Corporations Amendment (Crowd-Sourced Funding) Bill 2016 11.24.16

11/24/2016
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CorporationsAmendment(CrowdsourcedFunding) Database
Bill2016
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ExplanatoryMemoranda
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2016
THEPARLIAMENTOFTHECOMMONWEALTHOFAUSTRALIA
HOUSEOFREPRESENTATIVES
CORPORATIONSAMENDMENT(CROWDSOURCEDFUNDING)BILL2016
EXPLANATORYMEMORANDUM
(Circulatedbyauthorityofthe
Treasurer,theHonScottMorrisonMP)
http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;adv=yes;orderBy=customrank;page=0;query=crowd%20source%20Dataset%3AbillsCurBef,billsCurN
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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.
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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.

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.

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
http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;adv=yes;orderBy=customrank;page=0;query=crowd%20source%20Dataset%3AbillsCurBef,billsCur
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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].
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.
Summary of new law

4.3Theamendmentsestablish:
thattheprocessformakingaCSFofferinvolvesaCSFeligiblecompanypublishingaCSFofferdocumentonasingleCSFintermediarys
platform
thatanewdocumentaCSFofferdocumentmustbepreparedforCSFoffers
thatthecompanymustobtaincertainconsentsofpersonsassociatedwiththeofferdocumentpriortoitspublication
thatacompanymakingaCSFofferanditsrelatedpartiescannothavemorethanoneCSFofferopenatatimewhenanotherCSFoffer
previouslymadebythecompanyisopenorsuspendedand
rulesfordeterminingwhenaCSFofferisopen,whenitmayandwhenitmustbeclosed,andtheconditionsthatmustbesatisfiedbefore
anoffercanbecomplete.

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.

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.
Summary of new law

5.3TheamendmentsdefinewhenaCSFofferdocumentisdeemedtobedefective.Thedefinitionisalignedwiththeexistingprovisionsin
Chapter6Dapplyingtoprospectusesandotherofferdocuments.
5.4Theamendmentssetoutnotificationobligationsapplyingtocertainclassesofpersonsiftheybecomeawarethatanofferdocumentis
defective.Anumberoffurtherobligationsandpossibleactionsapplyingtotheintermediaryandcompanymakingtheofferaredefinedin
circumstanceswhereanofferdocumentisdefective.
5.5Liabilitiesarisingfromadefectivedisclosuredocumentaresetoutintheamendments.Theseincludecriminalliabilityaswellas
exposuretoactionforrecoveryoflossordamagewherethestatement,omissionornewcircumstancewhichledtothedocumentbeingdefectiveis
materiallyadversefromthepointofviewofaninvestor.

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.

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)].
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.

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)]
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.
7.3AstheCSFregimeisonlyavailabletopubliccompanies,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.

Newlaw
Currentlaw
Acompanythatisregisteredas,or
convertsto,apubliccompanylimitedby
sharesafterthecommencementofthe
CSFregimeandthatsatisfiesthe
eligibilitycriteriaiseligibleforcertain
corporategovernanceandreporting
concessionsforuptofiveyears.
Noequivalent.
Acompanythatiseligibleforthe
concessionsisnotrequiredtoholdan
AGMundersection250N.
Undersection250N,apubliccompany
mustholdanAGMeachyear.
concessionsisonlyrequiredtoprovide
financialreportstoshareholdersonline.
Apubliccompanymayprovidefinancial
reportstoshareholders:byhardcopyor
email(wheretheshareholderhasmade
anelectiontoreceivethereportsinthis
way)bymakingthereportreadily
accessibleonawebsiteorbydirectly
notifying,inwriting,allpersonsthatdid
notmakeanelectionastohowto
receivethereport,thewebsiteatwhich
thereportsmaybeaccessed.
concessionsisnotrequiredtoappointan
auditororhaveauditedfinancialreports
untilmorethan$1millionhasbeen
raisedfromCSFofferorotheroffers
requiringdisclosure.
Apubliccompanymustappointan
auditorwithinonemonthofregistration
anditsfinancialreportsmustbeaudited
eachyear.

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)]
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.
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
theiroperators,fromsomeorallofthe
obligationsrelatingtoASIC
supervision.
Noequivalent.
TheMinistermayexemptaclearingand
settlementfacilityorclassofclearing
andsettlementfacilities,ortheir
operators,fromsomeoftheclearingand
settlementfacilitylicensingrequirements
TheMinistermayexemptaclearingand
settlementfacilityorclassofclearing
andsettlementfacilityfromallthe
clearingandsettlementfacilitylicensing
requirements
TheMinistercanexemptafinancial
theiroperators,fromsomeorallofthe
compensationarrangement
requirements.
Noequivalent.

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
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
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
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
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

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.

