytheprovision
requiringtheagreementbetweentheissuerandintermediaryforthepublicationoftheofferdocument(referredtointheBillasthehosting
arrangement)torequireallapplicationsrelatingtotheCSFoffertobemadeviatheintermediarysplatformandallapplicationmoniestobepaidto
ordealtwithbytheintermediary.[Schedule1,Part1,item14,subsection738L(2)]

Failuretocomplywillbeanoffence
4.18IfthecompanydoesnotmaketheCSFofferasrequired(bypublicationoftheCSFofferandacomplyingCSFofferdocumentonthe
platformofasingleintermediary)orthehostingagreementdoesnotrequireallapplicationsandapplicationmoneytobehandledviathe
intermediary,thecompanywillcommitanoffence.[Schedule1,Part1,item14,subsection738L(3)anditem34,item245Ainthetable
toSchedule3].

4.19Theoffencecarriesamaximumpenaltyof300penaltyunits,fiveyearsimprisonmentorboth.
4.20Thefiveyeartermofimprisonmentisconsistentwiththepenaltythatcurrentlyappliestoapersonofferingsecuritieswheretheoffer
requiresdisclosureunderChapter6D.2.Thepenaltyunitsfortheoffencehavebeencalculatedinaccordancewiththefine/imprisonmentratioof
5:1specifiedintheGovernmentsGuidetoFramingCommonwealthOffences,InfringementNoticesandEnforcementPowers(section3.1.3ofthe
Guiderefers).

Onlyoneoffermaybepublishedatatime
4.21AnissuercompanycannothavemorethanoneCSFofferopenatatimewhenanotherCSFofferpreviouslymadebythecompanyis
openorsuspended.[Schedule1,Part1,item14,subsection738R(1)]

4.22Inaddition,acompanycannotmakeaCSFofferatthesametimeasarelatedpartyofthecompanymakesaCSFoffer.Thepurposeof
thisprohibitionispredominantlytosupporttheenforceabilityoftheissuercap,whichappliestofundsraisedbytheissueranditsrelatedparties.
AllowingtheissueranditsrelatedpartiestomakesimultaneousCSFofferswouldmakeitdifficulttoenforcetheissuercap.[Schedule1,Part1,
item14,subsection738R(2)]

4.23Failuretocomplywiththeprohibitionsagainstmakingmorethanoneofferatatimeisanoffencecarryingamaximumpenaltyof
300penaltyunits,fiveyearsimprisonment,orboth[Schedule1,Part1,item34,item245HinthetabletoSchedule3].

Consentsrequiredpriortopublication
4.24ConsistentwiththearrangementsapplyingunderChapter6D.2tootherdisclosuredocuments,acompanymustnotarrangefor
publicationoftheCSFofferdocumentuntiltheyobtainthenecessaryconsents.

4.25Firstly,thecompanymustobtaintheconsentinwritingofeachpersonnamedintheofferdocumentasadirectororproposeddirector
priortopublication.[Schedule1,Part1,item14,subsection738M(1)]

4.26WheretheCSFofferdocumentincludesastatementbyaperson,orincludesastatementthatisindicatedintheofferdocumenttobe
basedonastatementbyaperson,thecompanymustnotarrangeforpublicationoftheofferdocumentunless:

thatpersonhasconsentedinwritingtothestatementbeingincludedintheofferdocumentintheformandcontextinwhichitisincluded
theofferdocumentstatesthepersonhasgiventheirconsentand
thepersonhasnotwithdrawntheirconsentpriortopublication.[Schedule1,Part1,item14,subsection738M(2)]
4.27Theconsentsmustberetainedbythecompanyforaperiodofsevenyears.[Schedule1,Part1,item14,subsection738M(3)]
4.28Therequirementtoobtainandretainwrittenconsentsisimportantastheconsentsmayberelevanttoanycriminalproceedingsorcause
ofactionthataninvestormaywishtocommenceintheeventthattheCSFofferdocumentisdefective(Chapter5).

4.29Failuretoobtainorretainwrittenconsentsisastrictliabilityoffence,carryingamaximumpenaltyoffivepenaltyunits.Thepenaltyis
consistentwiththeexistingpenaltyapplyingtothecomparableoffenceinChapter6D.[Schedule1,Part1,items14and34,
subsection738M(4)anditem245BinthetabletoSchedule3]

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4.30Strictliability,andthelevelofpenaltyforthenewoffence,isappropriate,foranumberofreasons:
apersonnamedintheofferdocumentasadirectororproposeddirector,orapersonsaidtohavemadeastatementincludedintheoffer
documentarepotentiallycriminallyliableorareexposedtoanactionforrecoveryoflossordamagebyinvestorsintheeventtheofferdocumentis
defective.Requiringthecompanytoobtainwrittenconsentofthesepersonspriortopublicationisthereforeacrucialstepasitprovidesan
opportunityforthepersontotrytoamendthecontentsoftheofferdocument,ornotprovideconsent,tominimisetheirpotentialliability

therequirementtoobtainwrittenconsentandretaintheconsentforsevenyearsisclearandeasytounderstand,andtheoffencedepends
entirelyontheactionornonactionofthecompanywhichisliablefortheoffence.

4.31ConsistentwiththeGovernmentsGuidetoFramingCommonwealthOffences,InfringementNoticesandEnforcementPowers,the
maximumpenaltyfortheoffenceisbelowthemaximumpenaltyamountintheGuideof60penaltyunitsandthepenaltydoesnotincludeatermof
imprisonment.

Timing rules related to a CSF offer


WhenaCSFofferisopen,closedandcomplete
4.32ACSFofferisopenfromthetimewhenitisfirstpublishedontheplatformoftheresponsibleintermediary[Schedule1,Part1,item
14,subsection738N(2)].

4.33ACSFoffercanonlybeclosedbyanintermediarygivingwrittennoticeontheofferplatformthattheofferisclosed.
4.34AnintermediaryhasthepowertocloseaCSFofferatanytime,althoughthehostingarrangementbetweentheintermediaryandthe
issuercanplacelimitsonwhentheintermediarycanclosetheofferexceptwheretheintermediaryisrequired,undertheseamendments,toclose
anoffer.[Schedule1,Part1,item14,subsections738N(3)and(5)].

4.35Whenanintermediarygivesnoticeontheplatformthatanofferisclosed,theofferwillbeclosedfromthetimewhennoticeisfirstgiven
[Schedule1,Part1,item14,subsection738N(3)].Itisnotnecessaryforthenoticetocontinuetoappearontheplatformfortheoffertobe
closed.

Whenanintermediarymustcloseanoffer
4.36TheBillsetsoutfivecircumstances,discussedindetailbelow,whereanintermediarymustcloseaCSFoffer(paragraphs4.37to4.48).
Whereanintermediaryfailstoclosetheofferasrequired,theintermediarywillcommitanoffence,punishablebyamaximumpenaltyof
30penaltyunits,sixmonthsimprisonment,orboth[Schedule1,Part1,item34,item245CinthetabletoSchedule3].Theoffermustbe
closedattheearliestofthefollowingtimes:

threemonthsaftertheCSFofferismade
iftheofferdocumentstatesadatebywhichtheofferwillclose,thatdate
whentheintermediaryconsiderstheoffertobefullysubscribed
whenthecompanywithdrawstheofferor
whenthecompanysgatekeeperobligationsrequiretheintermediarytoremovetheofferdocumentfromitsplatform.
Offermustbeclosedafterthreemonths
4.37ACSFoffercanbeopenforamaximumofthreemonths[Schedule1,Part1,item14,paragraph738N(4)(a)].Itisappropriate
thattherebeacappedmaximumofferperiodtoensureinformationcontainedintheCSFofferdocument(whichisalimiteddisclosuredocument)
remainscurrent.AthreemonthtimelimitisalsoconsistentwiththenotionofCSFasasimpler,fasterwayofraisingfundswithstreamlined
disclosure.

4.38Thethreemonthtimelimitcannotbeextendedforanyreason.Thismeans,forexample,ifthecompanybecameawarethattheoffer
documentwasdefectivetwomonthsintotheofferperiod,theintermediarywouldstillberequiredtoclosetheofferattheendofthreemonthsafter
theCSFofferwasinitiallymade,evenifthecompanypreparedasupplementaryorreplacementofferdocument.Thecompanywouldnotbe
precluded,however,frommakinganewCSFoffer.

4.39AssumingtheCSFofferisclosedatthreemonths,theintermediarymustdetermine,aftertheexpiryofallwithdrawalrights,whether:
theofferiscomplete:thatis,theminimumsubscriptionconditionismetdisregardingwithdrawnapplications.Theintermediarywillbe
requiredtopayapplicationmoneytotheissuerfollowingtheissueofthesecurities[Schedule1,Part1,item14,subsection738N(7)and
subsection738ZB(2)]or

theofferisunsuccessfulastheminimumsubscriptionamountwasnotraised.Thismeanstheintermediarymustrefundapplicationmoneyto
applicants[Schedule1,Part1,item14,subsection738ZB(3)]

4.40Anintermediarythatclosestheofferbecausethethreemonthtimelimitisreachedmay,butisnotrequiredto,removetheoffer
documentfromitsplatform[Schedule1,Part1,item14,subsection738P(2)].Theintermediarywill,therefore,havetheoptionof
maintainingtheofferdocumentontheplatformaftertheofferisclosedasanarchiveofthepreviousoffersithashosted.

Offermustbeclosedbythedatespecifiedintheofferdocument
4.41Theissuercompanyisnotrequiredtospecifyanofferclosedateintheofferdocument.However,iftheissuerdoesspecifyadate(or
period)bywhichtheofferwillclose,theintermediarymustclosetheofferatthattime(oruponexpiryofthatperiod)[Schedule1,Part1,item
14,paragraph738N(4)(b)].

4.42Neithertheintermediarynortheissuerareabletoextendtheclosingdatebeyondwhatwasspecifiedintheofferdocument,includingif
theofferdocumentwasfoundtobedefectiveandtheissuerpreparedareplacementorsupplementaryofferdocument.

4.43Anintermediarythatclosestheofferbecausetheofferclosuredatespecifiedintheofferdocumentisreachedmay,butisnotrequired
to,removetheofferdocumentfromitsplatform.[Schedule1,Part1,item14,subsection738P(2)]

Offermustbeclosedwhenintermediaryconsiderstheofferfullysubscribed
4.44Anintermediaryhasthepowertocloseanofferwhenitconsiderstheoffertobefullysubscribedtothemaximumsubscriptionamount
[Schedule1,Part1,item14,subsection738L(7)andparagraph738N(4)(c)].Thisisconsistentwiththepolicyintentthatanissuernotbe
abletoraisemorethanthemaximumsubscriptionamountspecifiedintheofferdocumentasdisclosuresregardingthepurposetowhichfunds
wouldbeputwouldbepremisedonthebasisthatnomorethanthemaximumsubscriptionamountwouldberaised.

4.45Allowinganintermediarytocloseanofferwheretheyconsidertheoffertobefullysubscribedprovidessomeflexibility.Forexample,an
intermediarymayallowtheapplicationfacilitytoreceiveapplicationsthatexceedthemaximumsubscriptionamountif,fromexperience,itexpects
acertainproportionofapplicantswillwithdrawtheiracceptances(pursuanttocoolingoffrights).Iftheofferdoesresultinapplicationsworthmore
thanthemaximumsubscriptionamountbeingreceived,evenaftertakingintoaccountwithdrawalsofacceptances,theintermediaryshouldreject

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applicationstoensurethatnomorethanthemaximumamountiscollectedandtransferredtotheissuer.Applicationmoneyrelatingtorejected
applicationsmustbereturnedtotheinvestor[Schedule1,Part1,item14,paragraph738ZB(4)(b)].

4.46AnintermediarythatclosesaCSFofferbecauseitconsiderstheoffertobefullysubscribedmay,butisnotrequiredto,removetheoffer
documentfromitsplatform.[Schedule1,Part1,item14,subsection738P(2)]

Offermustbeclosedifthecompanywithdrawstheofferorgatekeeperobligationsapply
4.47AcompanyhasthepowertowithdrawaCSFofferatanytimebeforetheofferiscomplete[Schedule1,Part1,item14,
section738S)].Todoso,thecompanymustnotifytheintermediarythattheofferiswithdrawn.Onceanintermediaryreceivessucha
notificationitmust,assoonaspracticable,closetheofferandremovetheofferdocumentfromitsplatform.[Schedule1,Part1,item14,
paragraph738N(4)(d)andsubsection738P(1)]

4.48Theintermediarymustcloseanofferifitisrequiredtoremovetheofferdocumentpursuanttoitsgatekeeperobligations(discussedin
paragraphs3.28to3.54)andmustremovetheofferdocumentfromitsplatform.Failuretocomplyisanoffence,punishablebyamaximum
penaltyof30penaltyunits,sixmonthsimprisonmentorboth[Schedule1,Part1,items14and34,paragraph738N(4)(e),
subsection738P(1),item245DinthetabletoSchedule3]

Dealing with application money once an offer is closed


4.49Onceanofferisclosed,thenextstepisfortheintermediarytodetermineiftheofferiscompleteand,ifso,handleapplicationmoney
appropriately.

4.50Therearethreeconditionsthatmustbesatisfiedbeforeanoffercanbecomplete.
4.51Firstly,theoffermusthaveclosedbecause:thethreemonthmaximumdurationofaCSFofferexpiredtheofferclosedatespecifiedin
theofferdocumentwasreachedortheintermediaryconsideredtheoffertobefullysubscribed[Schedule1,Part1,item14,
paragraph738N(7)(a)].Ifanofferisclosedforanotherreason(forexample,becauseitwaswithdrawnbytheissuer,ortheintermediaryhad
toclosetheofferpursuanttoitsgatekeeperobligations),itcanneverbecomplete.

4.52Thesecondconditionisthatallpossiblewithdrawalrightswhetherstatutoryorprovidedforbytheintermediarywhichpermitan
applicanttowithdrawtheirapplicationmusthaveexpired[Schedule1,Part1,item14,paragraph738N(7)(b)].Thismeansthatan
intermediarymustwaitfortheexpiryofthe48hourcoolingoffrightsforretailclients(refertoparagraphs6.18to6.22),theonemonthrightto
withdrawanapplication(whichappliestoallinvestorswhereanissuerpublishesasupplementaryorreplacementofferdocumentinrelationtoa
defectiveofferdocument,refertoparagraph5.31)andanyothernonstatutorywithdrawalrightsthattheintermediaryprovides.

4.53Thefinalconditionisthatthevalueoftheapplicationsreceived,disregardinganyapplicationsthathavebeenwithdrawnorrejectedby
theintermediary,mustexceedtheminimumsubscriptionamountsetoutintheofferdocument[Schedule1,Part1,item14,
paragraph738N(7)(c))].

4.54Anofferthatisclosedbutnotcomplete,becauseitwaswithdrawnbytheissuerortheintermediarywasrequiredtoclosetheoffer
pursuanttoitsgatekeeperobligations,willresultintheintermediaryrefundingapplicationmoneyheldtotheapplicants(paragraph3.77).

Chapter 5

DefectiveCSFofferdocuments

Outline of chapter
5.1ThisChaptersetsouttherulesconcerningdefectiveCSFofferdocuments.
5.2Unlessotherwisestated,allreferencesinthisChapterrelatetotheCorporationsAct2001.

Summary of new law


5.3TheamendmentsdefinewhenaCSFofferdocumentisdeemedtobedefective.Thedefinitionisalignedwiththeexistingprovisionsin
Chapter6Dapplyingtoprospectusesandotherofferdocuments.

5.4Theamendmentssetoutnotificationobligationsapplyingtocertainclassesofpersonsiftheybecomeawarethatanofferdocumentis
defective.Anumberoffurtherobligationsandpossibleactionsapplyingtotheintermediaryandcompanymakingtheofferaredefinedin
circumstanceswhereanofferdocumentisdefective.

5.5Liabilitiesarisingfromadefectivedisclosuredocumentaresetoutintheamendments.Theseincludecriminalliabilityaswellas
exposuretoactionforrecoveryoflossordamagewherethestatement,omissionornewcircumstancewhichledtothedocumentbeingdefectiveis
materiallyadversefromthepointofviewofaninvestor.

Comparison of key features of new law and current law


Newlaw

Currentlaw

AcompanymustnotmakeaCSFoffer
underadefectiveofferdocument.

Acompanymustnotmakeanofferof
securitiesrequiringdisclosureundera
defectivedisclosuredocument.

ACSFintermediarymustnotpublishor
continuetopublishaCSFoffer
documentifthedocumentisdefective
andtheintermediaryknowstheoffer
documentisdefective.

Noequivalent.

Newlaw

Currentlaw

PersonsthatareliableontheCSFoffer
documentmustnotifythecompanyand
theCSFintermediaryiftheybecome

Personsliableonthedisclosure
documentmustinformtheperson
makingtheofferiftheybecomeaware

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awarethattheofferdocumentis
defective.

ofdeficienciesinthedisclosure
document.

ACSFintermediarymustsuspenda
CSFofferifitbecomesawarethatthe
CSFofferdocumentisdefective.

Noequivalent.

Acompanycanprepareasupplementary
orreplacementCSFofferdocument
wheretheoriginalCSFofferdocument
isdefectiveordoesnotsatisfythe
requirementsofaCSFofferdocument.

Acompanycanprepareasupplementary
orreplacementdisclosuredocumentto
correctadeficiencyintheoriginal
disclosuredocumentortochangethe
termsoftheoffer.

Anintermediarythatpublishesa
supplementaryorreplacementCSFoffer
documentmustnotifyapplicantsthat
madeapplicationspursuanttothe
originalCSFofferdocumentthatthey
haveonemonthfromthedateofthe
noticeinwhichtowithdrawtheir
application.

Iftheoriginaldisclosuredocumentis
defective,thecompanycouldeither:
repayapplicationmoneytoapplicants
giveapplicantsasupplementaryor
replacementdisclosuredocumentand
onemonthtowithdrawtheirapplication
orissuethesecuritiestotheapplicants
andprovidethemwithonemonthto
returnthesecuritiesandberepaid.

Acompanythatofferssecuritiesundera
CSFofferdocumentthatisdefective
commitsanoffenceifthedefectis
materiallyadversefromthepointof
viewofaninvestor.

Acompanythatofferssecuritiesundera
defectivedisclosuredocumentcommits
anoffenceifthedefectismaterially
adversefromthepointofviewofan
investor.

Anintermediarythatpublishesa
CSFofferdocumentthatitknowstobe
defectivecommitsanoffenceifthe
defectismateriallyadversefromthe
pointofviewofaninvestor.

Noequivalent.

Aninvestorthatsufferslossordamage
becauseofadefectiveCSFoffer
documentisabletorecovertheamount
ofthelossordamagefrompersons
liableontheofferdocument.

Aninvestorthatsufferslossordamage
becauseofadefectivedisclosure
documentisabletorecovertheamount
ofthelossordamagefrompersons
liableonthedisclosuredocument.

ASICmaymakeastoporderinrelation
toadefectiveCSFofferdocument.

ASICmaymakestopordersinrelation
todefectivedisclosuredocuments.

Detailed explanation of new law


Prohibition on making offers under a defective CSF offer document
5.6TheamendmentsprovidethatacompanymustnotoffersecuritiesunderaCSFofferdocumentifthedocumentisdefective[Schedule
1,Part1,item14,subsection738Y(1)].AcompanywillbetakentooffersecuritiesunderaCSFofferdocument,atalltimes,beforetheoffer
isclosed,whilethedocumentispublishedonaplatformoftheintermediary[Schedule1,Part1,item14,subsection738Y(2)].

5.7TheamendmentsprovidethatanintermediarymustnotpublishorcontinuetopublishaCSFofferdocumentifthedocumentisdefective
andtheintermediaryknowsthedocumentisdefective[Schedule1,Part1,item14,subsection738Y(3)].Forthepurposesofdetermining
whethertheintermediaryknewtheofferdocumentwasdefective,theintermediaryistakentohaveknowledgeofanymatterthattheywouldhave
hadknowledgeofhadtheyconductedtheprescribedcheckstoareasonablestandard[Schedule1,Part1,item14,subsection738Q(4)].

When an offer document will be defective


5.8ACSFofferdocumentwillbedefectivewhere:
thedocumentcontainsamisleadingordeceptivestatementor
thereisanomissionfromthedocumentofinformationrequiredtobeincludedinthedocumentor
sincethedocumentwaspublished,anewcircumstancehasarisenthatwouldhavebeenrequiredtohavebeenincludedinthedocumenthad
itarisenpriortothedocumentbeingpublished.[Schedule1,Part1,item14,subsection738U(1)]

5.9Theamendmentsprovidethatamisleadingstatementincludesastatementaboutafuturematterwherethepersonmakingthe
statementdoesnothavereasonablegroundsformakingthestatement[Schedule1,Part1,item14,subsection738U(2)].

Notication obligations where the offer document is defective


5.10Theamendmentsplaceobligationsoncertainpersonsassociatedwiththeofferdocumenttoprovidewrittennotificationtothecompany
andintermediaryiftheybecomeaware,whiletheCSFofferisopen,thattheofferdocumentisdefective:

iftheissuercompanybecomesawarethatthedocumentisdefective,itmustnotifytheresponsibleintermediaryassoonaspracticable
[Schedule1,Part1,item14,subsection738V(1)]

iftheintermediarybecomesawarethattheofferdocumentisdefective,theintermediarymustnotifythecompanyassoonaspracticable
[Schedule1,Part1,item14,subsection738V(2)]and

ifanotherpersonwhoisliableontheofferdocument(referparagraph5.42)becomesawarethattheofferdocumentisdefective,thatperson
mustnotifythecompanyandtheintermediaryassoonaspracticable[Schedule1,Part1,item14,subsection738V(3)].

5.11Thenotificationobligationonlyariseswherethepersonrequiredtonotifybecomesawarethattheofferdocumentisdefective.Ifthe
persondoesnotknowthatthedocumentisdefective,thennoobligationtonotifywillarise.

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5.12Inthecaseofanintermediary,itisrelevanttonotethatanintermediaryistakentohaveknowledgeofanymatterthattheywouldhave
knownofhadtheyconductedtheprescribedcheckstoareasonablestandard[Schedule1,Part1,item14,subsection738Q(4)].

5.13Notificationthatanofferdocumentisdefectiveiscriticalbecause:
itwilltriggertheintermediarysobligationtoremovetheofferdocumentfromtheplatformandwillpreventfurtherapplicationsfrombeing
receivedunderadefectiveofferdocumentand

forapplicantsthathavealreadyappliedforsecuritiesunderthedefectiveofferdocument,theywilleitherbeprovidedwithasupplementaryor
replacementofferdocumentthatcorrectsthedefectandbegivenonemonthtowithdrawtheiracceptance,ortheofferwillclosebutnotcomplete,
whichwillmeanapplicantswillnotbeissuedwithsecuritiesandwillberefundedanyapplicationmoneypaid.

5.14Inlightoftheaboveandtoensurethatinvestorsarebasingtheirinvestmentdecisionsonacompliantofferdocument,itisnecessaryto
ensurethatpersonswhoareawarethatanofferdocumentisdefectiveprovidetherelevantwrittennotifications.Thisisachievedbyprovidingthat
apersonthatfailstocomplywiththeirnotificationobligationscommitsastrictliabilityoffence,punishablebyamaximumpenaltyof50penalty
units.[Schedule1,Part1,items14and34,subsection738V(4)anditem245JinthetabletoSchedule3]

Intermediarysobligationtosuspendoffer
5.15Onceanintermediarybecomesawarethattheofferdocumentisdefective,theintermediarymustremovetheofferdocumentfromits
platformandeitherclosetheofferorsuspendtheoffer,bygivingnoticeontheofferplatformthattheofferissuspended[Schedule1,Part1,
item14,subsections738N(6),738X(1)and(2)].

5.16Theofferwillcontinuetobesuspendeduntil:thecompanyprovidesareplacementorsupplementaryofferdocumentthatthe
intermediarypublishes,inwhichcasetheofferwillbeopenortheintermediaryclosestheoffer(eitherpursuanttotheirgeneralpowertoclosean
offerorbecausetheyarerequiredtodosopursuanttotheirgatekeeperobligations).

5.17Thenoticeadvisingofthesuspensionmustcontinuetoappearontheofferplatformfortheentiretimetheofferissuspendedandno
applicationsmaybereceivedwhiletheofferissuspended.[Schedule1,Part1,item14,subsection738X(3)]

5.18Iftheintermediarydoesnotcomplywiththeirobligationstoremovetheofferdocumentandeithercloseorsuspendtheoffer,or(where
theofferissuspended)thenoticethattheofferissuspendeddoesnotappearontheofferplatformatalltimesuntilthesuspensionends,the
intermediarywillcommitastrictliabilityoffence,punishablebyamaximumpenaltyof50penaltyunits.[Schedule1,Part1,items14and34,
subsection738X(4)anditem245KinthetabletoSchedule3]

5.19Imposinganobligationontheintermediarytoremovethedefectiveofferdocumentandeithercloseorsuspendtheofferisnecessaryto
ensurethatnofurtherapplicationscanbereceivedinrespectofadefectiveofferdocument.Forapersonthathasalreadyappliedfortheoffer,the
intermediary,byclosingorsuspendingtheoffer,ensuresthattheapplicantwillnotbeissuedwithsecuritiesundertheCSFofferunlesstheperson
receivesareplacementorsupplementaryofferdocumentthatcorrectsthedefectandisgivenonemonthwithinwhichtowithdrawtheir
application.

5.20Inlightoftheabove,thefactthatthepenaltyfortheoffencecomplieswiththeGovernmentsGuidetoFramingCommonwealth
Offences,InfringementNoticesandEnforcementPowersandthefactthatexposuretotheoffenceisentirelydependentontheconductofthe
intermediary,thestrictliabilityoffenceisconsideredtobeappropriate.

Whenacompanymayprepareasupplementaryorreplacementofferdocument
5.21ThecompanycanprepareasupplementaryorreplacementofferdocumentinrelationtoanoriginalCSFofferdocumentinthefollowing
circumstances:

wheretheoriginalofferdocumentisdefective,tocorrectadefectintheoriginalofferdocument
wheretheoriginalofferdocumentdoesnotcomplywiththerequirementthatinformationcontainedthereinbeclear,conciseandeffective,
andcomplywithanyregulations,tocorrectthenoncomplianceand

inanyothercircumstancespermittedbytheregulations.[Schedule1,Part1,item14,subsection738W(1)].
5.22Asupplementaryorreplacementofferdocumentcannotbeprovidedinanyothercircumstance.
5.23Ifthesupplementaryorreplacementofferdocumentisprovidedtocorrectadefectiveorotherwisenoncompliantofferdocument,it
mustnotincorporateanychangesotherthantocorrectthedefectornoncompliance,unlessthisispermittedbytheregulations.Wherethe
regulationsdopermitotherchangestobeincorporated,thesupplementaryorreplacementofferdocumentmustcomplywithanyconditions
imposedbytheregulations.[Schedule1,Part1,item14,subsection738W(2)]

5.24Theamendmentssetoutcertainrequirementsthatreplacementorsupplementaryofferdocumentsmustadhereto:
atthebeginningofthesupplementaryofferdocumenttheremustbeastatementthatitisasupplementaryofferdocument,anidentification
oftheaffectedofferdocumentitsupplementsandastatementthatthesupplementaryandaffectedofferdocumentaretobereadtogether

atthebeginningofthereplacementofferdocumenttheremustbeastatementthatitisareplacementoffer
documentandastatementidentifyingthedocumentitreplaces.[Schedule1,Part1,item14,subsections738W(3)
and(4)]

5.25Thecompanywillneedtoensurethatitobtainstherelevantconsentsinrelationtothereplacementorsupplementaryofferdocument
[Schedule1,Part1,item14,paragraph738W(6)(a)].FreshconsentswillberequiredforpersonsthatareliableontheCSFofferdocument
asawhole(suchasdirectorsandpersonsnamedasproposeddirectors).However,ifapersonhadconsentedtoastatementintheoriginaloffer
documentandthesupplementaryorreplacementofferdocumentdoesnotmakeamaterialchangetotheformorcontextofthatstatement,the
companywillnotneedtoobtainafreshconsentfromthatperson[Schedule1,Part1,item14,subsection738W(7)].

5.26Failuretoobtaintherelevantconsentsinrelationtothesupplementaryorreplacementofferdocumentwillmeanthecompanywillhave
committedtheoffenceoffailingtoobtaintherequiredconsentspriortopublication,whichcarriesamaximumpenaltyoffivepenaltyunits.
[Schedule1,Part1,item34,item245BinthetabletoSchedule3]

5.27Anintermediarythatisprovidedwithasupplementaryorreplacementofferdocumentbythecompanyisnotobligedtopublishtheoffer
document.Nonpublicationcouldbeduetotheintermediarysgatekeeperobligationswhichwillapplytoasupplementaryorreplacementoffer
documentinthesamewayastheyappliedtotheoriginalofferdocument.[Schedule1,Part1,item14,paragraph738W(6)(b)].

