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Monday, 20 March 2017
Page: 1321


Senator McALLISTER (New South WalesDeputy Opposition Whip in the Senate) (11:12): I rise to make a number of short remarks about the Corporations Amendment (Crowd-sourced Funding) Bill 2016 and to associate myself with the remarks made by our shadow minister Senator Gallagher. This is a really interesting area of business development. These are new models for small businesses and medium-sized enterprises to raise funds in ways that they have not been able to do previously. It does not mean, of course, though, that this sector is immune from exactly the kinds of problems and challenges that confront us in regulating all kinds of business enterprise. In this, as in all other things, we are looking to get the balance right between freeing up enterprises as far as is practical and possible to attract capital to get their ideas off the ground and protecting investors so that particularly retail investors, mum-and-dad investors, do not find themselves exposed to risks that they did not understand at the time when they placed their money in this company or find themselves exposed to legal constraints or problems that they did not anticipate.

In that regard, it is extremely frustrating that the bill that is before the Senate at this time presents only a partial response to the set of questions that we face for this sector. It is unbelievable, in fact, that this policy process was kicked off by Labor back in 2013, and here it is in 2017 and the government is proposing to establish a regime that, from the evidence given to the Senate committee, will only apply to perhaps one per cent of Australian companies. Doubtless, the government's response to this will be to say: 'Oh well, no matter. Those companies that are presently proprietary could convert themselves and become public companies.' But this is not real answer at all because, as Senator Gallagher and others have pointed out, that decision to translate your business operation to a public company is costly. Having made the transition, which is in itself costly, additional costs are brought in once you have converted to being a public company.

It is also the case that the government, having recognised that this is only a partial solution, has already signalled its intention to bring further legislation into the parliament to address the shortcomings of this legislation. It is an extraordinary situation where we are presented with a bill that is, by the government's own admission, imperfect and, in fact, incomplete. The practical consequence, one suspects, is that many businesses will just hold off engaging with this legislation at all until the second tranche of legislation is brought through. That raises the question: why wouldn't we defer it? Why wouldn't we have waited? Why wouldn't the government have completed its policy work and brought into this chamber a full package so that businesses and, indeed, senators could make a decision based on all of the facts and all of the policy propositions and not just on some of them.

I want to talk just a little bit about risks. I mentioned in my opening remarks that a key thing we need to do is make sure that investors—particularly retail investors—are not exposed to risks that are unexpected or unreasonable if they invest through this mechanism. This is a new market and investors are going to take a little time to work out what the risk profile is and what it means for them if they make an investment. It makes sense in that way to proceed cautiously. To that extent, the decision to reduce the cooling-off period seems a mistaken way to address some of the industry concerns raised through the consultation process. Reducing the cooling-off period to 48 hours seems to expose retail investors to a set of risks that are too great, given the fledgling nature of this industry.

That is, of course, a problem not just for retail investors but also for the sector itself. I want to point to some of the remarks made by the Australian Small Business and Family Enterprise Ombudsman about this because they talk about the need to promote confidence in the crowdsourced equity market. In their letter that came in in January this year the ombudsman says that they:

… emphasised the need to provide strong investor protections as part of the regulatory framework, noting that a crowd-sourced equity market can be expected to attract small, relatively unsophisticated and inexperienced investors to high-risk, generally illiquid venture capital-style projects.

It made the point that strong measures are needed not only to protect the investors individually, but also to maintain confidence in the crowd-sourced equity funding market and small business investing generally.

Their concern is that if the protections are not right and if we do have a series of big disasters it will take time for that market to recover, and that is why proceeding cautiously seems to me to be sensible. It is why I support the amendment signalled by Senator Gallagher to increase the cooling off period to the original proposal, which was five days. That seems to me a much more sensible way to deal with the risks associated in this sector.

I just want to conclude by emphasising how disappointing it is that we vote in this chamber on a partially developed policy proposal. If government has an intention to develop a whole package that deals with both private companies and public companies, why not present all of that together so that businesses can see how these two regimes will interact and so that senators can understand that that interaction will be a coherent response to the opportunities and the challenges posed by this sector? It is disappointing that we find ourselves in this situation. Of course, I should indicate that I will be supporting the amendments proposed by Senator Gallagher.

(Quorum formed)