Television Education Network

The 2nd Annual Business Acquisitions Conference

Session 3: Purchaser: Raising Capital to Fund an Acquisition

Thursday 4 June 2015

Presented By:

Stephen Newman
Executive Counsel
Hope Earle Lawyers

Clarification

In my paper, I said Chapter 6D did not apply to proprietary companies where a disclosure document is required. I should also have said that where a proprietary company can avail itself of an exemption under section 708, without breaching section 113, it can raise funds as permitted by Chapter 6D.

CSEF Legislative Framework Released

No sooner had I put the finishing touches to my paper and sent it to TEN than the Federal Government released another consultation paper entitled Facilitating crowd-sourced equity funding and reducing compliance costs for small business.

The Consultation Paper outlines the key elements of the Federal Government’s proposed CSEF framework, as follows:

Issues

1. Issuers must be an Australian incorporated public company that has not previously raised funds from the public;
2. Issuers will be relieved from certain public company compliance obligations such as the disclosing entity rules, holding an AGM and appointing an auditor and having financial accounts audited (provided no more than $1 million is from CSEF or under disclosure exemption);
3. The exemptions will be available for up to 5 years but will cease once annual turnover and gross assets reach $5 million (even if that occurs inside the 5 year period);
4. Issuers may raise up to $5 million in any 12 month period including from the small scale offering exemption but excluding funds raised under existing exemptions for wholesale investors;
5. The securities to be issued must be one class of fully paid ordinary shares and must have the same price, terms and conditions; and
6. There will be a tailored CSEF disclosure document that will have reduced disclosure requirements to the ‘standard’ disclosure document.

Intermediaries

1. Must hold an AFSL;
2. Must undertake prescribed checks on the issuer;
3. Must provide generic risk warnings to investors;
4. No restrictions of fees that can be charged;
5. Fees paid by an issuer must be disclosed;
6. May invest in an issuer provided that the investment is disclosed;
7. Cannot give investment advice or lend money to CSEF investors; and
8. Must monitor investor compliance with investor caps on their platform.

Investors

1. Cannot invest more than $10,000 per offer per 12 month period and $25,000 in aggregate per 12 month period, self-certified by investors;
2. Must sign a risk acknowledgement statement prior to investing;
3. 5 day cooling off period after accepting an offer to invest;
4. Additional withdrawal rights for material adverse changes during the offer period.

Having consulted about CSEF for a very long time, it comes as a surprise that the Federal Government, in this Consultation Paper,1 is now consulting about how to make it easier for small proprietary companies to raise capital, particularly through CSEF.

1. Should small proprietary companies be able to access CSEF and what are the consequences for the corporate law framework if that occurs?
2. Should there be a change in the shareholder limit of 50 to permit CSEF access and if yes, is 100 an appropriate cap?
3. If the shareholder limit for proprietary companies is increased for CSEF purposes, should there time and size limits be imposed?
4. If proprietary companies are permitted to access CSEF, should they be subject to additional transparency obligations when raising funds?
5. Are the $5 million caps (see Investor items 3 & 4 above) appropriate?
6. If proprietary companies are permitted to access CSEF, should the CSEF framework for public companies be amended in any way?

The Consultation Paper also canvasses options for reducing compliance costs for small proprietary companies. The areas canvassed for reform are:

1. The requirement to make an annual solvency resolution;
2. The requirement to maintain a share register;
3. Ways to facilitate the execution of documents; and
4. Completing and lodging forms with the ASIC.

The CSEF legislation will be introduced in the 2015 Spring Session of Parliament. Draft legislation will be released for public comment prior to its introduction.