5.28Ifthedocumentprovidedisasupplementaryofferdocumentthattheintermediarydecidestopublish,itmustpublishthesupplementary
offeralongsidetheoriginalofferdocument[Schedule1,Part1,item14,paragraph738W(5)(a)].Oncetheintermediarydoesso,the
supplementaryandoriginalofferdocumentsaretakentobetheCSFofferdocumentforanythingthathappensafterthepublication[Schedule1,
Part1,item14,subsection738W(8)].

5.29Ifthedocumentprovidedtotheintermediaryisareplacementofferdocumentthatitdecidestopublish,theintermediarymustonly
publishthereplacementofferdocument[Schedule1,Part1,item14,paragraph738W(5)(b)].Oncetheintermediarydoesso,the
replacementofferdocument(andnottheoriginalofferdocument)istakentobetheCSFofferdocumentforanythingthathappensafterits
publication[Schedule1,Part1,item14,subsection738W(9)].

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5.30Oncetheintermediarypublishesthesupplementaryorreplacementofferdocumentonitsplatform,theofferwillbeopenagain,which
meansthatnewapplicationscanbereceivedviatheapplicationfacility.

Intermediarysobligationtonotifyexistingapplicantsofwithdrawalrightswhenthesupplementaryorreplacementofferdocumentispublished
5.31Oncethesupplementaryorreplacementofferdocumentispublished,theperiodofsuspensionendsandtheintermediarymustgive
writtennoticetoallapplicantsthatacceptedtheofferpriortoitssuspensionthattheyhaveonemonth(fromthedateofthenotice)inwhichto
withdrawtheiracceptanceandobtainarefundofapplicationmoneypaid[Schedule1,Part1,item14,subsections738X(5),738X(6)and
738X(7)].Failuretoprovidetherequirednoticewillmeantheintermediarywillcommitastrictliabilityoffence,punishablebyamaximum
penaltyof30penaltyunits[Schedule1,Part1,item34,item245LinthetabletoSchedule3].

5.32Strictliability,andthelevelofpenalty,isappropriate,because:
personsthathaveappliedfortheofferhavebasedtheirinvestmentdecisiononadefectivedisclosuredocumentanditisthereforeimportant
thattheybenotifiedoftheirrighttowithdrawfromtheoffer

thenotificationsareentirelydependentontheconductoftheintermediarywhoisliablefortheoffence
theproposedpenaltyfortheoffenceisconsistentwiththeGovernmentsGuidetoFramingCommonwealthOffences,InfringementNotices
andEnforcementPowerswhichspecifiesthatastrictliabilityoffenceshouldbepunishablebyamaximumpenaltyof60penaltyunitswithnoterm
ofimprisonment.

5.33Anapplicantthatwantstowithdrawtheiracceptancemustdosoinwritingwithinonemonthofreceivingthenoticefromthe
intermediary[Schedule1,Part1,item14,subsection738X(9)].Theintermediarymustrefundtheapplicationmoneyofanyonewho
exercisestheirwithdrawalrightsassoonaspracticable[Schedule1,Part1,item14,paragraph738T(1)(a)andsubsection738ZB(4)].

5.34OncethesuspensionendsandtheCSFofferisopen,theusualrulescoveringwhenanofferisclosedandwhenitiscompleteapply
(referChapter4oftheExplanatoryMemorandum).Ifthereisafurtherdefectintheofferdocument,theoffermaybesuspendedoncemore.

Intermediarysobligationsifthecompanydoesnothing
5.35Whenthecompanybecomesawarethattheofferdocumentisdefective,thereisnoobligationonthecompanytodoanythingotherthan
notifytheintermediarythattheofferdocumentisdefective.Theamendmentsdonotrequirethecompanyto,forexample,withdrawtheofferor
prepareareplacementorsupplementaryofferdocument.Therefore,acompanymaydonothingoncetheofferissuspended.

5.36However,evenifthecompanydoesnothingoncetheofferissuspended,anintermediarymaychoosetoclosetheoffer(solongasthisis
inaccordancewiththehostingarrangement)[Schedule1,Part1,item14,subsection738N(3)].Evenifitdoesnotchoosetoclosetheoffer,
therewillcomeapointintime(nolaterthanthreemonthsaftertheofferwasfirstmade)wheretheintermediarywillberequiredtoclosetheoffer
[Schedule1,Part1,item14,paragraphs738N(4)(a)and(b)].Astheofferwillbeclosedbutnotcomplete,theintermediarywillbe
requiredtorefundapplicationmoneytoapplicantsassoonaspracticableaftertheofferisclosed[Schedule1,Part1,item14,
paragraph738N(4)(b)].

Liabilities relating to defective documents that are materially adverse from the perspective of an investor
5.37Consistentwiththeapproachapplyingtoprospectusesandotherexistingdisclosuredocuments,personsassociatedwiththeoffermaybe
criminallyliableorbeexposedtoactionforrecoveryoflossordamagewheretheofferdocumentisdefectiveandthestatement,omissionornew
circumstancewhichledtothedocumentbeingdefectiveismateriallyadversefromthepointofviewofaninvestor.

Criminalliability
5.38AcompanythatofferssecuritiesunderaCSFofferdocumentthatisdefectivecommitsanoffenceifthestatement,omissionornew
circumstancethatcausedthedocumenttobedefectiveismateriallyadversefromthepointofviewofaninvestor.[Schedule1,Part1,item14,
subsection738Y(4)].

5.39Likewise,anintermediarythatpublishesanofferdocumentthatitknowstobedefectivecommitsanoffenceifthestatement,omission
ornewcircumstancethatcausedthedocumenttobedefectiveismateriallyadversefromthepointofviewofaninvestor[Schedule1,Part1,
item14,subsection738Y(4)].Thismeansanintermediarywillnotcommitanoffencewherethedefectintheofferdocumentismaterially
defectiveiftheintermediarydidnotknowtheofferdocumentwasdefective.Forthepurposeofdeterminingwhatanintermediaryknows,an
intermediaryistakentoknowallmattersthattheywouldhaveknownhadtheyconductedtheprescribedcheckstoareasonablestandard
[Schedule1,Part1,item14,subsections738Q(4)and738Y(3)].

5.40Thepenaltyforapersonthatcommitstheoffenceisamaximumpenaltyof300penaltyunits,fiveyearsimprisonment,orboth
[Schedule1,Part1,item34,item245MinthetabletoSchedule3].

5.41Thereareanumberofdefencesthatareavailabletoapersonwhowouldotherwisebecriminallyliable.Thesearediscussedat
paragraphs5.45to5.53.

Investorsrighttorecoverforlossordamage
5.42Aninvestorthatsufferslossordamagebecauseofadefectivedocumentisabletorecovertheamountofthelossordamagefrom
certainpersonsassociatedwiththeoffer,including:

theissueranditsdirectors,totheextentthelossordamagewascausedbyanypartoftheofferdocument
personsnamed,withtheirconsent,intheofferdocumentasproposeddirectors,totheextentoflossordamagecausedbyanypartofthe
offerdocument

apersonnamedintheofferdocumentwiththeirconsentashavingmadeastatementthatisincludedintheCSFofferdocumentoronwhich
astatementmadeintheCSFofferdocumentisbased,totheextentoflossordamagecausedbytheinclusionofthestatementintheCSFoffer
document

apersonwhoseconductresultedin,orwasinvolvedin,theofferdocumentbeingdefective,totheextentoflossordamagecausedbythat
conduct

theintermediarythatpublishedtheofferdocumenttotheextenttheintermediaryknewthattheofferdocumentwasdefective,totheextent
ofthelossordamagecausedbyanypartoftheofferdocument.[Schedule1,Part1,item14,subsection738Y(5)]

5.43Forthepurposeofdeterminingwhatanintermediaryknewabouttheofferdocument,theintermediaryistakentohaveknownof
anythingthattheywouldhaveknownhadtheyconductedtheprescribedcheckstoareasonablestandard.[Schedule1,Part1,item14,
subsection738Q(4)]

5.44Aninvestorhassixyearsfromthedaythecauseofactionaroseinwhichtocommencerecoveryproceedings.[Schedule1,Part1,
item14,subsection738Y(6)]

Defencesagainstcriminalliabilityandactionforrecoveryofloss
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5.45Theamendmentssetoutthedefencesavailabletoapersonwhowouldotherwisecommitanoffenceorbeliableforlossordamagein
relationtoadefectiveofferdocument.Thedefencesaresimilartothosethatareavailableinrelationtocertainexistingdisclosuredocuments.For
thesedefencesadefendantbearsanevidentialburdentopointtoevidencethatsuggestsareasonablepossibilitythatthematterexistsordoesnot
exist.Oncethedefendantdischargesthisevidentialburden,theprosecutionmustdisprovethesemattersbeyondreasonabledoubt.

5.46TheevidentialburdenonthedefendantisthereforefullyconsistentwiththeprincipleintheGuidetoFramingCommonwealthOffences,
InfringementNoticesandEnforcementPowerswhichestablishesthegeneralrulethatadefendantshouldonlybearanevidentialburdenofprooffor
anoffencespecificdefence.

5.47Thefirstdefenceapplieswhereapersondidnotknowtheofferdocumentwasdefective(lackofknowledgedefence).Thisdefenceis
currentlyavailableinrespectofofferinformationstatements(butnotinrespectofprospectuses,whichhaveahigherduediligencethreshold).

5.48Acompanywillnotcommitanoffencewheretheydidnotknowtheofferdocumentwasdefective[Schedule1,Part1,item14,
paragraph738Z(1)(a)].Thecompanybearstheevidentialburdenofestablishingthatitdidnotknowthattheofferdocumentwasdefective.
Thisisappropriateasthecompanyisbestplacedtoraiseevidencethattheydidnotknowtheofferdocumentwasdefective.

5.49Aperson,otherthananintermediary,whowouldotherwisebeliableinrespectofanactionforrecoveryoflossordamageinrelationtoa
defectiveofferdocumentwillnotbeliableiftheydidnotknowthattheofferdocumentwasdefective.Thispersonbearstheevidentialburdenof
establishingthattheydidnotknowtheofferdocumentwasdefectiveastheyarebestplacedtopresenttheevidencerequiredtodemonstratewhy
theyformedtheviewthattheofferdocumentwasnotdefective.[Schedule1,Part1,item14,paragraph738Z(1)(b)and
subsection738Z(2)]

5.50Thelackofknowledgedefenceisnotavailabletotheintermediaryastheintermediarywouldanywayonlybeliablewhereitknewthat
theofferdocumentwasdefectivebutcontinuedtopublishit[Schedule1,Part1,item14,subsections738Y(3)and738Z(2)].

5.51Aseconddefenceisavailablewherethepersonplacedreasonablerelianceoninformationgivenbyanotherperson,otherthanifthat
informationwasgivenbyanemployee,agentor(inthecaseofacompany)adirector[Schedule1,Part1,item14,subsection738Z(3)].
Theevidentiaryburdenforthisdefencerestsonthepersonmakingtheclaimastheyarebestplacedtodemonstratethattheydidinfactplace
reasonablerelianceoninformationfromsomeoneelse.

5.52Consistentwiththepositioninrelationtoexistingdisclosuredocuments,apersonthatperformsaparticularprofessionaloradvisory
functionwillnotbetakentobeanagentofthebodyorindividual[Schedule1,Part1,item14,subsections738Y(3)and738Z(5)].

5.53Asisthecasewiththelackofknowledgedefence,thereasonablereliancedefenceisnotavailabletotheintermediarygiventhe
intermediarywouldonlybeliablewheretheyknewtheofferdocumentwasdefective.[Schedule1,Part1,item14,subsection738Z(4)].

Withdrawalofconsentstatementsandomissions
5.54ApersonwhoisnamedinaCSFofferdocumentasbeingaproposeddirectororunderwriter,orasmakingastatementincludedinthe
document,ormakingastatementonthebasisofwhichastatementisincludedintheofferdocument,isnotliableforlossordamageanddoesnot
commitanoffenceiftheypubliclywithdrewtheirconsenttobeingnamedinthedocument.[Schedule1,Part1,item14,subsection738Z(6)]

5.55Apersonmakinguseofthisdefencehastheevidentiaryburdenofdemonstratingthattheydidinfactwithdrewtheirconsentpublically
astheywouldbebestplacedtobeabletodothis.

5.56ThisdefenceisavailableinrelationtoexistingChapter6Ddisclosuredocuments.
5.57Tomakeuseofanyofthesedefences,therelevantpersonwillhavetoprovideevidenceasappropriatethattheydidnotknowthatthe
offerdocumentwasdefective,appropriatelyreliedoninformationfromanotherpersonorpubliclywithdrewconsenttobeingreferencedintheoffer
document.Ineachofthesecases,itisappropriatethatthepersonmakinguseofthedefenceisrequiredtoraisetherequiredevidenceastheyare
theonesbestplacedtodoso.

ASIC stop order powers


5.58ASICsstoporderpowershavebeenextendedsothattheyapplywhereacompanyofferssecuritiesunderadefectiveCSFoffer
document[Schedule1,Part1,item15,paragraph739(1)(d)].ASICmayorderthatnooffers,issues,salesortransfersofthesecuritiesare
totakeplacewhiletheorderisinforce[Schedule1,Part1,item16,paragraph739(1A)(a)].

Consequential amendments
5.59Consequentialamendmentshavebeenmadetoprovidethatthegeneralrulesprohibitingmisleadinganddeceptiveconductinthe
CorporationsActdonotapplyinrelationtoaCSFofferdocument[Schedule1,Part1,item30,subparagraph1041H(3)(a)(iia)].This
amendmentmeansthatdefectiveCSFofferswillbetreatedinthesamewayasexistingChapter6Ddisclosuredocuments.

5.60CorrespondingconsequentialamendmentshavebeenmadetoprovisionsintheASICAct:section12DA(prohibitiononmisleadingor
deceptiveconduct)andsection12DB(prohibitiononmakingfalseormisleadingrepresentations)toexcludetheseprovisionsfromapplyingto
CSFofferdocuments[Schedule1,Part2,item37,subparagraphs12DA(1A)(a)(iii)and12DB(2)(a)(iii)oftheASICAct].Thecarveout
fromtheseprovisionsintheASICActislimitedtoCSFofferdocuments,theprovisionswillcontinuetoapplytoothermisleadingordeceptive
conductorfalserepresentationsmadebytheissuercompanyortheintermediary.

5.61AmendmentshavealsobeenmadetoexcludetheStateFairTradingActofanyStateorTerritoryfromapplyingtoCSFoffersmadeunder
adefectiveCSFofferdocument[Schedule1,Part1,item31,subparagraph1041K(1)(a)(iia)].ThisamendmentmeansthatCSFoffer
documentswillbetreatedinthesamewayasexistingChapter6Ddisclosuredocuments.

Chapter 6

InvestorProtections

Outline of chapter
6.1ThisChaptersetsouttheinvestorprotectionprovisionsthatarepartoftheCSFregime.
6.2AlllegislativereferenceswithinthisChapteraretotheCorporationsAct2001unlessspecifiedotherwise.

Summary of new law


6.3Theamendmentsestablishcertainprotectionsforallinvestors,withsomeadditionalprotectionsapplyingtoretailclients.These
protectionsensurethatinvestorscanmakeinformeddecisionsandreducetheextenttowhichtheymaybesubjectedtoexcessivelevelsofrisk

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underthenewCSFregime.

6.4Theadditionalprotectionsthatapplytoretailclientsare:
aninvestorcapof$10,000perissuerviaaparticularintermediarywithina12monthperiod
unconditionalcoolingoffrights
aprohibitiononprovidingfinancialassistancetoenableinvestmentsinCSFoffersand
therequirementtoobtainariskacknowledgmentpriortoacceptingaCSFapplication.
6.5TheamendmentsrestricttheadvertisingofCSFoffersorintendedCSFoffers.
6.6TheexistingprohibitiononsecuritieshawkingmayapplytocertainoffersofsecuritiesthatarealsothesubjectofaCSFoffer.
6.7TheamendmentsmakeitanoffenceforapersontomakeanofferthatisexpressedasaCSFofferbutthatrelatestoacompanythat
hasnotyetbeenformedordoesnotexist.

Comparison of key features of the new law and current law


Newlaw

Currentlaw

ACSFintermediarymustrejectan
applicationfromaretailinvestorthat
breachestheretailinvestorcapof
$10,000perissuercompanyviathe
intermediarysplatformwithina12
monthperiod.

Noequivalent.

ACSFintermediarymustrejectan
applicationfromaretailinvestorwhere
theinvestorhasnotcompletedtherisk
acknowledgment.

Noequivalent.

Aretailinvestorhasanunconditional
righttowithdrawfromaCSFoffer
within48hoursofmakingthe
application.

Noequivalent.

ThecompanymakingtheCSFofferand
itsrelatedparties,andtheCSF
intermediarythathostsorintendstohost
aCSFofferanditsassociates,cannot
financiallyassistorarrangefinancial
assistanceforaretailinvestortoacquire
securitiesunderaCSFoffer.

Noequivalent.

Apersoncanadvertiseorpublisha
statementinrelationtoaCSFofferor
intendedCSFoffersolongasthe
advertisementorstatementcomplies
withtheadvertisingrules.

Apersoncanadvertiseorpublisha
statementinrelationtoanofferof
securitiesorintendedofferrequiring
disclosuresolongastheadvertisement
orstatementcomplieswiththe
advertisingrules.

Apersonmustnotmakeanoffer
expressedasaCSFofferinrelationtoa
companythathasnotbeenformedor
doesnotexist.

Apersonmustnotmakeanofferof
securitiesthatneedsdisclosureunder
Part6D.2inrelationtoacompanythat
hasnotbeenformedordoesnotexist.

Detailed explanation of new law


6.8TheCSFregimecontainscertaininvestorprotectionsthatapplyonlytoaninvestortreatedasaretailclientinrelationtotheCSFoffer.
Protections for retail clients
6.9ForthepurposesoftheCSFregime,aretailclientforthepurposeofaCSFofferisdefinedinthesamewayasaretailclientforthe
purposeofacrowdfundingservice[Schedule1,Part1,item14,section738D].Paragraphs3.21to3.24explainwhenapersonwillbe
treatedasaretailclientinrelationtoacrowdfundingservice.

Investorcaps
6.10TheBillestablishesa$10,000capasthemaximumamountaretailclientcaninvestinrelationtoCSFoffersbyaparticular
issuerviathesameintermediarywithina12monthperiodtolimitaretailinvestorsexposuretoasinglecompany.Theamountofthecap
canbeadjustedbyregulations.[Schedule1,Part1,item14,subsection738ZC(1)]
6.11TheinvestmentcapisappliedasanobligationonaCSFintermediarytorejectanapplicationfromaretailclientwhereitwouldotherwise
breachthecap.Whenassessingwhetherthecapwouldbebreached,theintermediaryshouldonlytakeaccountofinvestmentsmadeonitsoffer
platformandnotinvestmentsmadeintheissuercompanyviaotherplatforms.

6.12ItisexpectedthatCSFintermediarieswillhavethenecessarysystemstoensurethatamountsinvestedbyretailinvestorsare
appropriatelytrackedsothatanapplicationfromaretailclientthatwouldexceedthecapisrejected.Whereanapplicationisrejected
becauseitwouldotherwisebreachthecap,theintermediarymustrefundapplicationmoneytotheinvestorassoonaspracticable[Schedule1,
Part1,item14,paragraph738ZB(4)(b)].

Example6.1:Investorcaps
On2Januaryofthecurrentyear,Donnamakesanapplicationtoinvest$9,000inaCSFofferbyNewTechLtdviaValueAddPtyLtd,alicensedCSFintermediary.

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NewTechsCSFofferissuccessfulandthecompanydecidestomakeasecondCSFoffer6monthslaterusingtheValueAddplatformagain.Donnawasveryhappy
withherinvestmentinNewTechanddecidestoparticipateintheirsecondoffer.
On5JulyDonnaattemptstomakeaninvestmentof$5,000inNewTechbutisunabletocompletetheapplicationontheValueAddplatform.Thisisbecausethe
$5,000allocationwouldtakehertotalinvestmentinNewTechviatheValueAddplatformbeyondthe$10,000capwithin12months.

6.13TheBillprovidesrulesrelatingtotheinvestorcapiftwoormorepeoplemakeajointapplicationforsecurities.Wherethereare
jointapplicants,eachoftheapplicantsistakentohavemadeanindividualapplicationforthepurposesofcalculatingtheamounts
contributingtoeachapplicantsinvestorcap.Theamounteachoftheapplicantsisconsideredtohaveinvestedisdeterminedbydividing
thetotalamountinvestedunderthejointapplicationbythetotalnumberofapplicants.[Schedule1,Part1,item14,subsection738ZC(2)]
6.14Iftheamountbeingattributedtoeachapplicantunderajointapplicationwouldresultinanyoneoftheindividualapplicants
exceedingtheirinvestorcap,theCSFintermediarymustrejectthejointapplicationandrefundtheapplicationmoney.Thereisaregulation
makingpowertoallowthedefaultrulesrelatingtojointapplicationstobeamendedbyregulation.[Schedule1,Part1,item14,
subsection738ZC(2)]

6.15Anintermediarythatdoesnotrejectanapplicationbyaretailclient,whichleadstoabreachoftheinvestorcap,commitsanoffence
punishablebyamaximumpenaltyof30penaltyunits.[Schedule1,Part1,item14,subsection738ZC(1)anditem34,item245Qinthe
tabletoSchedule3]

6.16Inthecaseofaprosecutionrelatedtothisoffence,thedefendantwouldbearanevidentialburdenforestablishingthattheinvestorwas
notaretailclientinrelationtotheCSFoffer[Schedule1,Part1,item23,subsection761G(8)].Imposingtheevidentialburdenonthe
defendantisnecessaryandappropriatetoensureinvestorsthatareretailclientsareprovidedwiththeadditionalinvestorprotections,suchasthe
investorcap,providedtoretailclientsundertheCSFregime.

6.17Therearenopenaltiesforaretailclientthatmakes,orpurportstomake,anapplicationthatexceedstheinvestorcap.
Coolingoffrights
6.18TheBillprovidesallretailclientswhomakeanapplicationinrelationtoaCSFofferwithanunconditionalrighttowithdrawtheir
applicationwithin48hoursofitbeingmade[Schedule1,Part1,item14,subsection738ZD(1)]

6.19Thecoolingoffrightsprovideretailclientswithtimetoreconsidertheirdecisiontoinvestandallowtheinvestortowithdrawtheir
applicationintheeventtheynolongerwishtoproceedwiththeinvestment.

6.20Theinvestormustexercisetheircoolingoffrightsinaccordancewiththemethodspecifiedbytheintermediary.[Schedule1,Part1,
item14,subsection738ZD(2)]

6.21Theintermediaryisrequiredtodisplayinformationregardingtheretailinvestorsstatutorycoolingoffrightsprominentlyonthe
offerplatformincludingthemeansbywhichaninvestorcanexercisethoserights[Schedule1,Part1,item14,subsection738ZA(8)].These
requirementsarediscussedinparagraphs3.70to3.71.
6.22Whereaninvestorexercisestheircoolingoffrights,theintermediarymustrefundtheirapplicationmoneyassoonaspracticable.
[Schedule1,Part1,item14,paragraph738ZB(4)(a)]

Example6.2:Exerciseofcoolingoffrights
Ericappliestoinvest$7,000inaCSFofferbyAlphaBetaLtdviatheValueAddPtyLtdCSFplatformat10:00amon20April.Hethinksabouthisdecisiontoinvest
andat9:00amon21Aprilhedecidesthathehaschangedhismindandwantstowithdrawhisapplication.
Ericcanwithdrawasheiswithinthe48hourswithdrawalperiodbuthemustindicatehiswithdrawaltoValueAddinaccordancewiththeinstructionstheyhave
providedontheirplatform.

Example6.3:Exerciseofcoolingoffrightsonapublicholiday
Becalsoappliestoinvest$4,000inthesameCSFofferbyAlphaBetaLtdat5:30pmon23April.Shedecidesat1:00pmon25Aprilthatshewantstowithdrawher
application.
Becisabletowithdrawherapplicationassheiswithinthe48hourwithdrawalperiodeventhough25AprilisANZACDayandapublicholidayacrossAustralia.She
willhavetowithdrawtheapplicationinaccordancewiththeinstructionprovidedontheplatform.Theplatformoperatorwillhavetoensurethatthewithdrawalcanbe
madeeventhoughitisapublicholiday.6.23Intermediarieswillalsohavetohaveappropriatemechanismstoensurethatpotentialinvestorscanaccesstheir
withdrawalrightsintheeventoftechnicalorotherproblemswiththeplatform,includingunavailabilityforroutinemaintenance.

Prohibitionontheprovisionoffinancialassistance
6.23TheBillprohibitsthefollowingpersonsfromprovidingfinancialassistanceorarrangingtoprovidefinancialassistancetoa
personthatisaretailinvestor:
acompanymakingtheCSFofferorintendedoffer(anofferthatisyettobemade)
relatedpartiesofthecompany
aCSFintermediarythatishostingorintendingtohosttheCSFofferand
anyassociatesoftheCSFintermediary.[Schedule1,Part1,item14,subsections738ZE(1)and(2)].
6.24Theamendmentsdefinewhoistakentobearelatedpartyofthecompany(refertoparagraphs2.45to2.49).Anassociateofan
intermediaryisdeterminedinaccordancewithsections10to17.
6.25TheBillconfirmsthattheprohibitionapplieswhetherthefinancialassistancewasprovidedbeforeoraftertheacquisitionof
securitiesundertheofferandalsocoversfinancialassistanceprovidedintheformofadividend[Schedule1,Part1,item14,subsection738ZE(3)].
TheBillprovidesthatthetermsfinanciallyassistandfinancialassistancehavethesamemeaningsastheydoforsection260AoftheAct
[Schedule1,Part1,item14,subsection738ZE(4)].

6.26Contraventionoftheprohibitionisanoffence,punishablebyamaximumpenaltyof300penaltyunits,fiveyearsimprisonment,
orboth.Thetermofimprisonmentisconsistentwiththepenaltyapplicableundersection260A.Thepenaltyof300penaltyunitshasbeen
calculatedbasedonthefine/imprisonmentratioof5:1specifiedintheGovernmentsGuidetoFramingCommonwealthOffences,
InfringementNoticesandEnforcementPowers(section3.1.3oftheGuiderefers).[Schedule1,Part1,item34,item245RinthetabletoSchedule3]
Protections applying to all investors
Advertising restrictions
6.27TheBillprovidesforageneralprohibitiononadvertisingCSFoffersexceptincertaincircumstances.
6.28Thepurposeoftheadvertisingrulesistoprotectinvestorsbyensuringtheymakeinformeddecisionsregardingthemeritsofa
CSFofferbasedontheinformationcontainedintheCSFofferdocumentratherthanadvertisements.
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6.29IssuersandintermediariesarepermittedtoadvertiseCSFoffersaslongastheadvertisementorpublicationcomplieswiththe
rulessetoutintheBill.
Scope of the advertising prohibitions
6.30TheadvertisingrestrictionsapplytoadvertisementsofCSFoffersandintendedCSFoffers(offersthatareyettobemade).
[Schedule1,Part1,item14,paragraph738ZG(1)(a)]

6.31TheadvertisingrestrictionsalsoapplytostatementsthatrefertoCSFoffersorintendedoffers(whetherdirectlyorindirectly)or
statementsthatarereasonablylikelytoinducepeopletoapplyforsecuritiesunderaCSFofferorintendedoffer.[Schedule1,Part1,
item14,paragraph738ZG(1)(b)]

WhenastatementwillbetakentoindirectlyrefertoaCSFofferortoreasonablyinduceinvestorstoapply
6.32IndeterminingwhetherastatementindirectlyreferstoaCSFofferorintendedoffer,orisreasonablylikelytoinduceinvestorsto
applyforsecuritiesofferedunderaCSFofferorintendedoffer,theBillprovidesthatregardmustbehadtothreefactors:
whetherthestatementispartofnormaladvertisingdirectedatmaintainingorattractingcustomers[Schedule1,Part1,item14,
paragraph738ZG(3)(c)]

whetherthestatementcontainsinformationthatdealswiththeaffairsofthebodypublishingthestatement[Schedule1,Part1,item14,
paragraph738ZG(3)(d)]and

whetheraninvestorwouldlikelybeencouragedtoinvestinthesecuritiesonthebasisofthestatementratherthantheCSFofferdocument
[Schedule1,Part1,item14,paragraph738ZG(3)(e)].

