New crowd-sourced funding regime

The new crowd-sourced funding (CSF) regime will officially come into effect at the end of this month.

As detailed in one of our earlier posts, the CSF regime allows eligible companies to make offers of fully paid ordinary shares to investors through a platform which must be operated by an intermediary who holds an Australian financial services licence from ASIC.

1. So what happens now?

To facilitate implementation of the CSF regime as soon as possible, ASIC will begin accepting applications from potential CSF intermediaries from 29 September 2017.

In the meantime, if you are considering taking advantage of the CSF regime, you should consider what (if anything) you need to do to ensure you are eligible to do so.

2. How do I know if I am eligible?

The CSF regime is currently only available to Australian unlisted public companies with less than $25 million in gross assets and $25 million in annual turnover.

At the time of writing, a further bill has also been introduced to parliament which proposes to:

• expand the eligibility for the CSF regime to proprietary companies that meet certain eligibility requirements including:
  • maintaining a minimum of two directors
  • preparing annual financial and directors’ reports in accordance with accounting standards
  • ensuring their financial reports are audited once they raise $3 million or more under the CSF regime, and
  • complying with the existing related party transaction rules that apply to public companies.
• provide that proprietary companies with shareholders who acquire shares through a CSF offer are not subject to takeovers rules
• add special investor protection provisions for proprietary companies accessing the CSF regime, and
• remove the temporary corporate governance concessions detailed below.

Assuming the bill is passed, these changes will take effect six months after the bill receives royal assent. Until then, the current legislation provides corporate governance concessions to new public companies or companies that have recently become public where the company has been established or converted for the purpose of utilising the CSF regime. ASIC has released an updated Form 206 (Application for change of company type) which allows an existing company to be converted specifically to enable it to take advantage of the new CSF regime.

3. How much money will I be able to raise?

Eligible companies can raise up to $5 million, with a limited investment of $10,000 per investor, in any 12 month period.

However, you should also be aware that, in making an offer under the CSF regime:

• you will need to use a specific offer document that complies with the CSF legislation
• the offer can only remain open for a maximum of three months
• the offer can only be published on one platform
• you can only have one offer open at any one time, and
• you may also make an offer relating to ordinary shares in the company outside of the CSF regime (bearing in mind the $5 million annual cap).

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.