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
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.
9.110Table4includesestimatesofcompliancecostsassociatedwithimplementingamodelsimilartothatimplementedbyNewZealand,using
thesamecostingapproachasusedforestimatingtheCAMACmodelcompliancecosts.
9.111AmodelsimilartothatimplementedinNewZealandisexpectedtoreducetheoverallperbusinesscompliancecostsforissuersthat
participate.However,giventhelikelygrowthinthenumberofbusinessesraisingfundsviaonlineintermediariesundertheCSEFarrangements,the
aggregatecomplianceburdenacrosstheeconomyoverthenext10yearsisexpectedtoincrease.
Costsperissuerareexpectedtofallinnettermsby$1,750peryear.ThekeydifferenceinissuercostsbetweentheCAMACandNew
ZealandmodelistheabsenceofCSEFspecificexemptionsfrompubliccompanycompliancecosts.
CompliancecostsforintermediariesareexpectedtoincreaseinlinewiththeexpectedincreaseinbusinessesraisingfundsviaCSEF.
Intermediarycoststhatvarywiththenumberofissuersraisingfundsareexpectedtoincreaseby$1,680perfundraisingcampaign.
Costsperinvestorareexpectedtoincreaseby$17peryearasaresultofinvestorsbeingrequiredtoacknowledgeriskdisclosurestatements
priortoeachinvestment.
Table4:Regulatoryburdenandcostoffsetestimatetable
Change in costs
($million)
Business
Community
Organisations
Individuals
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
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)
Change in costs
($million)
Business
Community
Organisations
Individuals
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

Yes, costs are offset
required
No, costs are not offset
Deregulatory no offsets
Total (Change in costs Cost offset) ($million) = $0
Table6:Regulatoryburdenandcostoffsetestimatetable(AMLchanges)
Change in costs
($million)
Business
Community
Organisations
Individuals
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
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.
9.120ThekeydifferencebetweentheestimatedcompliancecostsoftheCAMACmodelandthepostconsultationmodelistheremovalofthe
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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11/24/2016

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
Cost of establishing systems and processes.
$65.45 [33]
$10,000
Due diligence on issuers and management
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
$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
2 hours
Labour cost.
$65.45 [36]
$10,000
Intermediaries
Disclosure of fee structures and
interests in issuers
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11/24/2016

Putting in place mechanisms to
ensure appropriate disclosures
depending on the level of any
voluntary investor caps
8 hours
Labour cost.
$65.45 [37]
$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

reduction).
150 hours (4 weeks)
Hourly rate.
Hours of work per year required for Director review (under existing
reduction).
$80.00 per hour
Hourly rate.
Hours of work required for Committee/Board approval (under existing
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
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
3.30
Part1,item14and34,subsection738Q(3)anditem245Einthetable
toSchedule3
3.31
3.33
3.36
Part1,item14,paragraph738Q(5)(a)
3.39
Part1,item14,paragraph738Q(5)(b)
3.41
Part1,item14,paragraph738Q(5)(c)
3.44
3.48
Part1,item14,paragraph738Q(5)(d)
3.51
3.54
Part1,item14,subsection738ZA(1)
3.55,3.58
Part1,item14,subsections738ZA(3)and(4)
3.55
3.55
3.55,6.21
3.55
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
3.64
Part1,item14,paragraphs738ZA(5)(a)and(b)
3.65
3.67
51/58
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Billreference
Paragraphnumber
3.68
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
4.8
4.8
Part1,item14,section738K
4.10
4.12,4.15
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
4.26
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
5.6
5.7
5.7,5.12,5.43
Part1,item14,subsection738U(1)
5.8
Part1,item14,subsection738U(2)
5.9
Part1,item14,subsection738V(1)
5.10
5.10
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
5.23
Part1,item14,subsections738W(3)and(4)
5.24
Part1,item14,paragraph738W(6)(a)
5.25
5.25
Part1,item14,paragraph738W(6)(b)
5.27
Part1,item14,paragraph738W(5)(a)
5.28
5.28
Part1,item14,paragraph738W(5)(b)
5.29
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
5.38,5.39
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Billreference
Paragraphnumber
Part1,item14,subsections738Q(4)and738Y(3)
5.39
5.42
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
5.53
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
6.35
Part1,item14,section738ZG(4)
6.37
6.40
6.44
6.45
Part1,item14,paragraph738ZG(9)(c)
6.47
Part1,item14,paragraph738ZG(9)(d)
6.48,6.49,6.50
6.52
Part1,item14,subsections738ZG(1)and(8)
6.55
Part1,item14,paragraph738ZG(9)(a)
6.59
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Billreference
Paragraphnumber
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
3.19
6.16
Part1,item24,section761GA
3.24
Part1,item26,subsection766C(2A)
3.25
3.16
3.12
Part1,item27,subsections766F(3)and(4)
3.15
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
8.21
8.22
Item1,subsections791C(2)and(3)
8.23
Item2
8.25
Billreference
Paragraphnumber
Item3,section798M
8.26
Item4,section820C
8.30
8.32
8.33
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Item5
Billreference
8.35
Paragraphnumber
Item6,section893B
Item1,section791C
8.36
8.19
8.20
8.21
8.22
[1]CorporationsAct,Chapter6D.
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
8.32
[6]Unders761AoftheCorporationsAct,carryingonafinancialservicesbusinessisdefinedasprovidingafinancialservice.Provisionofa
financialserviceisdefinedins766A.
[7]CorporationsAct,s912A.
[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.
[25]CorporationsAct2001,s981B.
[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.
[33]Ibid.
[34]Ibid.
[35]Ibid.
57/58
11/24/2016
[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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Summary of new law

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Summary of new law

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Offers eligible to be made under the CSF regime

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The CSF intermediary must be licensed

Meaning of crowd -funding service

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Obligations of a CSF intermediary

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Other obligations of CSF intermediaries relating to their platform

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Summary of new law

Comparison of key features of new law and current law

Detailed explanation of new law

A CSF offer document must be prepared for each CSF offer

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How to make a CSF offer

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Timing rules related to a CSF offer

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Dealing with application money once an offer is closed

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Detailed explanation of new law

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ASIC stop order powers

Summary of new law

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Prohibition on hawking securities

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