Not within scope of the advertising restrictions


6.33TheadvertisingrestrictionsdonotapplytothepublicationofaCSFoffer,CSFofferdocument,oranyotherinformationrelatingtoaCSF
offerthatisontheplatformoftheintermediary[Schedule1,Part1,item14,subsection738L(4)andparagraph738ZG(2)(a)].Inthe
absenceofthiscarveout,theintermediarywouldberequiredtoincludeastatementthatapersonshould,indecidingwhethertomakean
applicationundertheoffer,considertheCSFofferdocumentandgeneralCSFriskwarning(refertoparagraphs6.40to6.43).However,itwouldbe
unnecessarytoincludeastatementdirectingapersonsattentiontotheofferdocumentandthegeneralCSFriskwarninggiven,inordertoread
thestatement,thepersonwouldalreadyhavetobeviewingtheofferplatformwhichwoulditselfalreadydisplaytheCSFofferdocumentand
generalCSFriskwarning.

6.34However,theBillprovidesthatstatementsmadeonacommunicationfacility,evenwherethecommunicationfacilityispartoftheoffer
platform,willremainsubjecttotheadvertisingrestrictions[Schedule1,Part1,item14,subsection738ZG(2)].Thereisaseparate
exceptiontotheadvertisingrulesthatappliesforstatementsmadeingoodfaithonthecommunicationfacility,discussedatparagraphs6.52to
6.57.

6.35TheadvertisingrestrictionsdonotapplytoadvertisementsorpublicationsthatdonotrefertoparticularCSFoffersorintendedoffersand
thatdoeitherorbothofthefollowing:

identifyapersonasaCSFintermediary
providegeneralinformationabouttheintermediarysCSFservices.[Schedule1,Part1,item14,paragraph738ZG(2)(b)]
6.36Thisexclusionfromtheadvertisingrestrictionsistopermittheintermediarytoadvertiseitsintermediationservices.
Exceptions to the advertising restrictions
6.37TheBillsetsoutsomeexceptionstotheadvertisingrestrictionsthatareconsistentwiththeexemptionsavailableinrelationto
advertisingothertypesofofferdocumentsunderchapter6DoftheAct.[Schedule1,Part1,item14,section738ZG(4)]

6.38Apersonrelyingononeoftheseexemptionshasanevidentialburdenofpointingtotherelevantevidencethatsuggestsareasonable
possibilitythatthemattersrequiredunderanexemptionexists.Oncethedefendantdischargesthisevidentialburden,theonusisonthe
prosecutiontodisprovethemattersbeyondreasonabledoubt.

6.39ThisapproachisconsistentwiththeprincipleintheGuidetoFramingCommonwealthOffences,InfringementNoticesandEnforcement
Powerswhichestablishesthegeneralrulethatadefendantshouldonlybearanevidentialburdenofproofforanoffencespecificdefence.Inthis
case,thepersonseekingtouseoneoftheexemptionstotherestrictionsonthepublicationofCSFoffersisrequiredtobearanevidentialburdenin
showingthatthespecificexemptionapplies.

Advertisementincludesastatementthatapersonmust,indecidingwhethertoinvestintheCSFoffer,considertheCSFofferdocumentandrisk
warning
6.40Anadvertisementorpublicationwillnotcontravenetheadvertisingrestrictionswheretheadvertisementorpublicationincludesa
statementthatapersonshould,indecidingwhethertomakeanapplicationundertheoffer,considertheCSFofferdocumentandgeneralCSFrisk
warning.[Schedule1,Part1,item14,subsection738ZG(6)]

6.41Apersonrelyingonthisexemptionhastheevidentialburdenofdemonstratingthattheirstatementcomplieswiththerequirementstofall
withintheexemptionastheyarebestplacedtoprovidethisevidence.Thesamerequirementsapplywhethertheadvertisementisinrelationtoan
openCSFoffer(onewheretheCSFofferdocumenthasbeenpublished)oranintendedoffer.Thisisdifferenttohowadvertisementsrelatingto
offersofanunlistedcompanyaretreated:anadvertisementmadebeforethedisclosuredocumenthasbeenlodgedwithASICissubjecttostricter
controlsregardingwhatcanbeincludedintheadvertisementthananadvertisementmadeafterthedisclosuredocumenthasbeenlodged
(paragraph734(5)(b)comparedwithsubsection734(6)).

6.42TherationaleforrelaxingsomeoftheadvertisingrestrictionsapplyingtointendedoffersisthattheCSFregimebuildsincertaininvestor
protections,forexample,thatapplicationscanonlybemadeviatheplatformofanintermediarythatisrequiredtoprominentlydisplayimportant
informationforinvestors(suchastheCSFofferdocumentandriskwarning).Theregimealsoprovidesadditionalprotectionsforretailinvestors
(suchastheunconditionalcoolingoffrights).

6.43Wheretheadvertisementorpublicationdoesnotincludetherequiredstatement(andnootherexceptionsapply),thepersonadvertising
orpublishingthestatementwillcommitanoffence(refertoparagraphs6.64to6.66).

Exceptionforpublishers
6.44Mediabusinessesthatpublishanadvertisementintheordinarycourseoftheirbusinessarenotsubjecttotheadvertising
restrictions.Theexceptiononlyappliesifthemediabusinessdoesnotknowanddoesnotsuspectthatthepublicationwouldbreachthe
advertisingrestrictions.[Schedule1,Part1,item14,subsection738ZG(7)]
6.45Theexceptiononlyappliesinrelationtomediabusinessesthatarenewspapers,magazines,radioandtelevisionbroadcasters,and
theirelectronicequivalents.[Schedule1,Part1,item14,subsection738ZG(10)]
6.46Apublisherrelyingonthisexemptionwillbeartheevidentiaryburdeninthiscaseastheexemptionreliesontheirstateofmind.
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6.47TheexceptionalsoextendstonewsreportsorothergenuinecommentinthemediathatrefertoaCSFofferdocumentthatis
publishedonanintermediarysplatform,informationinsuchanofferdocumentandinformationthatiscontainedincertainotherpermitted
reports.[Schedule1,Part1,item14,paragraph738ZG(9)(c)]
6.48Itisappropriateforthepersonclaimingthedefencetobeartheevidentialburdenastheyarebestplacedtopointtothesource
oftheinformationused.ReportsaboutsecuritiesofthecompanymakingtheCSFofferorintendedofferthatarepublishedbyan
independentthirdpartyarealsoanexceptiontotheadvertisingrestrictions.[Schedule1,Part1,item14,paragraph738ZG(9)(d)]
6.49Anentitywillbeconsideredanindependentthirdpartyifitis:notthecompanymakingtheCSFoffernotactingforthat
companynotadirectorofthecompanynottheCSFintermediaryhostingtheofferandnotanyoneelsewhohasaninterestinthesuccess
oftheissueofthesecurities.[Schedule1,Part1,item14,paragraph738ZG(9)(d)]
6.50Anentitywillnotbeconsideredindependentiftheyreceiveconsiderationoranyotherbenefitforthepublicationthat
contravenestheadvertisingrestrictions.[Schedule1,Part1,item14,paragraph738ZG(9)(d)]
6.51Inthiscase,itisappropriatethatthepersonmakingthepublicationbeartheevidentialburdenastheyarebestplacedto
demonstratetheirindependencefromthecompanymakingtheCSFoffer.Anadvertisementorpublicationnotcoveredbythisexception
willcontravenetheadvertisingrestrictions(unlessanotherexceptionapplies)andthepersonadvertisingorpublishingthestatementwill
commitanoffence(refertoparagraphs6.64to6.66).
Statementsmadeingoodfaithonthecommunicationfacility
6.52ThisexceptiontotheadvertisingrestrictionsistoenablestatementstobemadeonthecommunicationfacilityforaCSFofferas
longasthestatementismadeingoodfaith.[Schedule1,Part1,item14,subsection738ZG(8)]
6.53Theevidentialburdenofdemonstratingthatthestatementwasmadeingoodfaithfallsonthepersonmakingthestatement.Thisis
appropriateasthepersonmakingthestatementisbestplacedtoraiseevidenceastowhythestatementwasmadeingoodfaith,givenitcouldat
leastinpartinvolvesomeinquiryastothepersonsstateofmindandknowledge.

6.54Intheabsenceofthisexception,anyperson(includingaprospectiveinvestor)makingastatementonthecommunicationfacilitywould
berequiredtoinclude,inadditiontotheirstatement,astatementthataperson,indecidingwhethertomakeanapplicationpursuanttotheCSF
offer,shouldconsidertheCSFofferdocumentandgeneralCSFriskwarning.Ifthepersonfailedtoincludetherequiredstatement,theywould
breachtheadvertisingrestrictionsandcommitastrictliabilityoffence,punishablebyamaximumpenaltyof30penaltyunits.

6.55Asitwouldbeimpracticabletorequireeverypersonusingthecommunicationfacilitytoincludetherequiredstatementeverytimethey
madeastatementonthefacility,theamendmentscreateanexceptionforstatementsmadeingoodfaithonthecommunicationfacility,byany
person(includingtheissuercompanyorintermediary).[Schedule1,Part1,item14,subsections738ZG(1)and(8)]

6.56Astatementnotmadeingoodfaithwouldnotbecoveredbythisexception.Theevidentialburdenofdemonstratingthatthestatement
wasmadeingoodfaithfallsonthepersonmakingthestatement.Thisisappropriateasthepersonmakingthestatementisbestplacedtoraise
evidenceastowhythestatementwasmadeingoodfaith,givenitcouldatleastinpartinvolvesomeinquiryastothepersonsstateofmindand
knowledge.

6.57Wherethepersonisunabletoshowthestatementwasmadeingoodfaith,thepersonwillcommitanoffence(refertoparagraphs6.64
to6.66).

Exceptionsforcertainreportsandnotices
6.58ThisexceptionistoenablethepublicationofcertainnoticesandreportsrelatingtoacompanymakingaCSFoffer.
6.59TheexceptionenablesthepublicationofanoticeorreportofageneralmeetingofacompanymakingaCSFoffer.[Schedule1,
Part1,item14,paragraph738ZG(9)(a)]

6.60.Inthiscase,itisappropriatethatthepersonmakingthepublicationbearstheevidentiaryburdenofshowingthatitconsists
solelyofanoticeorreportofthecompanysgeneralmeetingasthatpersonisbestplacedtohaverecordsofthemeetingandknowthe
circumstancessurroundingthemeeting.
6.61Theexceptionalsocoversreportsaboutthecompanythatarepublishedaslongasthereportsdonotcontainmaterialinformation
aboutthecompanythatisnotincludedintheCSFofferdocumentorannualreportanddonotactuallyrefertotheCSFoffer.[Schedule1,
Part1,item14,paragraph738ZG(9)(b)]

6.62Thepersonmakingthepublicationisbestplacedtobeartheevidentialburdeninthesecircumstancesastheyarebestplacedto
pointtothesourceofinformationpreviouslymadepublicbythecompany.
6.63Anadvertisementorpublicationnotcoveredbythisexceptionwillcontravenetheadvertisingrestrictions(unlessanotherexception
applies)andthepersonadvertisingorpublishingthestatementwillcommitanoffence(refertoparagraphs6.64to6.66).

Consequencesofcontraveningtheadvertisingrestrictions
6.64Apersonthatadvertisesorpublishesastatementincontraventionoftheadvertisingrestrictionscommitsastrictliabilityoffence,
punishablebyamaximumpenaltyof30penaltyunits[Schedule1,Part1,item14,subsection738ZG(5)anditem34,item245Tinthe
tabletoSchedule3].

6.65StrictliabilityisappropriatebecauseoftheimportanceofensuringthatinvestorsapplyingforCSFoffersdosoafterformingaviewofthe
meritsoftheCSFoffer,basedontheinformationcontainedintheCSFofferdocumentandhavingregardtothegeneralCSFriskwarning.Thisis
particularlyimportantgivenCSFinvestmentswillbehighrisk(giventherelativelyhighfailurerateofstartupsandsmallbusinesses).

6.66Thepenaltyof30penaltyunitscomplieswiththeGovernmentsGuidetoFramingCommonwealthOffences,InfringementNoticesand
EnforcementPowersasitisbelowtherecommendedmaximumpenaltyof60penaltyunitsanddoesnotincludeatermofimprisonment.

Prohibition on hawking securities


6.67Section736prohibitsapersonfromofferingsecuritiesforissue(orsale)inthecourseof,orbecauseof,anunsolicitedmeetingor
telephonecall.TheprohibitiononsecuritieshawkinginPart6D.3isanimportantsafeguardagainstapersonbeingpressuredintoacquiring
securitieswithoutpotentiallyhavingalloftheinformationtomakeaninformeddecisionorthebenefitsoftheprotectionsofferedundertheCSF
regime.

6.68TheprohibitionhasnotbeenspecificallyamendedtoapplytoCSFoffersbecauseCSFofferscanonlybemadeviaanintermediarys
platform.Nevertheless,itispossibleforthesecuritieshawkingprohibitiontoapplytosecuritiesunderaCSFofferwheretheofferactuallymadein
thecourseoftheunsolicitedmeetingortelephonecallisnotexpressedtobemadeasaCSFoffer.Insuchcases,theofferwillnotbeaCSFoffer
andwill,therefore,becoveredbythesecuritieshawkingprohibitioninsection736.

6.69WherethepersonofferingthesecuritiesdoessoinawaythattheofferisexpressedasaCSFoffer(andtheofferiseligibletobemade
asaCSFoffer),theprohibitiononsecuritieshawkingwillnotapply(refertoparagraph2.10).However,astheCSFofferwouldhavebeenmade
otherwisethanontheplatformofanintermediary,therulesregardinghowaCSFoffermustbemade(referChapter4oftheExplanatory
Memorandum)willhavebeencontravened,whichisanoffence.

Offering securities of a company that does not exist


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6.70TheamendmentsprohibitapersonfrommakinganofferexpressedasaCSFofferinrelationtoacompanythathasnotbeenformedor
thatdoesnotexist[Schedule1,Part1,item14,section738ZF].Thisiscomparabletotheruleinsection726,whichmakesitanoffencefora
persontooffersecuritiesinabodythathasnotbeenformedorthatdoesnotexistwheretheofferrequiresdisclosureunderPart6D.2.
Section726doesnotapplytoaCSFofferasaCSFofferisnotanofferrequiringdisclosureunderPart6D.2,whichiswhytheseamendmentscreate
anewoffence.

6.71Theoffencecarriesamaximumpenaltyof300penaltyunits,fiveyearsimprisonment,orboth[Schedule1,Part1,item34,
item245SinthetabletoSchedule3].

ASIC stop order powers


DefectiveadvertisingofCSFoffers
6.72ASICsstoporderpowershavebeenextendedsothattheyapplywhereanadvertisementorpublicationforaCSFofferorintendedoffer
isdefectivebecausethereisamisleadingordeceptivestatementintheadvertisement,ortheadvertisementdoesnotincludetherequired
statementadvisingthatapersonshould,inconsideringwhethertoapplyfortheoffer,considertheCSFofferdocumentandgeneralCSF
riskwarning[Schedule1,Part1,items15,18and19,paragraph739(1)(f),subsection739(6)andparagraph739(6)(c)].

6.73Wheretheadvertisementisdefective,ASICmayordermaythattherelevantconductspecifiedinthestopordermustnotbeengagedin.
[Schedule1,Part1,item17,paragraph739(1A)(b)]

Offersexpressedas,butnoteligibletobe,CSFoffers
6.74TheamendmentsextendASICsstoporderpowerssothattheyapplytooffersexpressedtobemadeasCSFoffersbutthatarenot
eligibletobemadeasCSFoffers.[Schedule1,Part1,item15,paragraph739(1)(g)]

6.75ASICmayorderthatnooffers,issues,salesortransfersofthesecuritiesaretotakeplacewhiletheorderisinforce.[Schedule1,
Part1,item16,paragraph739(1A)(a)]

Consequential amendments
6.76AconsequentialamendmenthasbeenmadetooneoftheexceptionstotheexistingadvertisingrestrictionsinPart6D.3toaddCSFoffer
documents.TheconsequentialamendmentisintendedtocoverthesituationwhereacompanyhasmadebothaCSFofferandanofferrequiring
disclosureunderChapter6D.AreferencetobothoffersinareportofthecompanycouldbreachboththeadvertisingrestrictionsintheCSFregime
aswellastheexistingrestrictionsapplyingtoadvertisingofdisclosuredocuments.Theeffectoftheconsequentialamendmentisthatareport
aboutacompanythatdoesnotcontainmaterialinformationaboutthecompanythathasnotpreviouslybeenincludedinaChapter6Ddisclosure
documentoraCSFofferdocumentandthatdoesnotrefertotheofferswillnotcontravenetheexistingadvertisingrestrictionsinPart6D.3.
[Schedule1,Part1,item13,subparagraph734(7)(c)(i)]

6.77Consequentialamendmentshavebeenmadetosubsection1018A(4).Thesubsectionsetsoutthegeneralexceptionstoadvertising
restrictionsapplyingtofinancialproducts.Anexistingexceptionforreportsbytheissuerwhereinformationwaspreviouslymadeavailableina
disclosuredocumentlodgedwithASIChasbeenextendedtoincludeCSFofferdocuments.Anexceptionfornewsreports,orgenuinecomment,in
themediarelatingtoinformationcontainedinadisclosuredocumentlodgedwithASIChasbeenextendedtoincludeCSFofferdocuments.
[Schedule1,Part1,items28and29,subparagraphs1018A(4)(c)(i)and1018A(4)(d)(i)]

Chapter 7

CorporateGovernanceConcessions

Outline of chapter
7.1ThisChaptersetsoutthetemporaryconcessionsfromcertainpubliccompanycorporategovernanceandreportingrequirementsavailable
toanewpubliccompanythatiseligibletocrowdfundandhascompletedorintendstocompleteaCSFofferwithintherequiredtime.

7.2Unlessotherwisestated,allreferencesinthisChapterrelatetotheCorporationsAct2001.

Context of amendments
7.3AstheCSFregimeisonlyavailabletopubliccompanies,itwillexcludestartupsandothersmallscaleenterprisesthatdonotadopta
publiccompanystructure.RestrictingtheCSFregimeinthiswaycouldpotentiallyreducethenumberofcompaniesusingtheCSFregimeand
consequentlysubstantiallyreducetheeffectivenessoftheregime.

7.4Toaddressthis,theBillcreatestemporaryconcessionsfromcertainpubliccompanycorporategovernanceandreportingrequirements
fornewpubliccompanieslimitedbysharesandproprietarycompaniesthatconverttoapubliccompanythatsatisfytheCSFeligibilitycriteriaatthe
timeofregistrationasanewpubliccompanyandattheendoftherelevantfinancialyear,andthatcompleteaCSFofferwithintherequired
timeframe.Thepurposeoftheconcessionsistoreducethebarrierstoadoptingapubliccompanystructure.

7.5Thecorporategovernanceconcessionsareonlyavailabletocompaniesthatregisteras,orconvertto,apubliccompanyafterthe
commencementoftheCSFregime.Thisistoensurethatpubliccompaniescurrentlysubjecttothepubliccompanyrequirementsdonotreduce
theirreportingorgovernancestandards.

Summary of new law


7.6Acompanythatisregisteredas,orthatconvertsto,apubliccompanylimitedbysharesafterthecommencementoftheCSFregimewill
beeligibleforthecorporategovernanceandreportingconcessions.

7.7Theconcessionsareonlyavailabletocompaniesthatareeligibleandintendtocrowdfundatthetimetheyareregisteredandthat
successfullycompleteaCSFofferwithin12monthsofregistrationorconversion,andhavenotundertakenanyfundraisingoffersrequiring
disclosure.

7.8Thecorporategovernanceandreportingconcessionsapplyforamaximumoffiveyearsfromthedateofregistrationas,orconversion
to,apubliccompanylimitedbyshares.Theconcessionsare:

anexemptionfromneedingtoholdanAnnualGeneralMeeting(AGM)undertheusualrules
theoptiontoonlyprovidefinancialreportstoshareholdersonlineand

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thecompanynotbeingrequiredtoappointanauditororhaveauditedfinancialreportsuntilmorethan$1millionhasbeenraisedfromCSF
offers.

Comparison of key features of new law and current law


Newlaw

Currentlaw

Acompanythatisregisteredas,or
convertsto,apubliccompanylimitedby
sharesafterthecommencementofthe
CSFregimeandthatsatisfiesthe
eligibilitycriteriaiseligibleforcertain
corporategovernanceandreporting
concessionsforuptofiveyears.

Noequivalent.

Acompanythatiseligibleforthe
corporategovernanceandreporting
concessionsisnotrequiredtoholdan
AGMundersection250N.

Undersection250N,apubliccompany
mustholdanAGMeachyear.

Acompanythatiseligibleforthe
corporategovernanceandreporting
concessionsisonlyrequiredtoprovide
financialreportstoshareholdersonline.

Apubliccompanymayprovidefinancial
reportstoshareholders:byhardcopyor
email(wheretheshareholderhasmade
anelectiontoreceivethereportsinthis
way)bymakingthereportreadily
accessibleonawebsiteorbydirectly
notifying,inwriting,allpersonsthatdid
notmakeanelectionastohowto
receivethereport,thewebsiteatwhich
thereportsmaybeaccessed.

Acompanythatiseligibleforthe
corporategovernanceandreporting
concessionsisnotrequiredtoappointan
auditororhaveauditedfinancialreports
untilmorethan$1millionhasbeen
raisedfromCSFofferorotheroffers
requiringdisclosure.

Apubliccompanymustappointan
auditorwithinonemonthofregistration
anditsfinancialreportsmustbeaudited
eachyear.

Detailed explanation of new law


7.9Theconcessionsareonlyavailabletoacompanythatregistersasapubliccompany,orconvertstoapubliccompany,afterthe
commencementoftheCSFregime.Inordertobeeligibletoclaimtheconcessions,thecompanymustsatisfycertaineligibilitycriteriaon
registrationasorconversiontoapubliccompanylimitedbysharesandattheendofthefinancialyearinwhichitisclaimingtheconcession.

Must be eligible on registration or conversion


7.10Inordertobeeligiblefortheconcessions,anewlyregisteredcompanylimitedbysharesmustindicate,onitsapplicationforregistration,
thatitwillsatisfytherequirementstobeaneligibleCSFcompany(Chapter2oftheExplanatoryMemorandum)onregistrationandthatitintendsto
makeaCSFofferafterregistrationwithinthenexttwelvemonths[Schedule2,item1,paragraph117(2)(mc)].

7.11Similarly,aproprietarycompanythatconvertstobecomeapubliccompanylimitedbysharesisonlyeligiblefortheconcessionsifthey
makeastatementthattheysatisfytherequirementstobeaneligibleCSFcompanyonconversionandtheyintendtomakeaCSFofferwithin12
monthsofconversion.[Schedule2,item2,paragraph163(2)(d)].

7.12AcompanythatgivesmisleadinginformationaboutitsintentiontomakeaCSFofferwillcommitanoffenceundersection1308ofthe
Act.

7.13Acompanythatdoesnotindicatetheaboveinitsapplicationforregistrationorconversionwillbeineligiblefortheconcessions.
Must be eligible at end of nancial year
7.14Thecompanymustdetermineitseligibilitytoclaimtheconcessionsateachfinancialyearend.
7.15Acompanyiseligiblefortheconcessionsforaparticularyearwhereitsatisfiesthefollowingcriteria:
itisaneligibleCSFcompanyattheendofthefinancialyear
ithas,initsapplicationforregistrationorconversion,indicatedthatitwillbeaneligibleCSFcompanyonregistrationorconversionandthatit
intendstomakeaCSFoffer

thecurrentfinancialyearendswithinfiveyearsofthedateofthecompanysregistration
wherethecurrentfinancialyearendsmorethan12monthssinceregistrationorconversion,thecompanyhassuccessfullycompletedaCSF
offer

eitheritisthecompanysfirstfinancialyear,orwhereitisnotthecompanysfirstfinancialyear,thecompanyhasbeeneligibleforthe
concessionsinrelationtoeveryearlierfinancialyearand

thecompanyhasnotmadeanyoffersofsecuritiesforissueorsalethatneeddisclosureunderChapter6D.2sincetheystartedaccessing
thesecorporategovernanceconcessions.[Schedule1,Part1,item14,section738ZI]

MustcompleteaCSFofferwithin12monthsofregistration
7.16TherequirementthatthecompanycompleteaCSFofferwithin12monthsofregistrationas,orconversionto,apubliccompanylimited
bysharesisintendedtoensuretheconcessionsaretargetedtocompaniesthatusetheCSFregime.

7.17RecognisingthatitwilltakesometimeforanewlyformedcompanytocompleteaCSFoffer,thecompanyhasaperiodof12months
fromregistrationas,orconversionto,apubliccompanylimitedbyshareswithinwhichtosuccessfullycompleteaCSFoffer.

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7.18Theoffermustbecompletewithinthe12monthperiod.AcompanythatmakesaCSFofferthatisopenattheendofthe12month
periodwillnotbeeligiblefortheCSFcorporategovernanceconcessionseveniftheoffersubsequentlysuccessfullycompletes.

7.19Likewise,ifthecompanymakesaCSFofferthatclosesbutdoesnotcomplete(forexample,becausetheminimumsubscription
conditionisnotmet),thecompanywillbeineligibletoclaimtheconcessions.

7.20Whilethecompaniesdescribedinparagraphs7.13,7.18and7.19willnotbeeligibleforthepubliccompanycorporategovernanceand
reportingconcessionsoutlinedinparagraphs7.21to7.40,theymaystillbeeligibletomakeaCSFoffer,subjecttosatisfyingtherelevanteligibility
criteria(refertoChapter2oftheExplanatoryMemorandum).

Concession 1: Relief from holding an AGM


7.21Ifthefinancialyearendforthecompanyiswithin18monthsofthedateofregistration,orconversion,thecompanydoesnotneedto
holdanAGMifitsatisfiestherequirementstoclaimthepubliccompanyconcessionsattheendofthefinancialyear.[Schedule2,
item3,subsection250N(5)]

7.22Forallsubsequentfinancialyears,thecompanydoesnotneedtoholdanAGMifitsatisfiestherequirementstoclaimthepubliccompany
concessionsattheendofthatfinancialyear.[Schedule2,item3,subsection250N(6)]

7.23ThepolicyrationaleforprovidingrelieffromhavingtoholdanAGMisthat,whileAGMsserveapurposeinthegeneralengagement
processbetweencompaniesandtheirshareholdersandareamechanismforaccountabilityofthoseincontrolofthecompany,holdinganAGM
posespracticaldifficultiesandcostsforstartupsandothersmallscaleenterprises.Theconcession,therefore,isintendedtoreducetheburdens
associatedwithholdinganAGMforalimitedperiod.NotwithstandingthecompanywillnotberequiredtoholdanAGMundersection250N,the
directorsmaystillberequiredtocallageneralmeetingunderothercircumstances(forexample,pursuanttosubsection249D(1),ontherequestof
memberswithatleast5percentofthevotesthatmaybecastatthegeneralmeeting).

Concession 2: Relief from preparing audited annual nancial reports


7.24Publiccompaniesmusthavetheirfinancialreportsaudited(sections295to297).However,recognisingthecomplianceburdenthatcan
ariseforanewlyformedpubliccompany(particularlywhereithasconvertedfromaproprietarycompanywhereauditedfinancialreportsarenot
required),acompanycanelectnottohaveauditedfinancialreportswhere:

theysatisfythegeneraleligibilitycriteriatoclaimtheconcessions(paragraph7.15)and
asattheendofthecurrentfinancialyear,thecompanyhasraisedlessthan$1millionfromallCSFoffers.[Schedule2,item6,
subsection301(5)]

7.25Recognisingthattheobligationtohaveauditedfinancialreportsprovidesanimportantsafeguardforinvestors,theexemptionfrom
havingauditedfinancialreportsceasesattheearlierof:fiveyearsfromthedateofregistrationas,orconversionto,apubliccompanyorwhenthe
companyraisedmorethan$1millionfromCSFoffers.Thecapisbasedonoffersmadeatanytimethe$1millioncapdoesnotresetevery
year.

Relieffromappointinganauditor
7.26AstheBillprovidesanexemptionfromtherequirementtoprepareauditedfinancialreports,theBillexemptsthedirectorsofacompany
fromneedingtoappointanauditorwithinonemonthofregistrationwherethefollowingrequirementsaresatisfied:

onregistration,orconversion,thecompanysatisfiedthegeneraleligibilitycriteriatoclaimtheconcessions(paragraph7.15).[Schedule2,
item17,attheendofsubsection327A(1A))]

7.27AspubliccompaniesthatmeettheseeligibilityrequirementsarenotrequiredtoholdanAGM,theobligationundersection327Bto
appointanauditoratanAGMwillnotbetriggered.Similarly,asthesepubliccompaniesdonothaveanobligationtohaveauditedstatements,the
obligationtoappointanauditortofillacasualvacancyundersection327Cisalsonottriggered.

7.28However,thedirectorsofpubliccompaniesthatloseaccesstothecorporategovernanceconcessions(forexamplebynotsuccessfully
undertakingaCSFofferwithin12monthsorattheendofthefiveyearconcessionperiod)willberequiredtoappointanauditorwithin1monthof
thecompanylosingitsaccesstothecorporategovernanceconcessionsunlessanauditorhasbeenappointedatageneralmeeting.[Schedule2,
item18,section328C(1)]

7.29Anauditorappointedinthiswaywillholdofficeuntilthecompanysfirstannualgeneralmeeting.Thenormalrulesrelatingtothe
appointmentofauditorsinsections327Bto327Ewillapplyafterthis.[Schedule2,item18,section328C(2)]

7.30Onceapubliccompanylosesaccesstotheconcessions,itsdirectorsmusttakereasonablestepstoensureanauditorisappropriately
appointed.Afailurebythedirectorstodothisisanoffencewhichcarriesamaximumpenaltyof25penaltyunits,6monthsimprisonmentor
both.Thepenaltymirrorstheexistingpenaltyforapubliccompanywherethedirectorsfailtoappointanauditorwithinonemonthofbeing
requiredto.[Schedule2,item18,section328C(3)andSchedule2,item19,item116MCinSchedule3]

7.31Asimilarrequirementtoappointanauditorisinplaceforapubliccompanythatraisesmorethan$1millionfromCSFoffers.This
companywillloseitsaccesstotheexemptionfromhavingauditedfinancialstatements(paragraph7.24)anditsdirectorswillthereforeberequired
toappointanauditorwithin1monthofthisoccurring.Afailurebythedirectorstodothisisanoffencewhichcarriesamaximumpenaltyof25
penaltyunits,6monthsimprisonmentorboth.Thepenaltymirrorstheexistingpenaltyforapubliccompanywherethedirectorsfailtoappointan
auditorwithinonemonthofbeingrequiredto.[Schedule2,item18,section328DandSchedule2,item19,item116MDinSchedule3]

7.32Acompanythatlosesitsconcessionfromhavingauditedfinancialstatementsbecauseithasraisedmorethan$1millionfromCSFoffers
willstillhaveaccesstotheothercorporategovernanceconcessionsuntilitisnolongereligibleforthem.

7.33AsthesecompanieswillnotberequiredtoholdanAGM,thenormalrulesrelatingtotheappointmentofanauditoratapubliccompanys
AGMundersection327Bdoesnotautomaticallyapply.Toaddressthis,areplacementprovisionhasbeenintroducedthatreplicatessection327B.

7.34Underthisnewprovision,anauditorappointedtoapubliccompanythatlosesitsconcessionfromhavingauditedfinancialstatements
becauseithasraisedmorethan$1millionfromCSFofferswillholdofficeuntiltheauditordies,isremovedfromofficeorconflictofinterest
situationsarise.Theserulesmirrortheexistingprovisionsthatapplyinrelationtoauditorsofpubliccompaniesundersection327B.[Schedule2,
item18,section328E]

7.35Changestoandobligationsinrelationtoappointingreplacementauditorscanoccurinaccordancewiththeexistingprovisionsrelating
toauditorsinsections327C327F.Wherethereisaneedtoappointanewauditorthiswillbedonebythedirectorsofthecompanyuntilthe
nextAGM(whichmaybeafewyearsawayiftheothercorporategovernanceconcessionsstillapplytothecompany).

Concession 3: Annual nancial reports only to be provided online


7.36Publiccompaniesmustprovideafinancialreport,directorsreportandauditorsreporttoshareholderseachyear.Thecompanymust,on
atleastoneoccasion,directlynotifyeachshareholderinwritingthattheymayelecttoreceivethereportsineitherhardorelectroniccopyfreeof

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chargeand,iftheydonotsoelect,theymayaccessthereportsonaspecifiedwebsite.

7.37Therequirementtonotifyshareholdersoftheoptionstoreceivetheannualreportsandtoprovidethereportsintheformatelectedby
theshareholdermayimposesignificantcostsonastartuporsmallscaleenterprise.

7.38TheBillprovidesthatacompanythatsatisfiesthegeneraleligibilitycriteriatoclaimtheconcessions(paragraph7.14)attheendofthe
financialyearonlyneedstoprovideitsannualreportsviaawebsiteanddoesnotneedtonotifyshareholdersofalternativewaysofreceivingthe
reports.[Schedule2,items7and8,subsections314(1)and314(1AF)]

7.39Asimilaramendmenthasalsobeenmadetoenableacompanythatqualifiesfortheconcessionstoprovideitsconcisefinancialreportto
shareholdersbymakingthereportavailableonawebsite.[Schedule2,item9,subsection314(2A)]

7.40Consequentialamendmentshavebeenmadetothecontentrequirementsoftheannualdirectorsreport.Theamendmentsprovidethat
acompanythatclaimstheauditconcessionsisnotrequiredtoincludeacopyoftheauditorsdeclarationinitsdirectorsreport.[Schedule2,
items4and5,subsections298(1AA)and298(1AC)]

Consequential amendments
7.41Consequentialamendmentshavebeenmadetothenotesundersubsection324CA(1A),subsection324CB(1A),subsection324CC(1A),
subsection324CE(1A),subsection324CF(1A),subsection324CG(1A)andsubsection324CG(5A)toindicatethattheappointmentofanauditorfora
publiccompanywithcrowdsourcedfundingwillbeterminatedincircumstanceswheretheauditornotifiesASICofconflictofinterest
situationsunlessasecondnoticeundersection328Eisprovidedin21days.Thisconsequentialamendmentisnecessarytoensuresection328E
mirrorssection237B.[Schedule2,items1016,notesundersubsection324CA(1A),subsection324CB(1A),subsection324CC(1A),
subsection324CE(1A),subsection324CF(1A),subsection342CG(1A)andsubsection324CG(5A)]

Chapter 8

ExemptionsfromregulatoryrequirementsrelatingtoAustralianMarketLicencesandclearingandsettlementfacilitylicences

Outline of chapter
8.1ThisChaptersetsoutthenewexemptionpowersthatcanbeusedtoprovideforamoretailoredregulatoryregimetofacilitatethe
operationofspecialisedandemergingfinancialmarketsandclearingandsettlementfacilities,includinginrelationtoCSFsecurities.

8.2AlllegislativereferenceswithinthisChapteraretotheCorporationsAct2001unlessspecifiedotherwise.

Context of amendments
8.3Currently,underPart7.2oftheAct,anypersonthatfallswithinthedefinitionofoperatingafinancialmarketisrequiredtoobtainan
AustralianMarketLicence(AML)orseekanexemptionfromtheMinister.TheMinisterhasthepowertoexemptamarketfromtheoperationofPart
7.2infull,butdoesnothavethepowertoprovideapartialexemptionfromparticularrequirementsundertheregime.

8.4TheAMLregimewasdesignedtoaddresstherisksassociatedwiththeoperationoftraditionalexchanges(suchastheAustralian
SecuritiesExchange)orothersignificantfinancialmarketsandimposesobligationscommensuratewiththenatureandrisksofthosefinancial
markets.Thefullsuiteofobligationsmaynotbeasappropriateforoperatorsofemergingorspecialisedfinancialmarketssuchascrowd
sourcedfunding(CSF)intermediaries.

8.5Generally,requiringthesetypesofmarketoperatorstoobtainanappropriatelymodifiedAMLmayensurethattheyhaveadequate
arrangementstomeettheirobligationsandtoprovidethemarketenvironmentexpectedbypersonsparticipatinginthemarket.

8.6AmendingtheAMLframeworktoprovidetheMinisterwiththepowertoexemptcertainmarketoperatorsfromspecifiedobligations
wouldensurethattheAMLregimecouldbetailoredtoparticularmarkets.Theexemptionpowercouldbeusedtofacilitatethedevelopmentof
emergingandspecialisedmarkets,includingCSFintermediaries.

8.7Tobeabletoeffectivelytailortheregulatoryobligationstosuitemergingorspecialisedfinancialmarkets,similarpartialexemption
powersarerequiredinrelationtoParts7.2A,7.3and7.5oftheAct.

8.8Part7.2AprovidesforAustralianSecuritiesandInvestmentsCommission(ASIC)supervisionoffinancialmarkets.Someorallofthese
requirementsmaynotbesuitableforallemergingandspecialisedfinancialmarkets.Similarly,Part7.5requiresAMLholderstomaintain
compensationarrangementsdesignedforpublicmarketsbutthatmaynotbeappropriateforothertypesoffinancialmarkets.

8.9Part7.3providesforthelicensingofclearingandsettlementfacilities.Thedefinitionofclearingandsettlementiswideandcouldapply
toemergingorspecialisedfinancialmarketsandtheiroperatorsowingtosomeincidentalactivitiestheyperformaspartofoperatingafinancial
market.Theseincludetransferringmoneybetweenthetradingaccountsofinvestors.LikePart7.2,someoftherequirementsimposedbyPart7.3
maynotbeappropriateforsuchincidentalactivities.

8.10Assuch,providingtheMinisterwithenhancedpowerstoexemptsomeemergingandspecialisedfinancialmarketssuchas
intermediariesoperatingfacilitiesforsecondarytradinginCSFinterestsfromsomeoralloftherequirementsinparts7.2,7.2A,7.3and7.5
wouldprovideforamoreeffective,efficientandflexibleregulatoryregime.

8.11Theabilitytooffermoretailoredregulationoffinancialmarketsandclearingandsettlementfacilities,andtheiroperatorswouldprovidea
moreagileframeworkthatwouldfacilitateinnovationinandthedevelopmentofnewtypesoffundingmechanisms,includingCSF.

Summary of new law


8.12TheBillprovidestheMinisterwithadditionalexemptionpowerstoprovidefinancialmarketsandclearingandsettlementfacilities,and
theiroperators,withexemptionsfromspecifiedpartsoftheAMLandclearingandsettlementfacilitylicensingregimes.

8.13TheBillamendstheexistingexemptionpowerunderPart7.2oftheActtoprovidetheMinisterwiththepowertoexemptafinancial
marketorclassoffinancialmarkets,ortheiroperators,fromsomeoftheAMLregulatoryrequirementsunderPart7.2oftheAct.Theexisting
exemptionpoweronlyallowsforafullexemptionfromholdinganAML.

8.14AnidenticalexemptionpowerisalsobeingintroducedintoPart7.2AoftheActsothattheMinistercanexemptafinancialmarketorclass
offinancialmarkets,ortheiroperators,fromsomeoralloftheobligationsrelatingtoASICsupervisionunderPart7.2AoftheAct.Thisisanew
exemptionpowerthatexactlymirrorstheamendedexemptionpowerbeingintroducedintoPart7.2oftheAct.

8.15TheexistingexemptionpowerinPart7.3oftheActisbeingamendedtoprovidetheMinisterwiththepowertoexemptaclearingand
settlementfacilityorclassofclearingandsettlementfacilities,ortheiroperators,fromsomeoftheclearingandsettlementfacilitylicensing

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requirementsunderPart7.3oftheAct.Thecurrentexemptionpoweronlyallowsforafullexemptionfromneedingalicenceforoperatinga
clearingandsettlementfacility.

8.16AnidenticalexemptionpowerisalsobeingintroducedintoPart7.5oftheActsothattheMinistercanexemptafinancialmarketorclass
offinancialmarkets,ortheiroperators,fromsomeorallofthecompensationarrangementrequirementsunderPart7.5oftheAct.Thisisanew
exemptionpowerthatexactlymirrorstheamendedexemptionpowerbeingintroducedintoPart7.2oftheAct.

8.17Theintroductionofthesefouridenticalexemptionpowerscreatesastreamlinedapproachtograntingsomeemergingorspecialised
financialmarketsandclearingandsettlementfacilities,andtheiroperators,withexemptionsfromsomeoftheregulatoryrequirementsinParts7.2,
7.2A,7.3and7.5oftheActtoprovideforamoretailoredregulatoryapproach.

Summary of key features of new law and current law


Newlaw

Currentlaw

TheMinistermayexemptafinancial
marketorclassoffinancialmarkets,or
theiroperators,fromsomeoftheAML
requirements.

TheMinistermayexemptafinancial
marketorclassoffinancialmarketfrom
alloftheAMLrequirements.

TheMinistercanexemptafinancial
marketorclassoffinancialmarkets,or
theiroperators,fromsomeorallofthe
obligationsrelatingtoASIC
supervision.

Noequivalent.

TheMinistermayexemptaclearingand
settlementfacilityorclassofclearing
andsettlementfacilities,ortheir
operators,fromsomeoftheclearingand
settlementfacilitylicensingrequirements

TheMinistermayexemptaclearingand
settlementfacilityorclassofclearing
andsettlementfacilityfromallthe
clearingandsettlementfacilitylicensing
requirements

TheMinistercanexemptafinancial
marketorclassoffinancialmarkets,or
theiroperators,fromsomeorallofthe
compensationarrangement
requirements.

Noequivalent.

Detailed explanation of new law


8.18TheBillprovidesforchangesintheexemptionpowersinParts7.2,7.2A,7.3and7.5oftheAct.Thechangesprovideamoreflexible
andappropriateregulatoryregimeforemergingandspecialisedfinancialmarketsandtheiroperators.

ExemptionsfromAMLobligations
8.19TheBillrepealstheexemptionpowerinexistingsection791CoftheActandreplacesitwithanamendedexemptionpower.
[Schedule3,item1,section791C]

8.20Thenewamendedexemptionpowerlargelyreplicatestheexistingpowerbeingreplacedbutprovidesgreaterflexibilityinallowingthe
MinistertoprovideanexemptionfromspecifiedobligationsunderPart7.2oftheAct(asopposedtoonlybeingabletoprovideacomplete
exemptionfromtheAMLregime).Thechangeswilloffermoretailoredregulationforfinancialmarketsandtheiroperators.
[Schedule3,item1,subsection791C(1)]

8.21Theexemptioncanbeappliedinrelationtoaparticularmarketoraparticularclassofmarkets.Whereanexemptionismadeinrelation
toaclassoffinancialmarkets,thentheexemptionisalegislativeinstrumentandissubjecttodisallowanceandsunsetting,consistentwiththe
existingexemptionpower.[Schedule3,item1,subsection791C(4)]

8.22Whereanexemptionappliesinrelationtoaparticularmarket,anexemptionisnotalegislativeinstrumentandtheMinisterisrequiredto
publishanoticeoftheexemptionintheGazette[Schedule3,item1,subsection791C(5)].Thisisthesameapproachasiscurrentlyprovided
forintheexistingexemptionpower.

8.23ThenewexemptionalsoreplicatestheMinisterspowerstovaryorrevokeanexemptionafterprovidingnoticeandprovidingaffected
marketoperatorswiththeopportunitytomakesubmissions.Theonlychangetotheserequirementsisthatnoticeofachangetoanexemption
relatingtoaclassoffinancialmarketsmustbepublishedontheASICwebsiteinsteadofanewspaper.[Schedule3,item1,
subsections791C(2)and(3)]

8.24Thenewamendedexemptionpowerhasalsobeenrewrittentoreflectmoderndraftingrequirements.
8.25Astheexistingexemptionisbeingrepealedtobereplacedwiththeamendedexemption,asavingsprovisionhasbeenintroducedto
ensurethatallexemptionsmadepriortothechangecontinuetooperate.[Schedule3,item2]

ExemptionsfromASICsupervision
8.26TheBillprovidestheMinisterwithanewpowertoexemptaparticularfinancialmarketoraclassoffinancialmarketsfromASIC
supervisionunderPart7.2oftheAct.[Schedule3,item3,section798M]

8.27ThisnewexemptionpoweroperatesidenticallytotheamendedexemptionpowerbeingintroducedintoPart7.2oftheAct(referto
paragraphs8.19to8.25foradetaileddescriptionofhowthepoweroperates).

8.28Thereisalreadyabroadregulationmakingpowerundersection798LoftheActtoexemptfinancialmarketsortypesoffinancialmarkets
fromASICsupervisionunderPart7.2AoftheAct.

8.29Thenewexemptionpowerisbeingintroduceddespitetheexistenceoftheregulationmakingpowersothataconsistentapproachcanbe
takeninprovidingamoretailoredregulatoryregimeforemergingandspecialisedfinancialmarketsandtheiroperators.Underthisapproach,
whererelevant,theMinistercanexemptafinancialmarketorclassoffinancialmarkets,ortheiroperators,fromobligationsrelatingtoASIC
supervisioninthesamewaythatthesemarketscanbegivenanexemptionfromtheAMLrequirementsinPart7.2oftheAct.

Exemptionsfromclearingandsettlementlicensingobligations
8.30TheBillrepealstheexemptionpowerinexistingsection820CoftheActandreplacesitwithanamendedexemptionpower.[Schedule
3,item4,section820C]

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8.31ThechangetotheexemptionpowerisidenticaltothechangebeingmadetotheexemptionpowerinPart7.2oftheAct(see
paragraphs8.19to8.25foradetaileddescriptionofhowthepoweroperates).

8.32Themainchangetotheprovisionis,therefore,togivetheMinisterthepowertoexemptaclearingandsettlementfacilityorclassof
clearingandsettlementfacilitiesfrompartoftheclearingandsettlementlicensingregime[Schedule3,item4,subsection820C(1)].

8.33Thechangeswilloffermoretailoredregulationforclearingandsettlementfacilitiesandtheiroperators.Thenewexemptionalso
replicatestheMinisterspowerstovaryorrevokeanexemption,withtherequirednoticenowabletobeprovidedontheASICwebsiteratherthan
inanewspaper[Schedule3,item4,subsections820C(2)and(3)].

8.34Thenewamendedexemptionpowerhasalsobeenrewrittentoreflectmoderndraftingrequirements.
8.35Astheexistingexemptionisbeingrepealedtobereplacedwiththeamendedexemption,asavingsprovisionhasbeenintroducedto
ensurethatallexemptionsmadepriortothechangecontinuetooperate.[Schedule3,item5]

Exemptionsfromcompensationregimerequirements
8.36TheBillprovidestheMinisterwithanewpowertoexemptaparticularfinancialmarketoraclassoffinancialmarketsfromthe
compensationarrangementrequirementsunderPart7.5oftheAct.[Schedule3,item6,section893B]

8.37ThisnewexemptionpoweroperatesidenticallytotheamendedexemptionpowerbeingintroducedintoPart7.2oftheAct(see
paragraphs8.19to8.25foradetaileddescriptionofhowthepoweroperates).

8.38Thereisalreadyabroadregulationmakingpowerundersection893AoftheActtoexemptfinancialmarketsortypesoffinancialmarkets
fromthecompensationarrangementsrequirementsunderPart7.5oftheAct.

8.39Thenewexemptionpowerisbeingintroduceddespitetheexistenceoftheregulationmakingpowersothataconsistentapproachcanbe
takeninprovidingamoretailoredregulatoryregimeforemergingandspecialisedfinancialmarketsandtheiroperators.Underthisapproach,
whererelevant,theMinistercanexemptafinancialmarketorclassoffinancialmarketsfromsomeofthecompensationarrangementrequirements
inPart7.5oftheActinthesamewaythatthesemarketscanbegivenanexemptionfromtheAMLrequirementsinPart7.2oftheAct.

Application and transitional provisions


8.40TheseamendmentswilltakeeffectfromthedayaftertheBillreceivesRoyalAssent.ThisisbeforetheCSFregimecommencesbecause
thechangeswillhaveapplicationtootheremergingorspecialisedmarketoperatorsinadditiontoCSFintermediaries.

8.41TheseamendmentswilltakeeffectfromthedayaftertheBillreceivesRoyalAssent.ThisisbeforetheCSFregimecommencesbecause
thechangeswillhaveapplicationtootheremergingorspecialisedmarketoperatorsinadditiontoCSFintermediaries.

Chapter 9

Regulationimpactstatement

1. WHAT IS THE PROBLEM THAT NEEDS TO BE ADDRESSED?


1.1 REGULATORY BARRIERS TO CSEF
9.1Crowdsourcedequityfunding(CSEF)isaninnovativetypeofonlinefundraisingthatallowsalargenumberofindividualstomake
smallfinancialcontributionstowardsacompany,inexchangeforanequitystakeinthecompany.Ithasthepotentialtoprovidefinancefor
innovativebusinessideasthatmaystruggletoattractfundingundertraditionalmodels.

9.2However,therecurrentlyexistsarangeofregulatoryimpedimentstotheuseofCSEF.Theseincludegovernanceandreporting
requirementsforcompanies,equityfundraisingrulesandrequirementsforfinancialintermediariesassetoutintheCorporationsAct2001
(CorporationsAct).ThesearedescribedinmoredetailinSection1.4.

9.3Whilethesearrangementsexisttoprotectandpromotetheinterestsofmarketparticipants,includinginvestors,eachhastheeffectof
increasingtheregulatoryburdenandcostoffundraisingthroughCSEF.TheoverallcostofconductingaCSEFofferundercurrentequityfundraising
lawsisprohibitivelyexpensive,astheamountoffundsraisedthroughCSEFistypicallysmallerthanthroughotherequityfundraisingactivities.
CurrentregulatorysettingsarethereforeconstrainingdevelopmentoftheCSEFmarketinAustralia.

9.4AnumberofotherjurisdictionsincludingNewZealand,theUnitedStates,theUnitedKingdomandCanada(Ontario)havealready,orare
intheprocessof,implementingregulatoryregimesforCSEF.TheintroductionofanappropriateregulatoryframeworkthatwouldfacilitateCSEFin
AustraliawouldensurethatAustraliaremainsresponsivetothefundingneedsofinnovativebusinesses.

9.5Productivitygrowthisacoredriverofeconomicgrowth.Fosteringinnovationisanimportantwayofunlockingproductivity,both
throughinnovativeproductsandwaysofdoingthings,andthroughgeneratingknowledgespilloversfromresearchanddevelopmentthataddtothe
generallevelofknowledgeintheeconomy.NewfundingmodelsthatflexiblysupportemergingfirmsincludingCSEFhavethepotentialto
facilitateinnovationandcontributetoproductivitygrowth.

9.6AnumberofrecentreviewshaveidentifiedthepotentialofCSEFtoprovidenewandinnovativebusinesseswithaccesstothefinance
theyneedtodeveloptheirproductorserviceandgrow.

TheGovernmentsIndustryInnovationandCompetitivenessAgenda,releasedinOctober2014,calledforconsultationonaregulatory
frameworkforCSEF.TheGovernmentsInnovationandScienceAgendaisputtinginplacemeasurestosupporttechnology,researchandstartups
andensurethattheAustralianeconomyismoreinnovativeandagile.Thisincludesensuringthatfinanceisavailabletofacilitateinnovative
activity.

TheMurrayInquiryintoAustraliasfinancialsystem,releasedbytheGovernmentinDecember2014,specificallyrecommendedreducing
regulatoryimpedimentstocrowdfundingbyintroducinggraduatedfundraisingregulation.InitsresponsetotheInquiry,releasedinOctober2015,
theGovernmentacceptedthisrecommendation.

TheProductivityCommissionsBusinessSetup,TransferandClosuredraftreport,releasedinMay2015,alsosupportedtheintroductionofa
CSEFframework.

9.7Therearethreemainstakeholdersgroupswithaninterestinthedevelopmentofaframeworktoremovetheregulatoryimpedimentsto
CSEF:

CompaniesseekingtoraisefundsstandtobenefitfromtheestablishmentofaCSEFframework.Thisisparticularlythecaseforinnovative
firmsandstartups,whichtypicallyhavemoredifficultyobtainingbankdebtfinancethanestablishedfirms,butforwhomexistingequity
fundraisingisprohibitivelyexpensive.ThesecompanieswouldbeissuersofCSEFofferings.

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IndividualsseekingnewopportunitiestoinveststandtobenefitfromtheincreasedrangeoffinancialproductsthatCSEFwouldpresent.
Theseindividualswouldbeabletodiversifytherangeofproductstheyinvestin,andwouldbeinvestorsinCSEFofferings.

AnumberoforganisationsareseekingtoestablishandoperateaplatformthatallowsissuerstolisttheirCSEF
offerings,bringingtogetherissuersandpotentialinvestors.Theseorganisationswouldoperateasintermediariesinthe
CSEFmarket.

1.2 THE NEED TO IMPROVE ACCESS TO FINANCE FOR SMALL AND INNOVATIVE BUSINESSES
9.8Accesstofinanceiscrucialforinnovativenewbusinesses,particularlythosethatarecreatinganewproductorserviceorsignificantly
improvinganexistingproductorservice.Innovativedevelopmentsoftenrequirecostlyresearchanddevelopmentintheearlystagesofabusiness
atatimewhentheremaybelittleornorevenueflowingin.

9.9Obtainingaffordablefinancetofunddevelopmentofinnovativenewproductsisdifficultinsomecases.Aspartofits2013small
businesselectioncommitments,theGovernmentcommittedtoimprovingsmallbusinessesaccesstoaffordablefinancetoensuretheyhavethe
opportunitytoestablishanddevelop.

9.10Difficultiesinaccessingdebtfinancecanariseasaresultofgapsininformationbetweenlendersandborrowers.Astheprovisionofdebt
financerequiresanassessmentofabusinessabilitytoservicethedebt,smallbusinessesandstartupsthatdonothaveadequateevidenceofpast
performanceorprospectsforsuccesscanfaceparticularchallengesaccessingcredit.Lendersmaynotbewillingtobearthecostofobtaining
detailedcreditrelatedinformationtoassessthelevelofriskinvolvedinlendingtoasmallerbusiness.Somebusinessesmayalsostruggletoobtain
financefromlendersduetoinsufficientcollateralbeingofferedintheeventofdefault.

9.11Howeverwhereabankloancanbeobtained,itmaynotbewellsuitedtothebusiness.Bankloansinvolveregularrepaymentsstarting
almostimmediately,andfailuretomeetthesepaymentsrisksdefaultoftheloan.Inrealitythecashflowsofsmallbusinesses,particularlystart
ups,canbevolatile,makingitdifficulttomeetsuchregularrepayments.

9.12Equityfinancemaythereforebeamoresuitableoptionthandebtforsomebusinesses.Unlikedebtfinance,equitydoesnotrequire
immediaterepaymentsandequityinvestorsgenerallyacceptthatreturnsarecontingentonprofits.

1.3 THE ROLE OF CSEF


9.13Inrecentyears,anumberofinnovativefinancingmechanismshaveemergedthatdrawonthecrowdtoexpandthefundingoptions
availabletosmallbusinessesincludingpeertopeerlending,rewardsbasedcrowdfundingandequityanddebtcrowdfunding.Thesemechanisms
complementmoreestablishedfinancingoptionsofferedbyprofessionalinvestorsfocusedonstartupbusinessessuchasangelinvestingand
venturecapital.

9.14Ifappropriatelyregulated,CSEFmayimprovetheabilityofsmallbusinessestoaccessequityfinance.
9.15Forsmallbusinesses,CSEFcouldbemoreusefulthantraditionalequitymarketsasthecompliancecostsinvolvedintraditionalequity
fundraisingcanberelativelyexpensivecomparedtotheamountoffundsthatasmallbusinesswouldgenerallyseektoraise.Thesecompliance
costscouldabsorbasignificantproportionofanyfundsraised,reducingtheutilityofthefundraisingforthesmallbusinessorstartup.

9.16FacilitatingCSEFinAustraliahasthepotentialtoprovideacompetingsourceoffundsforsmallbusinesses,reducingtheirreliance
uponbankdebtand,potentially,atthemargindrivingdownthecostoffinanceforsmallbusinessesoverall.CSEFmaybeparticularlybeneficial
forthetypesofbusinessesthatfindbankfinancemoredifficulttoobtain,suchasstartupsandotherfirmswithinnovativeproducts.

9.17FacilitatingCSEFwouldalsoprovideadditionalinvestmentopportunitiestoretailinvestors,whoaregenerallyunabletobedirectly
involvedinearlystagefinancingactivities,suchasangelinvesting,duetothesizeofinvestmentrequired.CSEFwouldallowforretailinvestorsto
broadentheirrangeofinvestmentsandtobecomeinvolvedinfundingproductsandservicesthatinterestthem.

9.18However,startupsgenerallypresenthigherrisksforinvestorscomparedtomoreestablishedcompanies,particularlythoselistedon
publicexchanges,andretailinvestorswouldlikelyfacethesameinformationgapsasthosefacedbylenders.CSEFinvestmentsmayalsobelargely
illiquid,reducingtheabilityofinvestorstoexittheirinvestmentandmaybeatgreaterriskofdilutionfromlatercapitalraisingsthaninvestmentsin
largercompanies.

9.19Currentdisclosureandcorporategovernancearrangements,outlinedinsection1.4,seektoaddressinformationasymmetriesbetween
investorsandmanagersofcompanies.However,thecompliancecostsassociatedwiththeseobligationscanbeprohibitiveforsmallbusinessesand
startupsseekingtoraisefundsinawaytheyarenotforlarger,moreestablishedcompaniesthathavereadyaccesstopublicequityoffers.

9.20AddressingsomeofthesecostsviaaCSEFframeworkmaymakeCSEFaviablefundraisingoption.However,inorderforCSEFtobe
sustainable,anyregulatoryframeworkneedstobalancereducingthecurrentbarrierstoCSEFwithensuringthatinvestorscontinuetohavean
adequatelevelofprotectionfromfinancialandotherrisks,includingfraud,andsufficientinformationtoallowinvestorstomakeinformed
investmentdecisions.WhileestablishingaregimethatworksforissuersandintermediarieswillbeanimportantprecursortothesuccessofCSEF,
ahighfailurerate,anilliquidsecondarymarket,orlargeinvestorlossesintheearlystagesmayresultininvestorslosingconfidenceinCSEFasan
investmentmechanism.

9.21Options1,2,and4outlinedbelowseektostrikesuchabalancebetweenreducingsomeofthedisclosureandcorporategovernance
obligationsandputtinginplaceotherprotectionsforretailinvestors.

1.4 CURRENT REGULATORY ARRANGEMENTS


9.22Governanceandreportingrequirementsforcompanies,equityfundraisingrulesandrequirementsforfinancialintermediariesaresetout
intheCorporationsAct.

9.23Theserequirementshaveovertimebeenimplementedtoaddresstheinherentconflictsofinterestincorporationsinwhichtheownersof
thecompany,thatistheshareholders(principal)andmanagersofthecompany(agent)areseparate.Astheagenttypicallyhasbetter
informationthantheprincipalaboutthecompany,theprincipalcannoteasilybeassuredoftheperformanceoftheagent(agencycosts).

9.24Thelawprovidesanumberofmechanismstominimisetheseagencycostssuchthatcompaniesaredirectedandcontrolledinamanner
thatprotectsandpromotestheinterestsofparticipants.Thesemechanismsdifferbetweenthetwobroadcategoriesofcompaniesprovidedforin
theCorporationsAct:publiccompaniesandproprietarycompanies.

9.25Publiccompaniesareabletomakepublicequityoffersandarenotsubjecttorestrictionsonthenumberofshareholderstheymayhave.
Publiccompaniesaresubjecttoarangeofreportingandcorporategovernanceobligationstoprotectshareholdersandaddressagencycosts,
including:

Auditorswhoassistinthemonitoringofmanagersbyattestingtotheaccuracyofcompaniesfinancialstatements.
Aboardofdirectors,eachofwhomhasfiduciarydutiestoactwithreasonablecareanddiligence,intheinterestsofthecompany,andfora
properpurpose.

Disclosureofinformationbycompaniesallowsshareholderstoproperlymonitormanagersanddirectors.Obligationssuchasannualfinancial
reports,prospectus(orofferinformationstatementsinsomecases)andcontinuousdisclosureobligationsseektoaddresstheasymmetryinaccess
toinformationregardingtheoperationandprospectsofacompanythatexistsbetweenthemanagersandtheowners.Thisinformationisusedto
determinewhetherapersonwishestobecome,remainorexitfrombeingashareholderofacompany.

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Annualgeneralmeetings,whichprovideaforumforshareholderstobeinformedaboutfinancialandothermatters,askquestionsof
managementandmakedecisionsrelatingtomattersthatneedtobeconsidered.

Membersrightstocallameeting,undertakelitigationagainstthecompanyandvotewhenresolutionsareputforwardbythecompany.
9.26Therearealsoarangeofrequirementsinrelationtothecontentsofdisclosuredocuments,theprocessformakingequityoffers,liability
formisleadingstatementsinofferdocumentsandrestrictionsonadvertisingtoensurethedisclosureisclear,effectiveandreliable.[1]
9.27Proprietarycompaniesareintendedtobecloselyheldcompanieswheretheshareholdershaveaccesstothemanagementand
consequentlyinformationasymmetriesandagencycostsarelikelytobelowerthaninmorewidelyheldpubliccompanies.Proprietarycompanies
arethereforesubjecttoreducedcomplianceandtransparencyobligations,relativetopubliccompanies.Proprietarycompaniesaredefinedas
either

smallproprietarycompanies[2]orlargeproprietarycompanies[3],withsmallproprietarycompanieshavinglowercomplianceobligationsthanlarge
proprietarycompanies.
9.28Toensuretheyreflectthiscloselyheldnature,proprietarycompaniesareprohibitedfrommakingpublicoffersofequity[4]andare
limitedtohavingnomorethan50nonemployeeshareholders.

9.29Forbothpublicandproprietarycompanies,therearecertainexemptionsfromtherequirementtouseadisclosuredocumentinprimary
capitalraisings.Theseexemptionsincludewholesale(professional,sophisticatedandexperienced)investors(whoarelesslikelytosufferfrom
informationasymmetries)andsmallscalepersonaloffers(whereapersonalofferismadeandnomorethan$2millionisraisedinany12month
periodfromnomorethan20Australianinvestors,tofacilitatesmallcapitalraisingsthatmaynotoccurifadisclosuredocumentwererequired).[5]

9.30AsatMarch2015,approximately99percentofallregisteredAustraliancompanieswereproprietarycompanies.Therewere
approximately2,188,000proprietarycompanies(thevastmajoritylikelytomeetthedefinitionofsmallproprietarycompany)andapproximately
22,100publiccompanies.

9.31Entitiesthatmeetthedefinitionofcarryingonafinancialservicesbusiness,includingCSEFintermediaries,mustholdanAustralian
FinancialServicesLicence(AFSL)andcomplywithAFSLlicensingobligations.[6]AFSLholdersaresubjecttoarangeofobligations,including
ensuringthefinancialservicesareprovidedefficiently,honestlyandfairly,havinginplaceadequatearrangementstomanageconflictsofinterest,
havingadequatefinancial,technologicalandhumanresources,andmembershipofanexternaldisputeresolutionschemewherethelicensee
providesservicestoretailclients.[7]Licenseesmayalsobesubjecttoadditionalspecificconditionsontheirlicence.Licenseesortheirauthorised
representativesaregenerallyalsorequiredtogiveretailclientsaFinancialServicesGuide,whichmustmeetcertaincontentrequirements.[8]

9.32Entitiesthatfallwithinthedefinitionofconductingafinancialmarket[9],possiblyincludingsomeCSEFintermediaries,mustalsoholdan
AustralianMarketLicence(AML)andcomplywiththeAMLlicensingobligations.TheAMLregimeisdesignedtoaddresstherisksassociatedwith
largepublicexchanges(suchastheASX)andimposesconsiderableobligationsonholders,includingcostrecoveryrequirements,marketintegrity
rulesandongoingASICsupervision.

9.33Investorsarenotgenerallysubjecttolegislatedlimitsontheamounttheycaninvestinpublicequityraisings,althoughissuers
conductinginitialpublicoffersmaydecideoftheirownaccordtolimitthesizeofinvestmentparcelsorscalebackapplicationswherethetarget
raisinghasbeenexceeded.

9.34Investorshavecertainrightstowithdrawtheirapplicationbeforetheclosingofanequityofferwhereaconditionincludedinthe
disclosuredocumenthasnotbeenmet,thedisclosuredocumentincludedamisleadingordeceptivestatement,ortherehasbeenamaterial
adversechangeinthecircumstancesoftheissuer.[10]

1.5 REVIEW OF CSEF


9.35ConsiderationofCSEFandwhetheritcouldbefacilitatedinAustraliawasreferredtotheCorporationsandMarketsAdvisoryCommittee
(CAMAC)inJune2013.CAMACconsideredthepotentialofCSEFinAustraliaandthelimitationspreventingdevelopmentofaCSEFregimeunder
currentconditions,andreportedbackinJune2014.

9.36WhileCSEFhaspotentiallylargebenefitstofundraisersand,potentially,investors,CAMACidentifiedsignificantregulatorybarrierstothe
developmentofCSEFplatformsinAustralia.CAMACalsonotedthatCSEFplatformsmayberequiredtoholdanAML.

9.37CAMACidentifiedprohibitionsonproprietarycompaniesmakingpublicoffersofequityasafactorpreventingCSEF.Thisprohibition
meansthat,evenwiththewholesaleandsmallscalepersonalofferexemptions,proprietarycompaniesarenotabletoaccessthelargenumberof
smallscaleinvestorsthatwouldtypicallybetargetedunderaCSEFcampaign.The50nonemployeeshareholdercapforproprietarycompanies
alsolimitsthescopeforsmallcompaniestoraisefundsfromalargenumberofinvestors.

9.38Whileoperatingunderapubliccompanystructuremayavoidtheseissues,thiswouldcomewithincreasedcostsandreportingand
corporategovernanceobligationsthatmaybetooexpensivetobeanoptionforsmallbusinesses.Publiccompaniesmakingequityoffersmustuse
aprospectus(oraninformationstatementinsomecases)wheretheyarenoteligibleforanexemption.Disclosuredocumentscanbecostlyand
timeconsumingtoprepare,andsmallbusinessesmaynotbeabletouseequityforfundraisingasaresult.

9.39Overall,CAMACformedtheviewthatCSEFshouldbefacilitatedinAustraliaforpubliccompanies,butthatexistinglegislationcreateda
barrier.CAMACrecommendedthataregulatoryregimeforCSEFbedeveloped,ashasbeendoneinseveraloverseasjurisdictions,sothatequity
fundraisingmaybecomeavailabletoawiderrangeofpubliccompanies.

2. WHY IS GOVERNMENT ACTION NEEDED?


9.40ThemainbarrierstowidespreaduseofCSEFinAustraliathatCAMACidentifiedareregulatoryinnature.Thesebarriersarenoteasily
abletobeaddressedbypotentialCSEFparticipants.

9.41TherearecurrentlyasmallnumberofoperatorsofonlineplatformsofferinginvestmentinAustralianstartups.Undercurrentlegislation,
noneoftheplatformsareabletomaketheirservicesavailabletoallinvestors.Instead,theyoffertheirserviceseitheronlytowholesaleinvestors
viaamanagedinvestmentscheme,orutilisethesmallscalepersonalofferexemptionandanAustralianSecuritiesandInvestmentsCommission
(ASIC)classorderthatprovidesrelieffromcertainregulatoryrequirements.[11]Theplatformsalsodonotoffersecondarytrading.

9.42Whilethisenvironmentmaybesuitableforsomecompaniesandinvestors,itdoesnotcomprehensivelyaddressthebarrierstoCSEFin
Australiaandinparticular,doesnotallowofferstobemadeto,ortradedby,thecrowd.

3. POLICY OPTIONS ORIGINALLY CONSIDERED?


9.43FollowingCAMACsrecommendationandtheIndustryInnovationandCompetitivenessAgendasrecommendation,theGovernment
consultedwiththepublic,industrystakeholdersandotherAustralianGovernmentdepartmentsonpotentialregulatoryframeworkstofacilitateCSEF
inAustraliaforpubliccompanies.

9.44Duetotheexistingrestrictionsonproprietarycompaniesmakingpublicequityofferingsandthecapof50nonemployeeshareholdersfor
thesecompanies,theGovernmentconsultedonlyonoptionstofaciliteCSEFforpubliccompanies.

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9.45On8December2014,theGovernmentreleasedapublicdiscussionpaperonpotentialmodelstofacilitateCSEF.Threeoptionswere
includedinthediscussionpapertoelicitstakeholderfeedbackanddrawoutthekeyelementsofanypotentialmodelthatmaycontinuetopresenta
barriertoeffectivefacilitationofCSEF.

Option1:aregulatoryframeworkbasedontheCAMACmodel
Option2:aregulatoryframeworkbasedontheNewZealandmodeland
Option3:thestatusquo.
9.46ThediscussionpapernotedthattheGovernmenthadnotmadeafinaldecisiononitspreferredCSEFframework,andwasnotlimiting
itselftoimplementingeithertheCAMACorNewZealandmodelsinfull.Instead,feedbackfromtheconsultationprocesswastoassistthe
GovernmentindevelopingitspreferredapproachtoCSEF.

9.47ThethreeoptionswerechosenforconsultationastheyrepresentaspectrumofapproachestoCSEF.Themodelrecommendedby
CAMACdrawsonanextensivereviewofapproachesimplementedorproposedtobeimplementedbyforeignjurisdictions,withafocusonreducing
publiccompanycompliancecostsandminimisingriskstoinvestors.Asoutlinedinsection3.2,themodelimplementedbyNewZealandtakesa
differentapproachtothatofCAMACinanumberofkeyareas,includingpubliccompanycompliancecosts,companieseligibletouseCSEF,investor
limitsandcertainintermediaryrequirements.Thestatusquooptionwasincludedasabaselineagainstwhichtocompareregulatoryoptions,
consistentwiththeGovernmentsrequirementsforregulationimpactstatements.

9.48TheterminologyusedtorefertothevariousparticipantsinCSEFreflectsthatusedinCAMACsreport:
Issuer:abusinessregisteredasacompanyundertheCorporationsActthatwishestoofferitsequitythroughanonlineintermediary
Intermediary:anonlineplatformthatallowsbusinessestooffertheirequitytocrowdinvestors,subjecttotherequirementsofthe
CorporationsActand

Investor:amemberofthecrowdseekingtoinvestinaCSEFissuer.
3.1 OPTION 1: CAMAC MODEL
9.49Option1involvestheimplementationofaCSEFregimebasedonCAMACsrecommendations.CAMACrecommendedthedevelopmentof
aseparatelegislativeframeworkforCSEFtomakeiteasierforCSEFtobeusedinAustralia.

9.50CAMACrecommendedthatCSEFissuersberequiredtobepubliccompanies.Anewcategoryofpubliccompanytheexemptpublic
companywouldbecreatedandwouldberelievedofsomeofthecompliancerequirementsforpubliccompaniesforaperiodofuptothreetofive
years.Suchcompanieswouldbeexemptfromrequirementsforcontinuousdisclosure,holdinganannualgeneralmeeting,executiveremuneration
reporting,halfyearlyreporting,andappointinganindependentauditorandhavingafinancialreportaudited(unlesstheyhaveraisedupto$1
millionviaCSEForanyotherprospectusexemptionandcumulativeexpensesof$500,000).Onexpiryoftheauditexemption,theissuerwouldbe
requiredtohavethefinancialaccountsforallpreviousyearsitwassubjecttotheexemptionaudited.CAMACsrecommendationsfocusedonthe
CorporationsAct,anditdidnotproposeanychangestoanyotherlegislation,includingtothetaxtreatmentofexemptpubliccompanies.

9.51CAMACsproposedframeworkforCSEFfundraisingincludes:
forissuers:limitationoftheregimetocertainsmallenterprisesthathavenotalreadyraisedfundsundertheexistingpublicoffer
arrangements,limitationoftheregimetooneclassoffullypaidordinaryshares,reduceddisclosurerequirements,acapof$2milliononthe
amountthatcanberaisedthroughCSEFinany12monthperiod(excludingfundsraisedunderexistingexemptionsfromtheneedtoprovidea
prospectustocertainwholesaleinvestors),restrictionsonadvertisingoftheequityofferandprohibitionsonconflictsofinterest

forintermediaries:requirementsforintermediariestohaveanAFSLincludingmembershipofanexternaldisputeresolutionscheme,
requirementstoundertakelimitedduediligenceandprovideriskwarningstoinvestors,provisionstopreventcertainconflictsofinterest,
prohibitionsonofferinginvestmentadviceandonlendingtoCSEFinvestors,provisionofcommunicationsfacilitiesonitswebsiteforeachissuer
and

forinvestors:investmentcapsof$2,500perinvestorper12monthperiodforanyparticularCSEFissuerand$10,000perinvestorper12
monthperiodintotalCSEFinvestment,signatureofriskacknowledgementstatementspriortoinvestmentandcoolingoffandotherwithdrawal
rights.

FurtherdetailsonCAMACsrecommendationsareincludedatAppendix,Section9.1.

3.2 OPTION 2: NEW ZEALAND MODEL


9.52Option2involvestheimplementationoftheCSEFmodelthatcameintoforceinNewZealandinApril2014.NewZealandsFinancial
MarketsAuthorityissuedthefirstfinanciallicencetoaCSEFplatforminJuly2014,withthefirstCSEFraisingcompletedinmidSeptember2014.

9.53NewZealandsmodelhassomebroadsimilaritiestoCAMACsproposedscheme,including:
limitationoftheregimetooneclassoffullypaidordinaryshares
acapof$2millionontheamountthatcanberaisedthroughCSEFdisclosurereliefinany12monthperiodinclusiveofanyfundraisingviathe
NewZealandequivalentofthesmallscalepersonalofferexemptionbutexcludinginvestmentsbywholesaleinvestors

requirementsforintermediariestobelicensedandbelongtoanexternaldisputeresolutionscheme,undertakelimitedduediligencechecks
andprovidedisclosurestatementsandriskwarningstoinvestorsand

investorsmustsignariskacknowledgementstatement.
9.54DifferencesintheNewZealandmodelcomparedtoCAMACsrecommendedframeworkinclude:
noCSEFspecificexemptionsfrompubliccompanycompliancecostssuchasfinancialreportingandaudit
theregimeisnotspecificallylimitedtosmallenterprises
thereareminimumdisclosurerequirementsandinvestmentcapsarevoluntary,withissuersandintermediariestohaveinplace
arrangementstoprovidegreaterdisclosurewheretherearenoorhighvoluntaryinvestorcapsortheissuerisseekingtoraiseasignificantamount
offunds

therearenorestrictionsonintermediariesfeestructures,althoughfeespaidbytheissuermustbedisclosedand
intermediariesareabletoinvestinissuersusingtheirplatform,althoughdetailsofanyinvestmentsmustbedisclosed.
3.3 OPTION 3: STATUS QUO
9.55Underoption3,therewouldbenochangetothecurrentrequirementsundertheCorporationsActforproprietarycompanies,public
companiesandforpublicfundraisings.Theseinclude:

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thelimitof50nonemployeeshareholdersforproprietarycompanies,andprohibitionsonmakingpublicoffersofequity,subjecttocertain
exemptions,includingthesmallscalepersonalofferexemption

financialreportingandcorporategovernancerequirementsforpubliccompaniesthataremoreonerousthanthosethatapplytoproprietary
companiesand

therequirementtoprovideadisclosurestatementwhenmakingpublicoffersofequity.
9.56Intermediarieswouldremainsubjecttoanumberofexistingrequirements,including:
theneedtoholdanAFSLandcomplywithAFSLlicensingobligationsiftheymeetthedefinitionofcarryingonafinancialservicesbusiness,or
toholdanAMLandcomplywithAMLlicensingobligationsiftheyfallwithinthedefinitionofconductingafinancialmarketand

ifamanagedinvestmentscheme(MIS)structureisusedtofacilitateonlineequityoffers,theintermediarywouldneedtocomplywithMIS
requirements,includinghavingaresponsibleentitythatisapubliccompanywithanAFSL,disclosureandcomplianceobligations.[12]
9.57Underthisoption,CSEFwouldnotberegulatedasaspecificformofinvestment.Smallbusinessesandstartupsseekingtoraiseearly
stagecapitalwouldneedtocomplywiththeaboveexistingrequirements.

4. GOVERNMENT CONSULTATION ON CSEF MODELS


9.58StakeholderfeedbackwassoughtontheGovernmentsdiscussionpaperviatheTreasurywebsite.[13]Thisinvitationwascommunicated
toindividualstakeholderswhorequestedtobekeptuptodateaspartoftheIndustryInnovationandCompetitivenessAgendaconsultation
process.Inaddition,thethenMinisterforSmallBusinesswroteto26knownstakeholdersacrossthestartup,venturecapital,crowdfundingand
legalsectors.Writtensubmissionsweresoughtby6February2015.

9.59Supplementingthisprocess,targetedconsultationwasconductedbythethenMinisterforSmallBusiness,whohostedindustry
roundtableson2Februaryand16February2015inSydneyandMelbourne,respectively.

9.60ThepurposeoftheseconsultationswastoseekstakeholderfeedbackthatwouldhelptoinformtheGovernmentsdecisiontodevelopa
CSEFframeworkanditsdesign.ThesedecisionsrequiredtheGovernmenttobalancefacilitatingCSEFwithmaintainingappropriateinvestor
protectionandminimisingthecomplianceburden.RoundtablemeetingswithstakeholdersprovidedforumsfortheMinistertodiscussthedetailed
elementsofadesirablelegislativemodelandbetterunderstandtheviewsandconcernsofpartiesdirectlyaffected.

9.61Fortyonewrittensubmissionswerereceivedinresponsetothediscussionpaper.Submissionswerereceivedfromabroadrangeof
stakeholdersincludingcrowdfundingplatformoperators,advisoryandlegalfirms,industrybodiesandpublicorganisations,universities,individuals,
afinancialserviceproviderandASIC.Twentyeightstakeholdersparticipatedintheindustryroundtables.Treasuryalsoheldeightbilateral
meetings,predominantlywithstakeholderswhoattendedtheroundtablesorhaveaninterestorexperienceincrowdfunding.Treasuryalsoheld
teleconferencebilateralmeetingswithfinancialconductregulatorsinNewZealandandtheUnitedKingdomtogaininsightintohowcrowdfunding
hasdevelopedinthosemarketsfollowingimplementationoftheirregulatoryframeworks.

9.62Stakeholderfeedbackfromtheseprocessesexpressedsupportforaregulatorycrowdfundingmodel,withconsensusamongsttheabove
stakeholdergroupsthatthelegislativeandregulatorybarriersidentifiedbyCAMACmakeitcostlyandimpracticalforsmallbusinessestoaccess
CSEF.Stakeholdersagreedthataframeworkshouldbelighttouch,givinginvestorstheabilitytoinvestanddiversifytheirinvestments.Theview
thattheGovernmentshouldensureissuersandallinvestorshaveaccesstoaminimumstandardofinformationtomakeinformeddecisionswas
alsoshared.

9.63Therewaslimitedconsensusonarangeofdesignelements,includingtheappropriatenessoftheinvestorcapthresholds,theroleof
issuersregardingdisclosureandtheroleandassociatedremunerationstructureofintermediariesundertheCAMACmodel.Targetedconsultation
meetingsandbilateraldiscussionsraisedalternativedesignelements.

9.64WhileadiverserangeofviewswerereceivedonCAMACsexemptpubliccompanyproposal,stakeholdersgenerallyconsideredthistobe
unnecessaryforfacilitatingCSEFinAustralia.Whilethisstructurewouldrelievetheregulatoryandcompliancerequirementsassociatedwithbeing
apubliccompany,stakeholdersnoteditwouldalsoincreasethecomplexityoftheAustralianregulatoryregime,particularlyforsmallerbusinesses,
anditwouldstillbetooburdensometobecomeapubliccompanygiventheamountoffinancethatistypicallyraised.Stakeholdersexpresseda
preferencetoallowbothpublicandproprietarycompaniestoaccessCSEF.

9.65StakeholdersalsoexpressedalackofclarityastowhetherCSEFintermediarieswouldfallwithinthedefinitionofoperatingafinancial
marketandthereforerequireanAML.StakeholdersnotedthatthecostsassociatedwithAMLobligationscouldbeabarriertotheestablishment
anddevelopmentofplatforms,particularlythosethatseektooffersecondarytrading.Thefeedbackfromtheseconsultationprocessesledtoa
fourthoptionforfacilitatingCSEFtobedeveloped.ThisoptionisdiscussedinmoredetailinSection5.Thisoptionwasadjustedfurtherfollowing
introductionoftheCorporationsAmendment(CrowdsourcedFunding)Bill2015intoParliamentinDecember2015,aninquirybytheSenate
EconomicsCommitteeintotheBill,andGovernmentconsultationswithitsFinTechAdvisoryGroup.TheGovernmentincreasedtheeligibilitycap
forusingCSEFfrom$5millionannualturnoverandgrossassetsandreducedthecoolingoffperiodfromfiveworkingdaysto48hours.

5. OPTION 4: POST-CONSULTATION MODEL


9.66Followingthefeedbackreceivedfromtheconsultationprocessesoutlinedabove,afourthoptionforfacilitatingCSEFforpublic
companies,drawingonelementsoftheCAMACandNewZealandmodels,wasdeveloped.Thisregulationimpactstatementthereforeconsiders
fouroptions:

Option1:aregulatoryframeworkbasedontheCAMACmodel
Option2:aregulatoryframeworkbasedontheNewZealandmodel
Option3:thestatusquoand
Option4:apostconsultationmodel.
9.67Keyfeaturesofthepostconsultationmodelinclude:
forissuers:
accesstoCSEFwouldbelimitedtounlistedAustralianpubliccompanieswithlessthan$25millioninturnoverperannumand$25millionin
grossassets,includingthosethathavepreviouslyundertakenfundraisingthroughCSEF[14]
onpubliccompanycompliancerequirements:exemptionsfromcertainpubliccompanyobligations,asrecommendedbyCAMAC,wouldbe
availabletocertaineligiblecompanies

i)onexpiryofthecomplianceexemptions,acompanywouldonlyberequiredtoobtainafullauditforthepreviousfinancialyears
accounts,ratherthanforanyperiodforwhichthecompanysaccountswerenotaudited

ii)companieswishingtoaccessthecomplianceexemptionswouldhaveoneyeartoconductaCSEFraisingbeforelosingaccessto
therelief.CompaniesthatconductaCSEFraisingwouldremaineligiblefortheexemptionsuntiltheyreachcertainfinancialthresholds

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acapof$5millionontheamountthatcanberaisedthroughCSEFdisclosurereliefinany12monthperiodinclusiveofanyfundraisingvia
thesmallscalepersonalofferexemptionbutexcludingwholesaleinvestors

limitationoftheregimetooneclassoffullypaidordinaryshares
useofatemplatedisclosuredocument
restrictionsonadvertisingoftheequityofferand
requirementsrelatingtomaterialadversechangesduringtheofferperiod
forintermediaries:
requirementsforintermediariestohaveanAFSLincludingmembershipofanexternaldisputeresolutionscheme
exemptionfromAMLobligationswhereanintermediaryisfacilitatingonlyprimaryissuance,andaccesstoareducedAMLregimewherethey
facilitatesecondarytrading

requirementstoundertakelimitedduediligenceandprovidegenericriskwarningstoinvestors
norestrictionsonfeestructuresorhavinganinterestinanissuerusingitsplatform,butfeesandinterestsmustbedisclosed
aprohibitiononlendingtoinvestorsand
provisionofacommunicationfacilityonitswebsiteforeachissuerand
forinvestors:
aninvestmentcapof$10,000peroffer
signatureofriskacknowledgementstatementspriortoinvestmentand
coolingoffandotherwithdrawalrights.
9.68ThepostconsultationmodeldrawsonelementsofboththeCAMACandNewZealandmodels.Otherelements,suchasexpiryof
compliancerequirementexemptions,divergefromtheapproachrecommendedbyCAMACinareasthatarenotincorporatedintotheNewZealand
model.Theapproachtootherelements,suchasinvestorcaps,seektobalancetheapproachestakenundertheCAMACandNewZealandmodels.

9.69Table1comparesthekeyelementsoftheCAMAC,NewZealandandpostconsultationmodels.
9.70Inresponsetostakeholderfeedback,theGovernmentalsobeganconsultingonwhetherCSEFshouldbeextendedtoproprietary
companies.TheGovernmentreleasedapublicdiscussionpaperonwhetherCSEFcouldbeextendedtoproprietarycompanieson4August2015.
Thefeedbackfromthisconsultationisbeingconsidered,andanypolicyoptionstofacilitateCSEFforproprietarycompanieswillbedevelopedafter
theintroductionoflegislationtofacilitateCSEFforpubliccompanies.

Table1:KeyelementsoftheCAMAC,NewZealandandpostconsultationmodels
Issue

CAMACmodel

New Zealand
model

Postconsultationmodel

Issuers
Eligible

Australianincorporated

NewZealandincorporated

UnlistedAustralianregistered

issuers

issuersthatmustbeeithera

companies.

issuersthatmustbeapublic

publiccompanyoran

company(includingwith

exemptpubliccompany.

exemptionsfromcertain

Limitedtocertainsmall

compliancerequirements).

enterprisesthathavenot

Capinsizeof$25millionin

raisedfundsunderthe

turnoverperannumand

existingpublicoffer

$25millioningrossassets.

arrangements.

[15]

Capinsizeof$10million
incapital.
Relieffrom

Availabletoexemptpublic

public

companies,withacapof

NoCSEFspecificexemptions.

Relieffromarangeof
compliancerequirements,

company

$5millioninturnoverper

includingannualgeneral

compliance

annumand$5millionin

meetings,andaudit

costs

capital.

requirements(upto$1

Relieffromarangeof

millionraisedfromCSEFand

compliancerequirements,

otheroffersrequiring

includingannualgeneral

disclosure),forcompanieson

meetings,andaudit

incorporationorconversion

requirements(uptoa

toapubliccompany.

certainthreshold).

Companiesonincorporation

Exemptstatusavailablefor

orconversiontoapublic

aperiodofuptothreeto

companymustconducta

fiveyears,subjectto

CSEFraisingwithinoneyear

turnoverandcapital

orloseeligibilityforrelief.

thresholds.
Maximum

Capof$2millioninany

Capof$2millioninany12

Capof$5millioninany12

fundsan

12monthperiod,excluding

monthperiod,excludingfunds

monthperiod,inclusiveof

issuermay

fundsraisedunderexisting

raisedunderexisting

anyfundraisingviathesmall

raise

prospectusexemptionsfor

prospectusexemptionsfor

scalepersonaloffer

wholesaleinvestors.

wholesaleinvestors.

exemptionbutexcluding
wholesaleinvestors.

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Issue

CAMACmodel

New Zealand
model

Postconsultationmodel

Permitted

Oneclassoffullypaid

Oneclassoffullypaid

Oneclassoffullypaid

securities

ordinaryshares.

ordinaryshares.

ordinaryshares.

Disclosure

Reduceddisclosure

Minimumdisclosure

Reduceddisclosure

requirements

requirements,includinga

requirements,withissuersand

requirements,includinga

templatedisclosure

intermediariestohaveinplace

templatedisclosure

document.

arrangementstoprovide

document.

greaterdisclosurewherethere
arenoorhighvoluntary
investorcapsortheissueris
seekingtoraisesignificant
funds.
Advertising

Restrictionsonadvertising

Notspecifiedinlegislation.

Restrictionsonadvertising

andpublicityofoffers,with

andpublicityofoffers,with

exemptionsfor

exemptionsfordissemination

disseminationofthe

ofthedisclosuredocument

disclosuredocumentand

andadvertisingandpublicity

advertisingandpublicity

thatareaccompaniedby

thatareaccompaniedby

certainmandatorystatements.

certainmandatory
statements.
Material

Issuertoamenddisclosure

adverse

documentandprovideto

Notspecifiedinlegislation.

Issuertoamenddisclosure
documentandprovideto

change

intermediaryfor

intermediaryforpublication.

duringthe

publication.

Investorstohavetheability

offerperiod

Investorstohavetheability

tooptoutoftheiracceptance

tooptoutoftheir

oftheoffer.

acceptanceoftheoffer.

Table1:KeyelementsoftheCAMAC,NewZealandandpostconsultationmodels(continued)
Issue

CAMACmodel

NewZealandmodel

Postconsultation
model

HoldanAFSLand

Belicensedand

HoldanAFSLandcomplywithlicensing

complywith

complywith

requirements,includingmembershipofan

licensing

licensing

externaldisputeresolutionscheme.

requirements,

requirements,

ExemptionfromAMLobligationswhen

including

including

facilitatingonlyprimaryissuances,and

membershipofan

membershipofan

accesstoareducedAMLregimefor

externaldispute

externaldispute

facilitatingsecondarytrading.

resolutionscheme.

resolutionscheme.

Intermediaries
Licensing

Duediligence

Riskwarnings

Undertakelimited

Undertakelimited

Undertakelimitedduediligencecheckson

duediligence

duediligence

theissuer.

checksonthe

checksonthe

issuer.

issuer.

Providegenericrisk

Providedisclosure

warningsto

statementsand

investors.

genericrisk

Providegenericriskwarningstoinvestors.

warningsto
investors.
Feestructures

Prohibitedfrom

Norestrictionson

Norestrictionsonfeestructures,although

beingremunerated

feestructures,

feespaidbyanissuermustbedisclosed.

accordingtothe

althoughfeespaid

amountoffunds

byanissuermust

raisedbytheissuer,

bedisclosed.

orinthesecurities
orotherinterestof
theissuer.
Interestsinissuers

Prohibitedfrom

Permittedtoinvest

Permittedtoinvestinissuersusingtheir

havingafinancial

inissuersusing

platform,althoughdetailsofany

interestinanissuer

theirplatform,

investmentsmustbedisclosed.

usingitswebsite.

althoughdetailsof
anyinvestments
mustbedisclosed.

Provisionof

Prohibited.

investmentadvice

Notspecifiedin

Notspecifiedinlegislation.

legislation.

Existingrulesrelatingtotheprovisionof

toinvestors

investmentadvicewillapplyto
intermediaries.

LendingtoCSEF
investors

Prohibited.

Notspecifiedin

Prohibited.

legislation.

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Issue

CAMACmodel

NewZealandmodel

Postconsultation
model

Communications

Providea

Intermediarymust

Provideacommunicationfacilityonits

facilities

communication

haveadequate

websiteforeachissuer.

facilityonits

disclosure

websiteforeach

arrangementsto

issuer.

enableinvestorsto
readilyobtain
timelyand
understandable
information,which
caninclude
questionand
answerforums.

Investors
Investmentcaps

$2,500perissuer

Voluntaryinvestor

$10,000peroffer,withnomaximum

per12monthperiod

caps,withthelevel

aggregateinvestment,forretailinvestors.

and$10,000intotal

ofdisclosure

CSEFinvestment

dependentuponthe

per12month

levelofany

period.

voluntarycapsand
theamountoffunds
theissuerisseeking
toraise.

Risk

Signatureofrisk

Signatureofrisk

Signatureofriskacknowledgement

acknowledgement

acknowledgement

acknowledgement

statementspriortoinvestment.

statementspriorto

statementspriorto

investment.

investment.

Coolingoffand

Unconditionalright

Notspecifiedin

Unconditionalrighttowithdrawfor48

withdrawalrights

towithdrawfor5

legislation.

hoursafteracceptingoffer.[16]

daysafteraccepting
offer.

Additionalrightsinrelationtomaterial
adversechangesduringtheofferperiod.

Additionalrightsin
relationtomaterial
adversechanges
duringtheoffer
period.

6. IMPACT ANALYSIS OF THE CSEF MODELS


6.1 OPTION 1: CAMAC MODEL
9.71Currentdisclosureandcorporategovernancearrangementsareintendedtominimiseinformationasymmetriesandagencycostsbetween
investorsandmanagersofcompaniestoprotectandpromotetheinterestsofshareholders.However,thecompliancecostsassociatedwith
obligationscanbeburdensomeforsmallcompanies.

9.72AbenefitofCAMACsmodelisthatitseekstoaddressthekeyelementsofthecurrentcorporateandfundraisingregimesthatactasa
hindrancetoCSEF,suchasrequirementsforpubliccompaniestoappointanauditor,havetheirfinancialstatementsauditedandholdannual
generalmeetings,andprepareextensivedisclosuredocuments.ThiswouldmakeiteasierforissuerstouseCSEF,andconsequentlymakeitmore
attractiveforintermediariestoestablishCSEFplatforms.

9.73However,comparedtothestatusquo,investorswouldhavelessaccesstoinformationonwhichtomakeaninvestmentdecisionand
assessongoingperformance.Thisrepresentsadivergencefromthecurrentapproachforpubliccompanies.TheCAMACmodelseekstobalance
theproposedreductionsintransparencyanddisclosureobligationsandaddressthehigherrisksthatgenerallyarisefrominvestinginstartupsand
smallbusinessesbyputtinginplacesomeadditionalprotectionsforinvestors,including:

situatingtheintermediaryatthecentreofthemodel,andinadditiontobeinglicensed,placesanumberofobligationsonintermediariesand
prohibitsthemfromcertainactivitiesthatmaygiverisetoconflictswiththeinterestsofinvestors

limitingthesizeofthecompaniesabletouseCSEFandprohibitingpreviouspublicequityraisings,toensurethatCSEFistargetedtosmall,
simplecompaniesandminimisetheriskofregulatoryarbitragewithexistingpublicofferarrangementsthatrequiremoresubstantivedisclosure

requiringinvestorstoacknowledgeandsignastatementoutliningtherisksofCSEFinvestments,suchastheriskofbusinessfailure,losing
thefundsinvestedandthatinvestmentsmaybeilliquidforanextendedperiod,toensurethatinvestorsareawareoftheriskspriortoinvesting
and

limitingtheamountoffundsretailinvestorsmayinvestviaCSEFinany12monthperiod,tocompensateforreduceddisclosurebyissuers
andthehigherrisksassociatedwithinvestinginsmallbusinessesandstartupsthatmaynothaveanextensivehistoryorcustomerbase.CSEF
disclosuredocumentsmaybelessinformativeforinvestorscomparedtothestatusquobecause:

theamountofinformationrequiredwouldbereduced
withashorterhistoryorrapidlydevelopingproduct,serviceormarket,theongoingapplicabilityofdescriptionsofthebusinessandpotential
futuredevelopmentsoropportunitiesonwhichaninvestormakestheirinvestmentdecisionmaybelowerthanforamoreestablishedcompanywith
alessvariablebusinessplanand

CAMACdidnotspecifywhetherissuerswouldneedtolodgetheirdisclosuredocumentwithASIC.Weredisclosuredocumentsnotrequired
tobelodged,therewouldbeareducedlevelofexternalreviewcomparedtoASICsexistingapproachtoreviewingprospectuses,andconsequently
reducedassurancethatthedisclosuredocumentprovidesalltherequiredinformation.

9.74Inanenvironmentofhigherriskbusinessesandreducedprotectionsthroughtheinitialdisclosuredocument,investorcapswouldlimit
retailinvestorsexposure,andconsequentlypotentiallosses.Limitingtheamountofpotentiallossesmayassistinmaintaininginvestorconfidence
inCSEFasaninvestmentmechanism.InvestorcapsalsosendasignaltoCSEFinvestorsthatCSEFinvestmentsmayberiskierthanotherpotential

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investments,andthatCSEFshouldonlyformalimitedportionofadiversifiedinvestmentportfolio.Suchasignalmayimproveinvestoreducation
andassistinbetterinformedinvestmentdecisions.

9.75AfurtherbenefitofimplementingtheapproachrecommendedbyCAMAC,relativetoretainingthestatusquo,isthatAustraliawould
keeppacewithdevelopmentsinoverseasjurisdictions,reducingtheincentiveforAustralianbusinessesandinvestorstoleaveAustraliatoaccess
CSEF.

9.76Comparedtothestatusquo,issuerswouldcontinuetoincurcostsensuringtheircompliancewithissuerandshareholdercaps,withan
additionalcostassociatedwithassessingtheircontinuedeligibilitytoraisefundsviaCSEFandmaintainexemptpubliccompanystatus(if
applicable).Issuerswouldberequiredtooperateaspubliccompanies(orexemptpubliccompanies),ratherthanusetheproprietarycompany
structure.Thiswouldresultinissuersincurringadditionalcompliancecosts,particularlywheretheywouldotherwisemeetthedefinitionofasmall
proprietarycompany.[17]

9.77Intermediarieswouldincurcostsassociatedwithperforminglimitedduediligenceoncompaniesseekingtoraisefundsviatheir
platforms,providingthetemplatedisclosuredocumentsandriskdisclosuredocumentstoinvestors,receivingandrecordingacknowledgementsof
riskdisclosurestatements,monitoringinvestorcompliancewithissuercapsandprovidingfacilitiesforinvestorstocommunicatewithissuer
companies.

9.78Investorswouldbelimitedintheamounttheycaninvestinbusinesses,unlesstheywereeligibleforoneoftheexistingwholesale
investorexemptions.Investorswouldalsoberequiredtomonitorcompliancewithinvestorcapsandacknowledgeariskdisclosurestatementthat
intermediarieswouldberequiredtoprovide.

Issues Arising from CAMACs Recommendations


9.79TherearespecificelementsofCAMACsproposedframeworkthatmayresultinanoverlycomplexorrestrictivesystemorotherwise
continuetopresentabarriertoeffectivefacilitationofCSEFinAustralia.

9.80Thecreationofanewcategoryofpubliccompanywouldaddcomplexitytothecorporategovernanceframeworkandmayincreaserisks
ofregulatoryarbitragecomparedtothestatusquo.

Increasingcomplexitymaymeanthatstartupsandsmallcompaniesmayhavedifficultyunderstandingtheirobligations.
Theremaybeanincentiveforfirmstostructurethemselvesasexemptpubliccompaniestoavoidcostsassociatedwithcompliance
requirementssuchasauditedfinancialreportingandannualgeneralmeetings,withoutanygenuineintentiontoraisefundsviaCSEF.Thiswould
resultinareductionintransparencywithoutanyoffsettingincreaseintheabilityfortargetedfirmstoraisecapital.

9.81CAMACproposedthatanumberofdifferentcapsandthresholdsbeimplementedfordifferentelementsofitsCSEFframeworkrelatedto
issuers(seetable2).ThesecapsareintendedtoensurethatCSEFistargetedatsmallbusinessesandstartupsandreducethepotentialfor
regulatoryarbitrage.Theyarealsointendedtobalanceareductionincompliancecosts,suchaspreparationofafulldisclosuredocumentoraudit
processes,withmaintaininginvestorprotections.

Table2:CapsandthresholdsrecommendedbyCAMAC
Category

Cap or threshold

Policy objective of cap or


threshold

Eligibility to conduct a CSEF


issue

Limited to certain companies


with simple structures, with a
cap of $10million in capital

Minimise distortions and the potential for


regulatory arbitrage in the fundraising
regime while targeting CSEF to small
issuers less likely to be able to absorb the
compliance costs of a public equity offer
under existing requirements.

Eligibility to become or remain


an exempt public company

Limit of $5 million in turnover


per annum and $5 million in
capital

Minimise distortions and the potential for


regulatory arbitrage in the corporate
governance and reporting regime while
addressing identied barriers to
enterprises incorporating as public
companies and conducting public equity
offers.

Exempt public companies


eligible for exemption from
auditing requirements

Limited to companies that have


raised up to $1 million in funds
via CSEF or any other
prospectus exemption and
cumulative expenses of
$500,000

Address a key compliance burden related


to incorporation as a public company for
issuers in the early stages of fundraising,
and avoid issuers raising small amounts
needing to spend a signicant proportion
of those funds on audit obligations rather
than developing the business.
Balance this objective with maintaining
transparency and investor assurance once
an issuer has raised a signicant amount
of capital and spent a signicant
proportion of that capital.

Cap on the amount of funds


that can be raised via CSEF or
other exemptions from
disclosure requirements

Limit of $2 million per 12month period for any individual


or related group of companies

Balance addressing a barrier to


fundraising with ensuring investors have
access to full disclosure documentation
for larger raisings.
Align the CSEF cap with the existing
small scale personal offer exemption.

9.82ThiscomparestoanexistingASICclassorderthatincreasesthecaponfundsthatmayberaisedunderthesmallscalepersonaloffer
exemptionfrom$2millionto$5millionper12monthperiodundercertaincircumstances.[18]
9.83However,therearepotentialissueswiththeproposedcaps:
theinteractionofthevariouscapsandthresholdsmaybecomplexforissuers,intermediariesandinvestorstounderstandandmonitorand
thelevelofthecapsandthresholdsisnecessarilyamatterofjudgement.ThecapsproposedbyCAMACmaynotappropriatelybalancethe
fundingneedsofsmallbusinessesandinvestorprotection.

9.84Toreducetheriskofconflictsofinterestarisingbetweenintermediariesandinvestorsthatcouldcompromiseintermediariesneutral
serviceproviderrole,CAMACrecommendedthatintermediariesberestrictedfromhavinganinterestinanissuerandfrombeingpaidintheshares
oftheissueroraccordingtotheamountoffundsraised.However,costsofthisapproachinclude:

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apotentialreductioninthepoolofpotentialintermediariesand/orinvestors
arestrictiononpayingintermediariesinsharesmaybeabarrierforstartupsthatarelikelytohavepoorcashflowintheestablishment
phaseand

therequirementforanissuertopayafeetotheintermediarythatisfixedatasetdollaramount,ratherthanafeebasedonapercentageof
thefundsraised,mayactasadisincentiveforissuersraisingrelativelysmallamountsoffunds.

9.85WhilenotingthatCSEFplatformsmayrequireanAML,CAMACdidnotmakeanyrecommendationregardingthis.Withoutchangeinthe
currentregulatoryframework,intermediariesmaycontinuetohavealackofcertaintyastotheirrequirementtoholdanAML,anditmaylimitthe
establishmentofCSEFplatforms,particularlythosefacilitatingsecondarytrading.

9.86CAMACrecommendedcapsontheamountinvestorscouldinvestperissueandinCSEFoverallper12monthperiod.Whilehavingan
importantinvestorprotectionrole,implementinginvestorcapscouldmakeitdifficultforissuerstoraisefundsviaCSEF.Investorcapsmayalso
resultinalargenumberofmicroinvestors,whomayconsequentlyhavelimitedabilitytoexertdisciplineandcontrolovertheissuer.Furthermore,
intermediarieswouldhavedifficultyinmonitoringinvestorscompliancewithaggregateinvestorcapsforinvestmentsthroughtheirownplatformas
wellasthoseofotherintermediaries,increasingintermediariescompliancecostsandpotentiallyreducingtheeffectivenessoftheaggregatecap.

6.2 OPTION 2: NEW ZEALAND MODEL


9.87SimilartotheCAMACmodel,theNewZealandmodelhasthebenefitsofplacingtheintermediaryatthecentreofthemodelasa
gatekeeperandkeepingpacewithinternationaldevelopments.AdditionalbenefitsassociatedwiththeNewZealandmodelcomparedtotheCAMAC
modelinclude:

reducedcomplexitybyremovingexemptionsfromcertaincompanycompliancecostsandfewercapsandthresholdsforissuers
intermediariesarenotrestrictedinfeestheycanchargeortheintereststheycanacquireinissuersusingtheirplatforms,potentially
increasingthepoolofCSEFinvestorsandintermediaries

theabilityforintermediariestochargeafeeproportionaltothefundsraisedwouldbeconsistentwithexistingmarketpracticeforequity
capitalraisingsandprovideanincentiveforintermediariestoonlylistissuerstheyconsiderwillsuccessfullyraisefunds

greaterflexibilityforissuerstotradeoffthelevelofvoluntaryinvestorcapswiththelevelofdisclosure,comparedtomandatorycapsand
templatedisclosurerequirements

consistencybetweentheAustralianandNewZealandCSEFframeworkswouldreducethebarrierstoCSEFparticipantsoperatinginboth
markets,althoughthismayalsobeachievedviatheTransTasmanmutualrecognitionframework.

9.88AnumberofthecostsassociatedwiththeNewZealandmodelaresimilartotheCAMACmodel,includingissuersneedingtocomplywith
fundraisingcapsandrequirementsforintermediariestobelicensed,undertakelimitedduediligenceonissuersandprovidedisclosurestatements
andriskwarningstoinvestors.DisadvantagesoftheNewZealandmodelinclude:

astheregimeisnotlimitedtosmallcompanies,thereisapotentialforlargercompaniesthathavepreviouslymadepublicequityoffersusing
CSEFtoraiseadditionalfunds,circumventingthestandarddisclosurerequirementsforpublicequityoffers

intermediaryinvestmentinCSEFissuersmayraiseinvestorexpectationsaboutthelikelihoodofsuccessforcompaniestheintermediary
investsin,andmayprovideanincentiveforintermediariestopresenttheseissuersinamorefavourablelightthanotherissuers,includingvialess
effectiveriskdisclosure

issuersandintermediarieshavinglesscertaintyonthelevelofdisclosurenecessaryaboveminimumrequirements,comparedwiththeCAMAC
approachofatemplatedisclosuredocumentapplicabletoallCSEFissuesand

greaterriskofinvestorslosinglargeramountsoffundsintheabsenceofinvestorcapsinanenvironmentofareducedlevel,andpotentially,
qualityofinformation(asoutlinedinsection4.1),onwhichinvestorsmadetheirinitialinvestmentdecision.

6.3OPTION3:STATUSQUO
9.89Fortheintermediariesthatcurrentlyprovideonlineplatformsforinvestinginstartupcompaniesundertheexistinglegislation,
maintainingexistingregulatoryrequirementswouldresultinnoadditionalcosts.

9.90Underthemodelsoperatedbytheexistingintermediaries,someissuersarestructuredasproprietarycompaniesandothersare
structuredaspubliccompanies.Thesecompanieswouldcontinuetoincurexistinggovernanceandcompliancecosts,withadditionalcostsforlarge
proprietarycompaniesandpubliccompanies,comparedtosmallproprietarycompanies,associatedwithrequirementssuchaspreparingannual
financialreportsanddirectorsreports[19],appointinganauditorandconductinganannualauditofthefinancialreports[20],andholdingan
annualgeneralmeeting.

9.91Issuerswouldcontinuetohaveaccesstoexistingmechanismstoraisefunds,includingviathewholesaleandsmallscaleoffer
exemptionsfromtheneedtoprepareaprospectus.Theseexemptionsallowissuerstoraisefundsfromangelinvestorsandfamiliesandfriends
withoutincurringthecostsofpreparingadisclosuredocument.Wherepubliccompanieswishtoraisefundsoutsidetheexemptions,theywould
alsocontinuetohaveaccesstotheuseofanofferinformationstatementincertaincircumstances.Thesemechanismsmaycontinuetoremain
adequateforsomeissuers.Issuerswouldalsocontinuetoincurcostsassociatedwithmonitoringtheircompliancewiththewholesaleandsmall
scalepersonalofferexemptions,aswellasmonitoringtheissuershareholdercaps,includingthe50nonemployeeshareholdercapforproprietary
companies.

9.92Underthestatusquo,investorswouldcontinuetobenefitfromexistinginvestorprotections,includingthereceiptofdisclosure
documentsforpublicissuesofequity,subjecttothelimitedexemptions,andaccesstoauditedfinancialreports,directorsreportsandannual
generalmeetingswhentheyinvestinlargeproprietaryorpubliccompanies.Theseprotectionsassistinvestorstoassesstherisksassociatedwith
particularinvestmentsandtomonitorongoingperformance.

9.93However,relyingonexistingrequirementswouldnotaddressthefundingchallengesforstartupsandthebarrierstoCSEFinAustralia.
Startupsandsmallbusinessesseekingtoraisefundswouldnotbeabletomakeofferstothecrowd,limitingpotentialsourcesoffunds.
Onlineintermediarieswouldremainlimitedinthebusinessmodelstheycouldadopt.Investorswouldhaveaccesstoalimitednumberofstartups
andsmallbusinessestheycouldinvestinviaonlineplatforms.

9.94RegulatoryregimestofacilitateCSEFareintheprocessofbeingimplementedinanumberofotherjurisdictions.Relyingonthestatus
quowouldalsomeanthatAustraliaspositiononCSEFwouldbemarkedlydifferentfromanumberofotherjurisdictionsandcouldbeperceivedto
belesssupportiveofinnovativefundingmechanisms.Innovativebusinessesandplatformprovidersmayalsohaveanincentivetoshifttheir
operationstothesejurisdictionstomoreeasilyaccessstartupandgrowthcapital.ThiscouldalsohinderthegrowthoftheAustralian
entrepreneurialsector.

6.4 OPTION 4: POST- CONSULTATION MODEL


9.95Thepostconsultationmodelseekstoaddresskeythemesfromtheconsultationprocesswhilebalancingreducingbarrierstoand
compliancecostsassociatedwithCSEF,whilemaintainingadequateinvestorprotection.

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9.96SimilartotheCAMACandNewZealandmodels,theintermediarywouldperformanimportantgatekeepingrole.Thepostconsultation
modelwouldalsoallowAustraliatokeeppacewithinternationaldevelopments.

9.97Keyelementsofthecorporategovernancecomplianceregimethatpresentabarrierforenterprisestoconverttopubliccompanystatus
wouldbeaddressed,astheyareundertheCAMACmodel.SimilartotheCAMACmodel,thereductionofdisclosureandcorporategovernance
obligationsonCSEFissuersdivergefromthecurrentapproachundertheCorporationsAct.Thesereducedobligationsforissuersarebalancedby
additionalprotectionsforinvestors,suchaslimitsonthesizeofissuercompanies,limitsontheamountsissuerscanraise,capsontheamount
investorscaninvestandsignatureofriskacknowledgementstatement.However,asoutlinedbelow,theissuerandinvestorlimitsarehigherunder
thepostconsultationmodelcomparedtotheCAMACmodel.

9.98AbenefitcomparedtotheCAMACmodelisthereducedperiodforwhichissuersmustobtainafullauditoftheirfinancialaccountsafter
losingtheirexemptstatus.Underthismodel,onlythemostrecentfinancialstatementswouldberequiredtobeaudited,reducingcompliancecosts
forissuers.Thisapproachreflectsstakeholderconcernthatobtaininganauditforfinancialaccountsuptofiveyearsoldmaybeimpracticaland
overlyburdensome,astheresponsibleauditorwouldnothavebeenappointedatthetimeandhadaccesstothecompanytofacilitatetheaudit
process.

9.99Whileinvestorswouldhavereducedassuranceabouttheaccuracyofthefinancialstatementsfortheentiretyoftheexemptionperiod,
themarginalbenefitofthishigherassuranceforfinancialstatementsfromseveralyearspriorislikelytobeoutweighedbythecosttotheissuerof
obtainingamultiyearaudit.

9.100Theproposedapproachtotheeligibilityperiodforexemptionsfromthecompliancerequirementswouldbeexpectedtoreducetheriskof
regulatoryarbitragepresentintheCAMACmodel,whereacompanycouldgainaccesstotheexemptionsforaperiodofuptothreetofiveyears
withoutneedingtoconductaCSEFraising.Aoneyeargraceperiodforanewlyincorporatedorconvertedpubliccompanywouldprovidea
potentialissuerwithtimetodevelopaCSEFproposalandconductaraisingwhilenotbeingsubjecttopotentiallyonerouspubliccompany
compliancerequirements.

9.101OtherbenefitsofthepostconsultationmodelcomparedtotheCAMACmodelinclude:
anincreasedcapontheamountoffundsthatcanberaisedviaCSEFina12monthperiod,increasingflexibilityforissuerswhomaypreferto
conductasinglelargeCSEFraisingratherthanaseriesofsmalleronesandaligningthecapwiththeexistingASICclassorderthatfacilitatesa
limitedformofCSEF[21]

increasedcapsoneligibilitytouseCSEF,from$10millionincapitaltoannualturnoverandgrossassetsof$25millionwillincreasetherange
ofsmallandearlystagecompaniesabletousethelowercostfundraisingoptionavailablethroughCSEFandincreaseCSEFinvestmentoptionsfor
investors

alignmentoftheeligibilitycapsforaccesstothecorporategovernancecomplianceexemptionsanduseofCSEFwouldreduceregulatory
complexity

permittingcompaniesthathavepreviouslyundertakenapublicoffertouseCSEFwouldreducethefundraisingcostsofthesebusinessesand
provideanalternativetotraditionalpublicoffers

morecertainty,andlowercompliancecosts,forintermediariesregardingtheirmarketlicencingobligationswouldbetterfacilitatesecondary
trading

notincludingrestrictionsonintermediaryfeesorinterestsinissuersusingtheirplatformsaddressesfeedbackfromstakeholdersthatsuch
restrictionswouldreducetheattractivenessoftheCSEFmarkettopotentialintermediaries,reducingcompetition

higherinvestorcapswouldincreasetheamountoffundsissuerscouldraisefromthesamenumberofinvestors(subjecttothefundraising
caps)andincreaseflexibilityforinvestorswhowishtoinvestlargeramountsbutwhoarenoteligibleforoneoftheexistingprospectusexemptions

areducedcoolingoffperiodof48hourswillprovideissuersandintermediarieswithgreatercertaintyabouttheamountraisedviaaCSEF
offerwhileretainingareasonableperiodforinvestorstowithdrawaftermakinganinvestment.

9.102DrawbackscomparedtotheCAMACmodelinclude:
permittingcompaniesthathavepreviouslyundertakenpublicofferstouseCSEFwouldreducetheamountofdisclosurethesecompanies
wouldneedtoprovidetopotentialinvestors,whichmayresultininvestorsbeinglessinformedthanwouldotherwisebethecase

similartotheNewZealandmodel,intermediaryinvestmentinCSEFissuersmayraiseinvestorexpectationsaboutthelikelihoodforsuccessof
thosecompaniesand

greaterriskofinvestorslosinglargeramountsoffundsintheabsenceofaggregateannualinvestorcaps.
9.103ComparedtotheNewZealandmodel,benefitsofthepostconsultationmodelinclude:
similartotheCAMACmodel,limitationoftheregimetocertainsmallcompaniesreducestheriskoflargercompaniescircumventingthe
standarddisclosurerequirementsforpublicequityoffers

limitsontheamountoffundsinvestorsmayloseviaCSEFwhilehavingaccesstoreduceddisclosure,whichmayalsohelpmaintaininvestor
confidenceinCSEFand

greatercertaintyonthelevelandtypeofdisclosurerequiredbyissuers.
9.104DrawbackscomparedtotheNewZealandmodelinclude:
similartotheCAMACmodel,increasedcomplexitybyremovingexemptionsfromcertaincompanycompliancecosts
limitationsonthesizeofcompaniesthatmayuseCSEF,requiringissuerstomonitortheircompliancewiththecaps
inabilitytotradeoffthelevelofvoluntaryinvestorcapswiththelevelofdisclosureand
intermediarieswouldstillneedtomonitorinvestorscompliancewithinvestorcapsforinvestmentsmadethroughitsplatform.

7.REGULATORYBURDENANDCOSTOFFSETESTIMATESOFTHECSEFMODELS
7.1 OPTION 1: CAMAC MODEL
9.105Table3includesestimatesofcompliancecostsassociatedwithimplementingthemodelrecommendedbyCAMAC.
9.106Thecompliancecostsareestimatedbymodellingthecostforissuers,intermediariesandinvestorsofkeyrelevantelementsofthecurrent
regulatoryframeworkforsmallbusinessesthatcurrentlyuseonlineplatformstoraiseequity,andcomparingthesestatusquocoststotheexpected
costsunderCAMACsframework.ThisapproachmakesassumptionsaboutthenumberofCSEFissuers,intermediariesandinvestorsoverthenext
10yearsunderboththestatusquoandCAMACoptions.

9.107CAMACsproposalisexpectedtoreducetheoverallperbusinesscompliancecostsforissuersthatparticipate.However,giventhelikely
growthinthenumberofbusinessesraisingfundsviaonlineintermediariesundertheCSEFarrangements,theaggregatecomplianceburdenacross

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theeconomyoverthenext10yearsisexpectedtoincrease.

Costsperissuerareexpectedtofallinnettermsby$7,950peryear,drivenlargelybytemporaryexemptionsfromauditandannualgeneral
meetingrequirementsandreductionsindisclosurecosts.

CompliancecostsforintermediariesareexpectedtoincreaseinlinewiththeexpectedincreaseinbusinessesraisingfundsviaCSEF.
Intermediarycoststhatvarywiththenumberofissuersraisingfundsareexpectedtoincreaseby$1,550perfundraisingcampaign.

Costsperinvestorareexpectedtoincreaseby$75peryearasaresultofinvestorsmonitoringtheircompliancewithinvestmentcapsand
acknowledgingriskdisclosurestatementspriortoeachinvestment.

Table3:Regulatoryburdenandcostoffsetestimatetable
Average annual regulatory costs (from business as usual)
Change in costs
($million)

Business

Community
Organisations

Individuals

Total change in cost

Total, by sector

$45.4 million

$0

$1.3 million

$46.8 million

Cost offset ($ million)

Business

Community
organisations

Individuals

Total, by source

Agency

$46.8 million

$0

$0

$46.8 million

Are all new costs offset?

Yes, costs are offset No, costs are not offset Deregulatory no offsets required
Total(Change in costs Cost offset) ($million) = $0

9.108AregulatoryoffsethasbeenidentifiedfromwithintheTreasuryportfolio.Thisoffsetrelatestoaproposaltoalignthelegalframeworks
forpersonalandcorporateinsolvencypractitioners.

9.109ThekeyassumptionsthatunderliethiscompliancecostestimateareoutlinedattheAppendix,Section9.2.1.
7.2 OPTION 2: NEW ZEALAND MODEL
9.110Table4includesestimatesofcompliancecostsassociatedwithimplementingamodelsimilartothatimplementedbyNewZealand,using
thesamecostingapproachasusedforestimatingtheCAMACmodelcompliancecosts.

9.111AmodelsimilartothatimplementedinNewZealandisexpectedtoreducetheoverallperbusinesscompliancecostsforissuersthat
participate.However,giventhelikelygrowthinthenumberofbusinessesraisingfundsviaonlineintermediariesundertheCSEFarrangements,the
aggregatecomplianceburdenacrosstheeconomyoverthenext10yearsisexpectedtoincrease.

Costsperissuerareexpectedtofallinnettermsby$1,750peryear.ThekeydifferenceinissuercostsbetweentheCAMACandNew
ZealandmodelistheabsenceofCSEFspecificexemptionsfrompubliccompanycompliancecosts.

CompliancecostsforintermediariesareexpectedtoincreaseinlinewiththeexpectedincreaseinbusinessesraisingfundsviaCSEF.
Intermediarycoststhatvarywiththenumberofissuersraisingfundsareexpectedtoincreaseby$1,680perfundraisingcampaign.

Costsperinvestorareexpectedtoincreaseby$17peryearasaresultofinvestorsbeingrequiredtoacknowledgeriskdisclosurestatements
priortoeachinvestment.

Table4:Regulatoryburdenandcostoffsetestimatetable
Average annual regulatory costs (from business as usual)
Change in costs
($million)

Business

Community
Organisations

Individuals

Total change in cost

Total, by sector

$58.8 million

$0

$0.3 million

$59.2 million

Cost offset ($
million)

Business

Community
organisations

Individuals

Total, by source

Agency

$59.2 million

$0

$0

$59.2 million

Are all new costs offset?

Yes, costs are offset No, costs are not offset Deregulatory no offsets required
Total(Change in costs Cost offset) ($million) = $0

9.112AregulatoryoffsethasbeenidentifiedfromwithintheTreasuryportfolio.Thisoffsetrelatestoaproposaltoalignthelegalframeworks
forpersonalandcorporateinsolvencypractitioners.

9.113ThekeydifferencesbetweentheestimatedcompliancecostsoftheCAMACmodelandtheNewZealandmodelaretheabsenceintheNew
Zealandmodeloftheexemptpubliccompanystructure,thedisclosureofintermediaryfeesandinterestsinissuers,andintermediariesdisclosure
arrangementsforinvestors.

9.114InAustralia,thelackoftheexemptpubliccompanystructurefornewlyregisteredorconvertedpubliccompaniesusingCSEFwouldmean
thatthesecompanieswouldneedtocomplywiththefullrangeofpubliccompanyobligations,suchasholdingAGMs,auditoffinancialstatements
andprovidingtheoptionofsendingshareholderscopiesoftheannualreport,whichwouldincreasecompliancecosts.WhileNewZealanddoesnot
haveCSEFspecificreportingandgovernanceexemptions,anycompanythatfallswithintherequiredsizethresholdsmaybeexemptfromcertain
financialreportingandauditobligations.

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9.115KeyassumptionsunderlyingthecompliancecostestimateforthisoptionthatdifferfromthoseusedfortheCAMACmodelareoutlinedat
theAppendix,Section9.2.2.

7.3 OPTION 4: POST-CONSULTATION MODEL


9.116Theregulatorycostsofthepostconsultationmodelhavebeenestimatedintwoparts.
Thecompliancecostsassociatedwiththepostconsultationmodel(exceptfortheAMLchanges),havebeenestimatedinTable5
usingthesamecostingapproachasusedforestimatingtheCAMACmodelcompliancecosts.

ThecompliancecostsassociatedwithchangestotheAMLregimehavebeenestimatedinTable6toreflectthatthechangeswill
applymorebroadlythanjusttotheCSEFmarket(outlinedbelowinSection8.1).

Table5:Regulatoryburdenandcostoffsetestimatetable(excludingAMLchanges)
Average annual regulatory costs (from business as usual)
Change in costs
($million)

Business

Community
Organisations

Individuals

Total change in cost

Total, by sector

$48.8 million

$0

$1.5 million

$50.3 million

Cost offset ($
million)

Business

Community
organisations

Individuals

Total, by source

Agency

$50.3 million

$0

$0

$50.3 million

Are all new costs offset?


Yes, costs are offset
required

No, costs are not offset

Deregulatory no offsets

Total (Change in costs Cost offset) ($million) = $0

Table6:Regulatoryburdenandcostoffsetestimatetable(AMLchanges)
Average annual regulatory costs (from business as usual)
Change in costs
($million)

Business

Community
Organisations

Individuals

Total change in cost

Total, by sector

$0.6 million

$0

$0

$0.6 million

Cost offset ($
million)

Business

Community
organisations

Individuals

Total, by source

Agency

$0.6 million

$0

$0

$0.6 million

Are all new costs offset?

Yes, costs are offset No, costs are not offset Deregulatory no offsets required
Total(Change in costs Cost offset) ($million) = $0

9.117ThepostconsultationmodelisexpectedtoreducetheoverallperbusinesscompliancecostsforissuersthatparticipateinCSEF.
However,giventhelikelygrowthinthenumberofbusinessesraisingfundsviaonlineintermediariesundertheCSEFarrangements,theaggregate
complianceburdenacrosstheeconomyoverthenext10yearsisexpectedtoincrease.

Costsperissuerareexpectedtofallinnettermsby$9,950peryear,drivenlargelybytemporaryexemptionsfromauditandannualgeneral
meetingrequirementsandreductionsindisclosurecosts.

Costsperinvestorareexpectedtoincreaseby$75peryearasaresultofinvestorsmonitoringtheircompliancewithinvestmentcapsand
acknowledgingriskdisclosurestatementspriortoeachinvestment.

9.118CompliancecostsforintermediarieswouldbeimpactedbytheCSEFframework(excludingAMLchanges),andbythechangestotheAML
framework.

UndertheCSEFframeworkexcludingAMLchanges,compliancecostsforintermediariesareexpectedtoincreaseinlinewiththeexpected
increaseinbusinessesraisingfundsviaCSEF.Intermediarycoststhatvarywiththenumberofissuersraisingfundsareexpectedtoincreaseby
$1,550perfundraisingcampaign.

UndertherevisedAMLframework,compliancecostsforexistingplatforms(acrossbothCSEFandnonCSEFmarkets)willreducebyan
averageof$20,542peryear.Compliancecostsfornewplatformsthatenterthemarket(again,acrossbothCSEFandnonCSEFmarkets)will
increasebyanaverageof$115,202peryear,althoughthisismainlydrivenbythecostsincurredbynewplatformsthatwouldnototherwisehave
beenestablished.

9.119AregulatoryoffsethasbeenidentifiedfromwithintheTreasuryportfolio.Thisoffsetrelatestoaproposaltoalignthelegalframeworks
forpersonalandcorporateinsolvencypractitioners.

9.120ThekeydifferencebetweentheestimatedcompliancecostsoftheCAMACmodelandthepostconsultationmodelistheremovalofthe
requirementforfinancialstatementscoveringtheperiodtheissueriseligibleforanauditexemptiontobeauditedoncethatexemptionexpires,and
thechangestotheAMLframework.

9.121OtherkeyassumptionsunderlyingthecompliancecostestimateforthisoptionareconsistentwiththoseoutlinedfortheCAMACoption,
andtheNewZealandoptionforintermediaryfeedisclosuresanddisclosurearrangementsforinvestors.

9.122KeyassumptionsunderlyingthecompliancecostestimatefortherevisedAMLframeworkareoutlinedattheAppendix,Section9.2.3.
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8. GOVERNMENT POLICY
8.1 OPTION 4: POST-CONSULTATION MODEL IS THE PREFERRED OPTION
9.123Followingconsiderationofthefouroptions,theGovernmenthaselectedtoimplementOption4:thepostconsultationmodel.Thismodel
drawsonelementsofboththeCAMACandNewZealandmodels,aswellasincorporatingsuggestionsfromstakeholderfeedback.Itisconsidered
toprovidethemostappropriatebalancebetweenreducingthebarrierstoandcompliancecostsofCSEFforpubliccompanies,whilemaintaining
adequateinvestorprotection.

9.124Forissuers,thismodelintroduceslesscomplexityintotheregulatoryframeworkthantheCAMACmodelbynotcreatinganewexempt
publiccompanycategory.ItalsoallowsbusinessestoraisemorefundingthroughCSEFinany12monthperiodthanunderboththeCAMACand
NewZealandmodels,butlimitsthesizeofcompaniesthatmayuseCSEFcomparedtotheNewZealandmodel.Afurtherbenefittoissuersisthe
reducedcostsassociatedwithobtaininganauditontheirpastfinancialaccounts,whencomparedtotheCAMACmodel.

9.125Forintermediaries,thismodelprovidesmorecertaintyandlowercostsformarketlicencing,andmoreflexibilitytooperateundera
preferredfeestructureandtoinvestinsmallbusinessesthroughCSEF,thanundertheCAMACmodel.Thesefeesandinvestmentsmuststillbe
disclosed.

9.126Forinvestors,thismodelintroduceslargerinvestorcapsthantheCAMACmodel.Thiswillallowformoremoneytobeinvestedinsmall
businessesthroughCSEF,whilestilllimitingtheamountoffundsthatinvestorscouldlose.Theintroductionofsuchcapscouldthoughbemore
restrictiveontheamountoffundsaninvestorcaninvest,comparedtothevoluntarycapsoftheNewZealandmodel.

9.127ThismodelalsoreducesthepossibilityforabuseoftheCSEFregime.BylimitingaccesstoCSEFtothosebusinessesbelowaturnover
andassetthresholditwillreducetheriskoflargercompaniesseekingtocircumventthestandarddisclosurerequirementsforpublicequityoffers,
ascouldoccurundertheNewZealandmodel.ByrequiringbusinessestoraisefundingthroughCSEFwithinthefirst12monthsofjoiningthe
simplifieddisclosureCSEFregime,itwillalsoreducetheriskofbusinessesjoiningtheregimetogainrelieffromnormalcompliancerequirements
withoutactuallyusingCSEF,ascouldoccurundertheCAMACmodel.

9.128Asoutlinedabove,thechangestotheAMLframeworkwillapplymorebroadlythanjusttheCSEFmarket.Theywillalsoprovide
additionalflexibilitytofacilitateanefficient,effective,andappropriatelicencingregimeforothermarkets.Forexample,professionalmarketscould
accessthemodifiedAMLregimetocreateaconsistentapproachacrossmarketsandhelpfacilitatemutualrecognitionofAustralianoperatorswith
crossborderactivities.NewandemergingmarkettypesthatwouldotherwiseneedtoobtainafullAMLcouldalsoaccessthemodifiedAMLregime,
asappropriate,whichwouldencourageinnovationandcompetitioninthesemarkets.

9.129Thepostconsultationmodelislikelytohavethehighestnetbenefitoftheoptionsconsidered,andhasalowerestimatedaggregate
regulatorycoststhaneithertheCAMACorNewZealandmodels.

8.2 GOVERNMENT CONSULTATION ON THE PREFERRED MODEL


9.130AdiscussedinSection5,thedevelopmentofthismodelwasheavilyinfluencedbythestakeholderconsultationsundertakeninthefirst
halfof2015.

9.131AsubsequentdiscussionpaperwasreleasedinAugust2015thatoutlinedthekeyfeaturesofthispostconsultationmodel.Feedback
providedatthisstageinformedthedesignofthefinalmodel.

9.132Intheprocessofdraftingthelegislativeamendments,theGovernmentcontinuedtoconsultwithindustryparticipants,ASICandrelevant
governmentagencies.

9.133ThedraftBillwassharedwithkeyindustrystakeholders,includinganumberoffirmsseekingtosetupasintermediariesinAustralia,and
corporatelawexpertsforcommentinearlyNovember2015.Stakeholderswereoverallsupportiveofthedraftlegislation,andoftheneedto
introducearegulatoryframeworktofacilitateCSEF.

9.134However,stakeholderviewsweremorevariedonsomeofthedetailsofthelegislation.Anumberofconcernsandqueriesaroundhow
thegatekeeperroleofintermediarieswilloperatewereraised.StakeholdersalsoconsideredthatsomeoftheeligibilitycriteriatouseCSEF,
particularlytherequirementthatissuersnothavethepurposeofinvestinginotherentities,maybetoorestrictiveandmayhinderthenormal
growthprocessofastartup,whichmayincludeintegratingsubsidiariesasitgrows.Inresponsetothisfeedback,thelegislationhasbeen
amendedtoonlycaptureentitiesthathaveasubstantialpurposeofinvestinginothercompanies.

9.135StakeholdersalsoconsideredthatcommencementoftheframeworkninemonthsfollowingRoyalAssentwastoolongadelay.In
responsetothisfeedback,theperiodwasshortenedtosixmonths.However,givenASICwillberequiredtomaketechnicalchangestotheir
systemsandtoissueguidancetosupportthelegislation,itwouldbeimpracticaltoshortenthisanyfurther.

9.136InaccordancewiththeCorporationsAgreement2002,theGovernmentalsoconsultedwith,andreceivedtheapprovalof,thestatesand
territoriesfortheproposedlegislativeamendments.

9.137TheGovernmentreleasedthedraftregulationsforconsultationinDecember2015,outlining,amongothermatters,minimumdisclosure
requirementsforCSEFissuers,prescribedchecksthatintermediariesmustundertakeonissuersandthewordingoftheriskwarningandrisk
acknowledgement.Stakeholdersweregenerallysupportiveofthedisclosurerequirements,withsomesuggestingmoreinformationbeincluded.
Stakeholderswerealsogenerallysupportiveoftherequirementsfortheprescribedchecks,butsomesoughtfurtherclarificationontheconductof
thechecks.Severalstakeholdersalsomadesuggestionsonthewordingontheriskwarningandacknowledgement.TheGovernmentis
consideringthisfeedbackandwillfinalisetheregulationsoncetheParliamentpassestheBill.

9.138TheCorporationsAmendment(CrowdsourcedFunding)Bill2015wasintroducedintoParliamenton3December2015.TheBill
wasreferredtotheSenateEconomicsLegislationCommittee,whichreceivedsubmissionsandheldpublichearingsbeforetablingitsreporton1
March2016.TheCommitteeconsideredmattersincludingeligibleCSEFissuers,theissuerfundraisingcap,disclosuresandconsents,intermediary
obligations,investorcapsandthecoolingoffperiod.TheCommitteerecommendedthattheBillbepassed,withtheGovernmenttocarefully
monitortheimplementationoftheCSEFframeworkandreviewittwoyearsafterenactment.TheBilllapsedwiththecallingofthe2016election.

9.139InMarch2016aspartofitsFinTechStatement,theGovernmentindicatedthatitwasconsideringtwopotentialamendmentstotheCSEF
framework:increasingtheeligibilitycapfrom$5millionto$25millionandreducingthecoolingoffperiodfromfiveworkingdaysto48hours.
Followingfurtherconsultation,includingwithitsFinTechAdvisoryGroup,theGovernmentdecidedtoproceedwiththeseamendments.

8.3 IMPLEMENTATION AND EVALUATION


9.140ThepreferredmodelwillbeimplementedthroughlegislativeamendmentsandregulationstotheCorporationsAct,regulatoryguidance
publishedbyASICandministerialexemptionsinrelationtoAMLobligations.ItisproposedthattheBillwillbereintroducedintotheParliamentin
theSpring2016parliamentarysittingperiod.TheregulationswillbeconsideredbytheFederalExecutiveCouncilfollowingtheBillspassage
throughtheParliament.

9.141ThenewlawswillcommencesixmonthsaftertheBillreceivesRoyalAssent.Thiswillallowtimeforindustrytoconsiderthenewlaws
andadjusttheirbusinessmodels,includingobtainingthenecessaryAFSLorAMLlicencesifrequired.

9.142Inthe201516Budget,ASICreceived$7.8millionoverfouryearstoimplement,monitorandenforcethenewframework.Duringthe
transitionperiodASICwillproduceregulatoryguidancetohelpindustrytransitiontothenewlaws.ASICwillalsodevelopanewCSEFauthorisation

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categorywithintheAFSLandwillassessandconsiderapplicationsforAFSLandAMLlicencesasrequired,includingdatareportingobligationsfor
licenseestoassistinongoingevaluationoftheCSEFmarket.

9.143TheGovernmentandASICwillcontinuetomonitortheCSEFmarkettoensurethatthechangestothelawareoperatingasintended.By
makingiteasierandlesscostlyforsmallpubliccompaniestoraiseequityfinancingthroughCSEF,theGovernmentwouldexpectthatthenumberof
businessesexploringthisfundingavenuewillincrease.

9.144AsoutlinedinSection5,theGovernmentisalsoconsideringextendingCSEFtoproprietarycompanies.

9. APPENDIX
9.1 SUMMARY OF CAMAC REPORT
9.145CAMACreleaseditsreportonCSEFinJune2014.CAMACfoundthatthecurrentlawmakesitdifficultforCSEFtobeusedinAustralia,
andthatchangetotheCorporationsActwouldberequiredifCSEFweretobefacilitatedinAustralia.

9.146CAMACconsideredfouroptionsforfacilitatingCSEFinAustralia.
1.Adjustingtheregulatorystructureforproprietarycompanies
9.147Thisoptionwouldinvolveincreasingoruncappingthenumberofpermittedoffersunderthesmallscalepersonaloffersexemptionfor
publicoffersbyproprietarycompaniesandsubstantiallyincreasingthenumberofpermittedshareholdersofaproprietarycompany.

9.148TherewassupportforbothelementsofthisoptionfromanumberofstakeholdersthatmadesubmissionstoCAMACsdiscussionpaper.
9.149However,CAMACdidnotsupportthisoption,asitwouldinvolveashiftawayfromthepurposeofproprietarycompaniesascloselyheld
entities,withconsequentlylowercompliancerequirements.

2.ConfineCSEFtolimitedclassesofinvestors
9.150ThisoptionwouldinvolvelimitingtheclassesofinvestorsthatcouldinvestinCSEF,forexample,tosophisticated,experiencedand
professionalinvestors,ascurrentlydefinedintheCorporationsAct.[22]Thedefinitionofsophisticatedinvestorscouldalsobechangedtoaself
certificationsystem,similartothatusedintheUnitedKingdom.

9.151Stakeholdersdidnotsupportthisoption.CAMACalsonotedthatthisoptionwoulddelivercrowdfundingwithoutthecrowd,
andmaynotallowmanybusinessestoraiseameaningfullevelofcapital.

3.Amendthefundraisingprovisionsforpubliccompanies
9.152ThisoptionwouldinvolveamendingthefundraisingrequirementsforpubliccompaniescontainedinChapter6DoftheCorporationsAct,
includingtherequiredlevelofdisclosure.

9.153Manystakeholderswereoftheviewthatthisoptionwouldleaveinplacesubstantialgovernanceandcompliancerequirementsforpublic
companiesthatwouldbeoverlyburdensomeforstartupsandsmallenterpriseslikelytouseCSEF.CAMACconcurredwiththisview.

4.IntroduceanewlegislativeregimeforCSEF
9.154CAMACrecommendedthecreationofaspecificregulatorystructureforCSEF,asoutlinedbelow
Recommendations
Corporateform
9.155CAMACrecommendedthecreationofanewcategoryofpubliccompany,tobeknownasanexemptpubliccompany.Exemptpublic
companieswouldberelievedofsomeofthecompliancerequirementsofpubliccompaniesforaperiodofuptothreetofiveyears.Suchcompanies
wouldbeexemptfromthefollowingrequirements:

continuousdisclosure
holdinganannualgeneralmeeting
executiveremunerationreporting
halfyearlyreportingand
appointinganindependentauditorandhavingtheirfinancialreportaudited,untilthecompanyhasraisedmorethan$1millionthroughCSEF
oranyotherprospectusexemptionandexpended$500,000.Onexpiryofitsexemptstatus,thecompanywouldberequiredtohaveafullaudit,
coveringanyperiodwhereitsfinancialaffairswerenotaudited.

9.156CAMACrecommendedthateligibilitytobecome,andtoremain,anexemptpubliccompanybelimitedtocompanieswithturnoverbelow
$5millionperannumandcapitaloflessthan$5million.Exemptstatuswouldalsoexpireautomaticallyafterthreeyears,subjecttoalimited
exceptionthatmayextendtheexemptstatusforuptotwofurther12monthperiods.Shareholderswouldberequiredtoagreetotheproposalvia
aspecialresolution.CAMACsrationaleforlimitingtheperiodacompanycouldretainexemptstatuswastobalancethebenefitsofreducing
compliancecostswiththecoststoinvestorsofreducedtransparency.

9.157ExistingcompaniesseekingtobecomeanexemptpubliccompanywouldalsoneedtobeeligibletoconductaCSEFoffer.CAMAC
proposedthatcompaniesthatarecomplexorlisted,havealreadyconductedaregulatedofferunderChapter6D,blindpoolsandcompanieswith
substantialcapital(withasuggestedcapof$10million),shouldnotbeeligibletoconductaCSEFoffer.

Fundraising
9.158CAMACproposedaframeworkforCSEFfundraisingthatincludedanumberofspecificrequirementsforissuers,onlineintermediariesand
investors.

Issuers
9.159Issuerswouldberequiredtobeapubliccompanyorexemptpubliccompanyofferingnew,fullypaidshares,withthefollowing
requirements:

eligibleissuerscouldnotbecomplexorlistedcompanies,havealreadyconductedaregulatedofferunderChapter6D,ablindpoolora
companywithsubstantialcapital(withasuggestedcapof$10million)

complywithtemplatedisclosurerequirementsthatwouldbelessonerousthanexistingrequirements
complywithacapof$2millionontheamountthatcouldberaisedviaCSEForthesmallscalepersonalofferexemptioninany12month
period

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issuersandintermediaries,andtheirrespectivedirectorsandofficerswouldnotbeabletolendtoinvestorstoacquiretheissuerssharesvia
CSEF

issuerswouldbeprohibitedfrompayinganyfeesinconnectionwiththeoffer,excepttotheintermediaryandprofessionalserviceproviders
investorfundswouldnotbeabletobetransferredtotheissueruntiltheofferiscompleted,includingreachingthesubscriptionthreshold
outlinedinthedisclosuredocument,andtheexpirationofacoolingoffperiodforinvestorsandoptoutrightswherethereisamaterialadverse
changeintheissuerscircumstanceswhiletheofferisopen[23]and

complywithexistingmaterialadversechangeprovisionsforregulatedpublicoffers[24],includingtheabilityforinvestorstooptoutof
previouslyacceptedoffers,andadvisetheintermediaryofthecorrectedinformation.

Intermediaries
9.160CAMACproposedthatintermediarieswouldberequiredto:
holdanAFSLandmeetlicensingobligations,includingmembershipofanexternaldisputeresolutionschemeandinsurancerequirements
undertakelimitedduediligenceonissuerswhousetheintermediarysplatform
providegenericriskwarningstoinvestors
checkcompliancewiththeproposedinvestorcapperissuer
providefacilitiesforcommunicationbetweenissuersandinvestors
wheretheyhavebeennotifiedbyanissuerofamaterialadversechange,notifythatchangetoallinvestorswhohavepreviouslyacceptedthe
offer,andpublishthecorrectedinformationonitswebsiteand

wouldberequiredtoholdinvestorfundsuntiltheissuersofferhasbeencompleted,andholdthefundsinaccordancewithexistingclient
moniesrequirements.[25]
9.161Intermediarieswouldbeprohibitedfrom:
havingafinancialinterestinanyissuerthatisundertakingaCSEFraisingonitswebsite
beingremuneratedaccordingtothefundsraisedbyanissuerconductingaCSEFraisingonitswebsite,orinsecuritiesorotherinterestsinthe
issuer

offeringinvestmentadviceorlendingtoCSEFinvestorsand
solicitingcrowdinvestors,withtheexceptionoftheintermediaryadvertisingitsexistenceanddisplayingkeydetailsrelatingtoeach
capitalraising,butincludingshowcasingparticularoffersonitswebsite.

Investors
9.162CAMACalsomadethefollowingrecommendationsinrelationtoinvestors:
investorcapsof$2,500perinvestorper12monthperiodforanyoneCSEFissuerand$10,000perinvestorper12monthperiodintotal
CSEFinvestments

CSEFissuerscouldraisefundsunderthesmallscalepersonaloffersexemption,withanyfundsraisedtocounttowardstheproposed$2
millionper12monthperiodissuercap

noinvestorcapsforinvestorsmeetingthedefinitionofasophisticatedinvestor,andanyfundsraisedfromsuchinvestorswouldnotcount
towardstheproposed$2millionper12monthperiodissuercap[26]
acknowledgementofariskdisclosurestatement
accesstocoolingoffrightsforaperiodof5workingdaysand
bansondirectorsandotherassociatesoftheissuersellingasignificantproportionoftheirholdingswithin12monthsofanyCSEFofferby
thatissuer.

9.2 REGULATORY BURDEN ESTIMATE ASSUMPTIONS


CAMAC Model
Compliance cost

Query

Estimate

Preparation and lodgement of annual report

Cost of preparing annual report for a start-up or small business.

$4,000

Audit

Cost of having the nancial statements of a start-up or small business audited on an annual basis.

$20,000

Cost of having nancial statements of the exempt period audited once eligibility for exemption
expires

Cost of a start-up or small business holding an annual general meeting.

$7,500

Labour cost associated with an issuer monitoring


compliance with fundraising limits for disclosure
exemptions under the status quo or the issuer cap
under the CAMAC model.

Hours per year spent on monitoring.

4 hours

Hourly rate of the staff member that would undertake the monitoring.

$65.45 per hour. [27]

Legal advice on eligibility to issue under CSEF

Hours required.

20 hours

Hourly rate.

$107.68 [28]

Cost involved in an issuer establishing any systems and processes to monitor the funds it has
raised under various disclosure exemptions.

$10,000

Costs for public companies

Annual general meeting

$20,000

Issuers

Development of databases and systems to monitor


amounts issuers have raised

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Costs of preparing an information statement for
investors

Total cost of preparing an information statement for issuers using current online equity
fundraising platforms.

$7,500

Total cost of preparing a template disclosure document under CSEF regime.

$5,000

Intermediaries
Applying for and obtaining an AFSL

Cost of applying for and obtaining an AFSL.

$100,000 [29]

Annual labour costs to comply with an AFSL

Staff hours per year.

104 hours

Hourly rate of staff members responsible for compliance.

$112.82 [30]

Annual costs associated with ongoing compliance with licensing requirements.

- professional indemnity insurance;

- annual return audit;

$15,000

- annual licensee review;

$4,000

- client le reviews;

$3,000

- ongoing training for responsible managers;

$5,000

- maintaining compliance plans, procedures and systems; and

$2,000

- various memberships and lodgements.

$16,500

Other annual costs:

$1,000 [31]
Provision of application form and disclosure
statements

Average time to complete per issuer.

0.5 hours

Hourly rate of the staff member undertaking the process.

$65.45 [32]

Putting in place systems and processes.

$10,000
Monitoring of issuer and investor caps

Hours per year spent on monitoring per issuer using the platform.

4 hours

Hourly rate of the staff member that would undertake the monitoring.

Cost of establishing systems and processes.

$65.45 [33]
$10,000

Due diligence on issuers and management

Average time to complete per issuer.

5 hours

Hourly rate of the staff member that would complete the due diligence.

$65.45 [34]

Number of associates of the issuer on whom due diligence would need to be completed.

4 people
Provision of facilities for issuers and investors to
communicate

Average time to monitor communications facility per issuer.

4 hours

Hourly rate of the staff member that would undertake the monitoring.

$65.45 [35]

Cost of establishing the facility and associated monitoring processes, per issuer.

$1,000

Investors
Monitoring compliance with investor caps

Average time to complete prior to each investment.

0.5 hours

Consideration and signature of risk


acknowledgement statement

Average time to complete prior to each investment.

0.15 hours

NewZealandModel
Compliance cost

Query

Estimate

Average time to complete per issuer.

2 hours

Labour cost.

$65.45 [36]

Cost of establishing systems and processes.

$10,000

Intermediaries
Disclosure of fee structures and
interests in issuers

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Putting in place mechanisms to
ensure appropriate disclosures
depending on the level of any
voluntary investor caps

Average time to complete per issuer.

8 hours

Labour cost.

$65.45 [37]

Cost of establishing systems and processes.

$20,000

AMLchanges
Compliance cost

Query

Estimate

Hours of legal services required for new operator under current requirements.

2925 hours (1.5 years) [38]

Costs for intermediaries


Costs of applying for an Australian Market Licence, including
preparation to meet substantive requirements

Hours of legal services required for new operator under proposed reduced
requirements.

Hours of legal services for existing exempt operator under proposed reduced
requirements.

975hours(0.5years)

Proving eligibility for reduced AML obligations

Ongoing obligations for domestic markets complying with


supervision and monitoring requirements

Ongoing obligations for domestic markets recordkeeping and


disclosure of transactions and nancial reports, plus maintaining
written procedures regarding recordkeeping

1950hours(1year)

Hourly rate for legal consultant.

$128.21 per hour [39]

Hours of legal services required

75 hours (2 weeks)

Hourly rate for legal consultant.

$128.21 per hour [40]

Hours of work per year required by nance analysts. (under existing


requirements -reduced requirements assumed to result in a 15 per cent
reduction).

4072.5 hours [41]

Hourly rate.

$80.00 per hour [42]

Hours of work per year required by nance analyst.

150 hours (4 weeks)

Hourly rate.

$80.00 per hour

Hours of work per year required for Director review

37.5 hours (1 week)

Hourly rate.

$128.21 per hour

Hours of work required for Committee/Board approval

15 hours

Hourly rate.

$128.21
Ongoing obligations for domestic markets providing information
to market participants

Cost per document

$100

Number of documents (one per participant)

30

Ongoing obligations for domestic markets provision of annual


compliance report to ASIC

Hours of work per year required by nance analyst (under existing


requirements -reduced requirements assumed to result in a 15 per cent
reduction).

150 hours (4 weeks)

Hourly rate.

Hours of work per year required for Director review (under existing
requirements -reduced requirements assumed to result in a 15 per cent
reduction).

$80.00 per hour

Hourly rate.
Hours of work required for Committee/Board approval (under existing
requirements -reduced requirements assumed to result in a 15 per cent
reduction).
Hourly rate.

37.5 hours (1 week)

$128.21 per hour

15 hours

$128.21
Ongoing obligations for domestic markets providing information
to regulator, including notication requirements.

Hours of work per year required by Compliance Board directors (under


existing requirements reduced requirements assumed to result in a 15 per
cent reduction).

400 hours

Hourly rate.

$128.21 per hour


Ongoing obligations for domestic markets -maintaining
technological resources to operate market at required standards.

Yearly (additional) technology maintenance costs.

$5,000

Ongoing obligations for foreign markets

Proportion of costs relative to domestic licensed market.

50 per cent

Chapter 10

StatementofCompatibilitywithHumanRights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Corporations Amendment ( Crowd -sourced Funding) Bill 2016
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10.1ThisBilliscompatiblewiththehumanrightsandfreedomsrecognisedordeclaredintheinternationalinstrumentslistedinsection3of
theHumanRights(ParliamentaryScrutiny)Act2011.

Overview
10.2TheBillestablishestheregulatoryframeworktofacilitateCSFoffersbysmallunlistedpubliccompanies,providesnewpubliccompanies
thatareeligibletocrowdfundwithtemporaryrelieffromreportingandcorporategovernancerequirementsthatwouldnormallyapplyand
createsnewexemptionpowerstoprovideemergingfinancialmarketswithamoretailoredregulatoryandlicencingframework.

Human rights implications


10.3TheBillengagestherightoffreedomofexpressionunderArticle19(2)oftheInternationalCovenantonCivilandPoliticalRights
(ICCPR).

10.4Newsection738ZGunderitem1inSchedule1,Part1oftheBillrestrictstheadvertisementofCSFoffersexceptinprescribed
circumstances.

10.5TherestrictiononadvertisingispartoftheinvestorprotectionprovisionsincludedintheBill.RestrictingtheadvertisementofCSFoffers
exceptasprescribedisintendedtoensurethatinvestorsmakedecisionstoinvestinCSFinterestsbasedonfullandaccurateinformation.

10.6Tobalancetheneedtoprotectinvestorswiththeneedtoenabletheflowofinformation,thereareanumberofexemptionsfromthe
advertisingrestrictions.ThefirstistoallowadvertisementsrelatingtoCSFoffersaslongastheadvertisementincludesastatementthatthe
investorshould,inconsideringwhethertoinvestintheoffer,considertheCSFofferdocumentandriskwarning.

10.7TheprovisionprovidesforadvertisementsthatdirectpotentialinvestorstotheCSFofferdocumentandriskwarningonthe
intermediarysplatformtoobtainfurtherinformationabouttheofferthatwillenablethemtomakeaninformeddecisiononwhethertoinvest.

10.8ThereisalsoanexemptionfromtheadvertisingrestrictionstopermitmediabusinessesreportingonCSFoffersintheordinarycourseof
theirbusinesstorefertoCSFoffersaslongastheyarenotawarethattheyarebreachingtheadvertisingrestrictions.

10.9TheCSFregimealsoprovidesforaspecificcommunicationsfacilitythatintermediariesarerequiredtomaintainwhileanofferisopenso
thatinvestorscanobtaininformationaboutanoffer.

10.10TheadvertisingrestrictionsputconstraintsonthefreedomofexpressionundertheICCPRbutdosotoprotectinvestors.Theprovision
balancestheneedtoallowfullfreedomofexpressionwiththeneedtoprotectinvestorsparticipatinginCSFoffers.Theprovisionsstrikean
effectivebalancebyenablingthedisseminationofinformationwhilealsoensuringinvestorsaredirectedtoanappropriatesourcetoobtain
furtherinformationabouttheoffer.

Conclusion
10.11TheBilliscompatiblewithhumanrightsasitseekstoprotectretailclientsfromadvertisementsthatcouldinducethemtomake
investmentdecisionswithouthavingallthenecessaryinformation.

10.12TotheextentthattheBillrestrictsthefreedomofexpression,thisisjustifiedbecauseitisareasonable,necessaryandproportionate
consequenceofprotectinginvestorsbyensuringtheycanaccesssufficientinformationabouttheCSFoffer.

Index
Schedule 1: Main amendments
Billreference

Paragraphnumber

Part1,items1,2,3,4,5,6,section9

2.55

Part1,item2,section9

3.26

Part1,item6,item12inthetableinsection611

3.83

Part1,item6,item13inthetableinsection611

3.84

Part1,items7,8,9and10,headingtoPart6D.2,section703B,
section704,andsection706

2.9

Part1,items7,8,9and10,headingtoPart6D.2,section703B,
section704,section706

4.5

Part1,items11and12,headingtoPart6D.3andsection725A

2.10,4.6

Part1,item13,subparagraph734(7)(c)(i)

6.76

Part1,item14,paragraphs738H(1)(a),(b)and(c)

2.14

Part1,item14,paragraph738H(1)(d)

2.14

Part1,item14,paragraph738H(1)(e)

2.14,2.26

Part1,item14,paragraph738H(1)(f)

2.14,2.29

Part1,item14,paragraph738H(2)(a)

2.21

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Billreference

Paragraphnumber

Part1,item14,paragraph738H(2)(b)

2.24

Part1,item14,paragraph738G(1)(c)

2.31

Part1,item14,paragraph738G(1)(d)

2.35

Part1,item14,subsection738G(2)

2.36

Part1,item14,subsections738L(6)and738N(1)

2.43

Part1,item14,paragraph738G(2)(c)

2.44

Part1,item14,subsection738G(3)

2.46

Part1,item14,paragraph738G(1)(e)

2.52

Part1,item14,section738B

2.8

Part1,items14and25,section738Candparagraph766A(1)(ea)

3.8

Part1,item14,section738L

3.9

Part1,item14,section738A

2.6,4.4

Part1,item14,subsection738L(5)

3.27

Part1,item14,section738Q

3.28

Part1,item14,subsection738Q(1)

3.29,3.30

Part1,item14,subsection738Q(2)

3.30

Part1,item14and34,subsection738Q(3)anditem245Einthetable
toSchedule3

3.31

Part1,item14,subsection738Q(4)

3.33

Part1,item14,subsection738Q(5)

3.36

Part1,item14,paragraph738Q(5)(a)

3.39

Part1,item14,paragraph738Q(5)(b)

3.41

Part1,item14,paragraph738Q(5)(c)

3.44

Part1,item14,subsection738Q(6)

3.48

Part1,item14,paragraph738Q(5)(d)

3.51

Part1,item14,subsection738Q(7)

3.54

Part1,item14,subsection738ZA(1)

3.55,3.58

Part1,item14,subsections738ZA(3)and(4)

3.55

Part1,item14,subsection738ZA(5)

3.55

Part1,item14,subsection738ZA(8)

3.55,6.21

Part1,item14,subsection738ZA(9)

3.55

Part1,item14,subsection738ZA(2)

3.58

Part1,item14,subsection738ZA(4)andparagraph738ZB(4)(b)

3.61

Part1,item14,paragraphs738ZA(3)(a)and(c)

3.62

Part1,item14,paragraph738ZA(3)(b)

3.63

Part1,item14,subsection738ZA(5)

3.64

Part1,item14,paragraphs738ZA(5)(a)and(b)

3.65

Part1,item14,subsection738ZA(6)

3.67

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Billreference

Paragraphnumber

Part1,item14,subsection738ZA(7)

3.68

Part1,item14,subsection738ZA(8)

3.70

Part1,item14,paragraph738ZA(9)(a)

3.72

Part1,item14,paragraph738ZA(9)(b)

3.73

Part1,item14,subsection738ZB(1)

3.75

Part1,item14,subsections738L(8)and738ZB(2)

3.76

Part1,item14,subsections738ZB(3)and(4)

3.77

Part1,item14,subsection738ZB(5)anditem34,item245Pinthe
tabletoSchedule3

3.78

Part1,item14,section738ZJ

3.80

Part1,item14,section738E

2.7

Part1,item14,section738ZH

2.10

Part1,item14,paragraphs738F(1)(a)and(b),subsection738F(2)

3.85

Part1,item14,paragraph738F(1)(c)

3.86

Part1,item14,subsection738F(3)

3.87

Part1,item14,paragraph738G(1)(a)

2.12

Part1,item14,subsection738J(1)

4.7

Part1,item14,subsection738J(2)

4.8

Part1,item14,subsection738J(1)

4.8

Part1,item14,section738K

4.10

Part1,item14,subsection738L(1)

4.12,4.15

Part1,item14,subsection738L(2)

4.17

Part1,item14,subsection738L(3)anditem34,item245Ainthetable
toSchedule3

4.18

Part1,item14,subsection738R(1)

4.21

Part1,item14,subsection738R(2)

4.22

Part1,item14,subsection738M(1)

4.25

Part1,item14,subsection738M(2)

4.26

Part1,item14,subsection738M(3)

4.27

Part1,items14and34,subsection738M(4)anditem245Binthetable
toSchedule3

4.29

Part1,item14,subsection738N(2)

4.32

Part1,item14,subsections738N(3)and(5)

4.34

Part1,item14,subsection738N(3)

4.35,5.36

Part1,item14,paragraph738N(4)(a)

4.37

Part1,item14,subsection738N(7)andsubsection738ZB(2)

4.39

Part1,item14,subsection738ZB(3)

4.39

Part1,item14,subsection738P(2)

4.40,4.43,4.46

Part1,item14,paragraph738N(4)(b)

4.41,5.36

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Billreference

Paragraphnumber

Part1,item14,subsection738L(7)andparagraph738N(4)(c)

4.44

Part1,item14,paragraph738ZB(4)(b)

4.45,6.12

Part1,item14,section738S)

4.47

Part1,item14,paragraph738N(4)(d)andsubsection738P(1)

4.47

Part1,items14and34,paragraph738N(4)(e),subsection738P(1),
item245DinthetabletoSchedule3

4.48

Part1,item14,paragraph738N(7)(a)

4.51

Part1,item14,paragraph738N(7)(b)

4.52

Part1,item14,paragraph738N(7)(c))

4.53

Part1,item14,subsection738Y(1)

5.6

Part1,item14,subsection738Y(2)

5.6

Part1,item14,subsection738Y(3)

5.7

Part1,item14,subsection738Q(4)

5.7,5.12,5.43

Part1,item14,subsection738U(1)

5.8

Part1,item14,subsection738U(2)

5.9

Part1,item14,subsection738V(1)

5.10

Part1,item14,subsection738V(2)

5.10

Part1,item14,subsection738V(3)

5.10

Part1,items14and34,subsection738V(4)anditem245Jinthetable
toSchedule3

5.14

Part1,item14,subsections738N(6),738X(1)and(2)

5.15

Part1,item14,subsection738X(3)

5.17

Part1,items14and34,subsection738X(4)anditem245Kinthetable
toSchedule3

5.18

Part1,item14,subsection738W(1)

5.21

Part1,item14,subsection738W(2)

5.23

Part1,item14,subsections738W(3)and(4)

5.24

Part1,item14,paragraph738W(6)(a)

5.25

Part1,item14,subsection738W(7)

5.25

Part1,item14,paragraph738W(6)(b)

5.27

Part1,item14,paragraph738W(5)(a)

5.28

Part1,item14,subsection738W(8)

5.28

Part1,item14,paragraph738W(5)(b)

5.29

Part1,item14,subsection738W(9)

5.29

Part1,item14,subsections738X(5),738X(6)and738X(7)

5.31

Part1,item14,subsection738X(9)

5.33

Part1,item14,paragraph738T(1)(a)andsubsection738ZB(4)

5.33

Part1,item14,paragraphs738N(4)(a)and(b)

5.36

Part1,item14,subsection738Y(4)

5.38,5.39

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Billreference

Paragraphnumber

Part1,item14,subsections738Q(4)and738Y(3)

5.39

Part1,item14,subsection738Y(5)

5.42

Part1,item14,subsection738Y(6)

5.44

Part1,item14,paragraph738Z(1)(a)

5.48

Part1,item14,paragraph738Z(1)(b)andsubsection738Z(2)

5.49

Part1,item14,subsections738Y(3)and738Z(2)

5.50

Part1,item14,subsection738Z(3)

5.51

Part1,item14,subsections738Y(3)and738Z(5)

5.52

Part1,item14,subsection738Z(4)

5.53

Part1,item14,subsection738Z(6)

5.54

Part1,item14,section738D

6.9

Part1,item14,subsection738ZC(1)

6.10

Part1,item14,subsection738ZC(2)

6.13,6.14

Part1,item14,subsection738ZC(1)anditem34,item245Qinthe
tabletoSchedule3

6.15

Part1,item14,subsection738ZD(1)

6.18

Part1,item14,subsection738ZD(2)

6.20

Part1,item14,paragraph738ZB(4)(a)

6.22

Part1,item14,subsections738ZE(1)and(2)

6.23

Part1,item14,subsection738ZE(3)

6.25

Part1,item14,subsection738ZE(4)

6.25

Part1,item14,paragraph738ZG(1)(a)

6.30

Part1,item14,paragraph738ZG(1)(b)

6.31

Part1,item14,paragraph738ZG(3)(c)

6.32

Part1,item14,paragraph738ZG(3)(d)

6.32

Part1,item14,paragraph738ZG(3)(e)

6.32

Part1,item14,subsection738L(4)andparagraph738ZG(2)(a)

6.33

Part1,item14,subsection738ZG(2)

6.34

Part1,item14,paragraph738ZG(2)(b)

6.35

Part1,item14,section738ZG(4)

6.37

Part1,item14,subsection738ZG(6)

6.40

Part1,item14,subsection738ZG(7)

6.44

Part1,item14,subsection738ZG(10)

6.45

Part1,item14,paragraph738ZG(9)(c)

6.47

Part1,item14,paragraph738ZG(9)(d)

6.48,6.49,6.50

Part1,item14,subsection738ZG(8)

6.52

Part1,item14,subsections738ZG(1)and(8)

6.55

Part1,item14,paragraph738ZG(9)(a)

6.59

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Billreference

Paragraphnumber

Part1,item14,paragraph738ZG(9)(b)

6.61

Part1,item14,subsection738ZG(5)anditem34,item245Tinthe
tabletoSchedule3

6.64

Part1,item14,section738ZF

6.70

Part1,item14,paragraph738G(1)(b)

2.13

Part1,item14,section738ZI

7.15

Part1,items15,18and19,paragraph739(1)(f),subsection739(6)and
paragraph739(6)(c)

6.72

Part1,item15,paragraph739(1)(g)

6.74

Part1,item15,paragraph739(1)(e)

4.11

Part1,item15,paragraph739(1)(d)

5.58

Part1,item16,paragraph739(1A)(a)

4.11,5.58

Part1,item16,paragraph739(1A)(a)

6.75

Part1,item17,paragraph739(1A)(b)

6.73

Part1,items20and21,paragraphs740(1)(b)and740(2)(d)

2.50

Part1,items22and27,section761Aandsubsection766F(1)

3.11

Part1,item23,subsection761G(8)

3.19

Part1,item23,subsection761G(8)

6.16

Part1,item24,section761GA

3.24

Part1,item26,subsection766C(2A)

3.25

Part1,item27,subsection766F(4)

3.16

Part1,item27,subsection766F(2)

3.12

Part1,item27,subsections766F(3)and(4)

3.15

Part1,item27,subsection766F(3)

3.16

Part1,items28and29,subparagraphs1018A(4)(c)(i)and1018A(4)(d)
(i)

6.77

Part1,item30,subparagraph1041H(3)(a)(iia)

5.59

Part1,item31,subparagraph1041K(1)(a)(iia)

5.61

Part1,item32,paragraph2(1)(c)

3.35

Part1,item33,paragraph1311(1A)(dba)

2.56

Part1,item34,item245MinthetabletoSchedule3

5.40

Part1,item34,item245BinthetabletoSchedule3

5.26

Part1,item34,item245SinthetabletoSchedule3

6.71

Part1,item34,item245LinthetabletoSchedule3

5.31

Part1,item34,item245GinthetabletoSchedule3)

3.54

Part1,item34,item245FinthetabletoSchedule3

3.53

Part1,item34,item245NinthetabletoSchedule3

3.56,3.67

Part1,item34,item245CinthetabletoSchedule3

4.36

Part1,item34,item245HinthetabletoSchedule3

4.23

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Billreference

Paragraphnumber

Part1,item34,item245RinthetabletoSchedule3

6.26

Part2,items35and36,subsection5(1)andsubsections12BAB(1C)
and12BAB(1D)oftheASICAct

3.81

Part2,item37,subparagraphs12DA(1A)(a)(iii)and12DB(2)(a)(iii)of
theASICAct

5.60

Schedule 2: Related amendments to corporate governance requirements


Billreference

Paragraphnumber

Item1,paragraph117(2)(mc)

7.10

Item2,paragraph163(2)(d)

7.11

Item3,subsection250N(5)

7.21

Item3,subsection250N(6)

7.22

Items4and5,subsections298(1AA)and298(1AC)

7.40

Item6,subsection301(5)

7.24

Items7and8,subsections314(1)and314(1AF)

7.38

Item9,subsection314(2A)

7.39

Items1016,notesundersubsection324CA(1A),subsection
324CB(1A),subsection324CC(1A),subsection324CE(1A),subsection
324CF(1A),subsection342CG(1A)andsubsection324CG(5A)

7.41

Item17,attheendofsubsection327A(1A))

7.26

Item18,section328DandSchedule2,item19,item116MDin
Schedule3

7.31

Item18,section328E

7.34

Item18,section328C(1)

7.28

Item18,section328C(2)

7.29

Item18,section328C(3)andSchedule2,item19,item116MCin
Schedule3

7.30

Schedule 3: Exemption powers


Billreference

Paragraphnumber

Item1,section791C

8.19

Item1,subsection791C(1)

8.20

Item1,subsection791C(4)

8.21

Item1,subsection791C(5)

8.22

Item1,subsections791C(2)and(3)

8.23

Item2

8.25
Billreference

Paragraphnumber

Item3,section798M

8.26

Item4,section820C

8.30

Item4,subsection820C(1)

8.32

Item4,subsections820C(2)and(3)

8.33

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Item5
Billreference

8.35
Paragraphnumber

Item6,section893B
Item1,section791C

8.36
8.19

Item1,subsection791C(1)

8.20

Item1,subsection791C(4)

8.21

Item1,subsection791C(5)

8.22

[1]CorporationsAct,Chapter6D.

Item1,subsections791C(2)and(3)

8.23

Item2

8.25

[2]CorporationsAct,s45A(2)definesasmallproprietarycompanyasaproprietarycompanywithatleasttwoof:consolidatedfinancialrevenue
oflessthan$25millionconsolidatedgrossassetsoflessthan$12.5millionandfewerthan50employees.
[3]CorporationsAct,s45A(3)definesalargeproprietarycompanyasaproprietarycompanywithatleasttwoof:consolidatedfinancialrevenue
of$25millionorgreaterconsolidatedgrossassetsof$12.5millionorgreaterand50ormoreemployees.

Billreference
Paragraphnumber
[4]CorporationsAct,s113(3),subjecttoexceptionsforofferstoexistingshareholdersandemployeesofthecompanyorsubsidiary.Proprietary
companiesmaymakeofferswherethatofferwouldnotrequiredisclosureunderChapter6D.
Item3,section798M
8.26
[5]CorporationsAct,s708.

Item4,section820C

8.30

Item4,subsection820C(1)

8.32

[6]Unders761AoftheCorporationsAct,carryingonafinancialservicesbusinessisdefinedasprovidingafinancialservice.Provisionofa
financialserviceisdefinedins766A.
[7]CorporationsAct,s912A.

Item4,subsections820C(2)and(3)

[8]CorporationsAct,Division2,Part7.7.

8.33

[9]AsdefinedintheCorporationsAct,s767A.Unders911A(2)(d),anintermediarythatisaholderofanAMLisnotrequiredtoalsoholdanAFSL.
[10]CorporationsAct,s724.

Item5

8.35

[11]ASICClassOrder02/273:BusinessIntroductionorMatchingServices.

Item6,section893B
8.36
[12]
CorporationsAct,Chapter5Csetsoutspecificrequirementsinrelationtomanagedinvestmentschemes.
[13]See:http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2014/CrowdsourcedEquityFunding

[14]TheCorporationsAmendment(CrowdsourcedFunding)Bill2015,introducedintoParliamentinDecember2015,specifiedeligibilitycaps
of$5millionturnoverperannumand$5millioningrossassets.

[15]TheCorporationsAmendment(CrowdsourcedFunding)Bill2015,introducedintoParliamentinDecember2015,specifiedcapsof$5
millionannualturnoverandgrossassets.

[16]TheCorporationsAmendment(CrowdsourcedFunding)Bill2015,introducedintoParliamentinDecember2015,specifiedacoolingoff
periodof5businessdays.

[17]Smallproprietarycompaniesandlargeproprietarycompaniesaredefinedins45AoftheCorporationsAct.Keydifferencesincompliance
requirementsforsmallproprietarycompaniescomparedtolargeproprietarycompaniesincludeannualfinancialreportsanddirectorsreportsand
audit.Differencesincompliancerequirementsforsmallproprietary,largeproprietaryandpubliccompaniesundercurrentarrangementsare
discussedfurtherinsection4.4.

[18]ASICClassOrder02/273:BusinessIntroductionorMatchingServices.
[19]CorporationsAct,Part2M.3,Division1outlinesfinancialreportingrequirements.Largeproprietarycompaniesandpubliccompaniesmust
prepareannualfinancialreportsanddirectorsreports.Unders292,smallproprietarycompaniesareonlyrequiredtoprepareanannualfinancial
reportincertaincircumstances,includinginresponsetoadirectionbyshareholderswithatleast5percentofvotesinthecompanyorbythe
AustralianSecuritiesandInvestmentsCommission.Smallandlargeproprietarycompaniesaredefinedunders45accordingtocertainrevenue,
assetandemployeethresholds.

[20]CorporationsAct,s301providesthattheannualfinancialreportsmustbeauditedinaccordancewithPart2M.3,Division3.Smallproprietary
companiesthatprepareafinancialreportinresponsetoashareholderdirectionunders293donotneedtoobtainanauditifthatdirectiondidnot
askforthefinancialreporttobeaudited.

[21]ASICClassOrder02/273:BusinessIntroductionorMatchingServices,whichallowsissuerstoraiseupto$5millionper12monthperiodfrom
upto20investorswithouttheuseofadisclosuredocument,ratherthanthe$2millionlimitunderthesmallscalepersonalofferexemption.

[22]CorporationsAct2001,s708.
[23]CorporationsAct2001,s724.
[24]CorporationsAct2001,s724.
[25]CorporationsAct2001,s981B.
[26]CorporationsAct2001,s708.
[27]BasedonABSlabourratesintheRISguidelines,includingemployercosts.
[28]Intheabsenceofreliabledataonchargeourratesforsmalllegalfirms,estimateobtainedfromHaysdataonsalariesforlegalstaff,
assumingaseniorassociateatasmallprivatepracticewitha$120,000annualsalarycorrespondingtoanhourlyrateof$61.53.A1.75xmultiplier
isappliedtoapproximatechargeoutcosts,basedontheapproachforlabourratesintheRISguidelines.
[29]SourcedfrompreviousTreasuryanalysisofcostsassociatedwithapplyingforanAFSL.
[30]SourcedfrompreviousTreasuryanalysisofcostsassociatedwithAFSLcompliance.
[31]EstimatesobtainedfromAFSLCompliance,http://www.afslcompliance.com.au/index.php/popularinformation11/item/48whatdoesitcost.
[32]BasedonABSlabourratesintheRISguidelines,includingemployercosts.
[33]Ibid.

[34]Ibid.
[35]Ibid.
[36]BasedonABSlabourratesintheRISguidelines,includingemployercosts.

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[37]BasedonABSlabourratesintheRISguidelines,includingemployercosts.
[38]SourcedfrompreviousTreasuryanalysisonAustralianMarketLicencemodificationandexemptionpower(OBPRref:16839).
[39]Estimatesofwagerateareforalegalpartnerattoptierfirm$250,000(perannum)salary.Hourlywagerateisbasedonanassumedaverage
workweekof37.5hours.Source:The2015HaysSalaryGuide:salaryandrecruitingtrends,
https://www1.hays.com.au/salary/output/pdf2015/HaysSalaryGuide_2015AU_legal.pdf
[40]Ibid.
[41]SourcedfrompreviousTreasuryanalysisonAustralianMarketLicencemodificationandexemptionpower(OBPRref:16839).
[42]EstimatesofwagerateareforafinancemanagerbasedinSydney$156,000(perannum)salary.Hourlywagerateisbasedonanassumed
averageworkweekof37.5hours.Source:Hudson:SalaryGuides2015:Accounting&Finance,Australia,
http://au.hudson.com/portals/au/documents/Salary%20Guides/SalaryTables2015AusAF.pdf

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