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ASIC provides further guidance on ICOs

ASIC have released further insight into their stance on, and treatment of, initial coin offerings (“ICOs”) and crypto-assets.

As we have previously mentioned in earlier posts, ASIC’s Information Sheet 225 provides guidance on what obligations may apply to an ICO under the Corporations Act, including when an ICO may be considered to be:

·        an interest in a managed investment scheme;

·        a share in a company;

·        a derivative; and

·        a non-cash payment facility.

Misleading and deceptive conduct

ASIC have recently updated this Information Sheet to stress the prohibition under Australian law relating to misleading and deceptive conduct, and to provide some clarity on how ASIC will apply these laws in the ICO/crypto-asset space.

ASIC notes that the application of certain prohibitions against misleading and deceptive conduct may depend on whether or not the ICO/crypto-asset is a ‘financial product’ under the Corporations Act.  However, it is important to be aware that even if the ICO/crypto-asset is not such a ‘financial product’ under the Corporations Act, the prohibitions against misleading and deceptive conduct under the Australian Consumer Law must still be complied with.

ASIC have provided some helpful examples to assist in understanding what kinds of conduct may be prohibited under these laws, such as:

·        the use of social media to generate the appearance of a greater level of public interest in an ICO;

·        undertaking or arranging for a group to engage in trading strategies to generate the appearance of a greater level of buying and selling activity for an ICO or a crypto-asset;

·        failing to disclose adequate information about the ICO; or

·        suggesting that the ICO is a regulated product or the regulator has approved the ICO if that is not the case.

Undertaking an ICO or other crypto-asset activities that fail to comply with these prohibitions may be a serious breach of Australian law, and ASIC have stressed that they intend to take action in coordination with the ACCC where they consider there is potential misleading and deceptive conduct.

Accordingly, it is crucial that you seek legal advice if you are considering an ICO, and then to work closely with your legal advisors throughout that process.

At Motus Legal, our close involvement with technology companies and our expertise in financial services and capital raisings have allowed us to provide valuable assistance on ICOs, and we are excited to be working with a number of our clients in relation to their ICO plans.

Get in touch with us so we can help you with your plans.

The team at Motus Legal

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More deals, listed in Best Lawyers in Australia, listed in Doyle's Guide, and family holidays

It's been another whirlwind few months for the team at Motus Legal since the New Year. 

Here's the quick round up of the last 4 months:

  • we have been involved in seven SA based SME M&A transactions in a range of sectors including engineering, technology and manufacturing;
  • we have been involved in capital raisings for SA based entrepreneurs covering equity and debt totalling over $3m for half a dozen clients;
  • we acted for a global consultancy company in advising and drafting contracts for a nationwide multi-million IT infrastructure transaction;
  • we helped half a dozen clients put together executive incentive schemes or employee share option schemes to drive growth for their companies;
  • our Director Craig Yeung was listed in the Doyle's Guide for 2018 in Intellectual Property and TMT Lawyers for the first time, and listed in the Best Lawyers in Australia for Corporate Law for the third year running; and
  • all of our team members have taken additional extended holidays since the New Year to camp around the State or travel overseas with our families. #worklifebalance #familytime

With two more months until the end of the financial year, we're aiming to continue our growth in work flow and help as many clients as we can. 

So please get in touch with us through our website www.motuslegal.com.au for your next corporate deal or project, and experience why so many clients choose Motus Legal for their deals. 

Keep moving.

The team at Motus Legal

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Cryptocurrencies to be brought within AUSTRAC's jurisdiction

New laws which would bring Bitcoin and other cryptocurrencies within Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime continue to advance through Parliament.


The new laws propose to strengthen Australia’s financial intelligence regulator, AUSTRAC’s investigative and enforcement powers, and to close a regulatory gap by bringing digital currency exchange providers under the remit of AUSTRAC.


Should the bill be passed by Parliament, operators of digital currency exchanges will be required to:
•    register with AUSTRAC;
•    comply with customer identification and due diligence obligations (including “Know Your Customer” checks);
•    keep appropriate records; and
•    report large or suspicious transactions to AUSTRAC.


The Senate Legal and Constitutional Affairs Legislation Committee has recently recommended that the bill should be passed, so this is an important space to watch if you are considering providing digital currency exchange services.


Get in touch with us at Motus Legal to find out more about cryptocurrencies, AML/CTF legislation and financial services laws.

Keep moving.

The team at Motus Legal
 

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The past three years at Motus Legal...

Approaching the end of our third year as Motus Legal, we reflected on what we've achieved over this time.

Some key stats:

  1. Clients have trusted us with 82 M&A or capital raising deals;
  2. Helped our clients on over $145m of M&A or capital raising deals;
  3. Employed and kickstarted the careers of 12 young law graduates or lawyers;
  4. 0% of employees wear a suit to work every day;
  5. 100% of our clients are awesome. 

We are super proud of these achievements and that clients rave about us.  We are so honoured that the business community has embraced the Motus Legal way of providing legal services, and chose us to help them on their deals.  As you can see - we have certainly been busy, but have also enjoyed ourselves tremendously.

Thank you so much to our clients who believed in our vision, and have since reaped the benefits of top legal expertise, value for money and to have their deals in our safe hands.

If you have not spoken to us about your next deal, you ought to.

Here's to many more years with the Motus Legal team.

Keep moving.

The team at Motus Legal

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ASIC finally clarifies their stance on ICOs

ASIC’s view on the legal status of initial coin offerings (or ‘ICOs’) in Australia has recently become clearer with the release of AISC’s Information Sheet 225 (available here: http://asic.gov.au/regulatory-resources/digital-transformation/initial-coin-offerings/).


ICO’s are a means for businesses to raise funds through the sale of ‘coins’ or ‘tokens’ to investors online (typically using cryptocurrencies such as bitcoin).  Businesses will generally use the capital raised from an ICO to develop blockchain-based projects and services.


The rights attached to the coins purchased by investors will vary for each ICO.  Accordingly, rather than attempting to introduce a catch-all provision, ASIC has indicated that an ICO’s legal status will depend upon its structure and operation, as well as the rights attached to the offered coins.


The new Information Sheet provides guidance on what obligations may apply to an ICO under the Corporations Act.  ASIC has outlined when an ICO may be considered an offer of a:
•    managed investment scheme;
•    share in a company;
•    derivative; or
•    non-cash payment facility.


If an ICO falls within any of these categories, then a number of obligations under the Corporations Act must be complied with.  For example, ICO’s that are held to be offers of shares will require the preparation of a prospectus setting out all of the information investors reasonably require to make an informed investment decision.


Therefore, although ASIC has clarified how it will treat an ICO, due to the huge differences in features of an ICO, the legal status of the ICO will depend on those features – and careful advice needs to be sought to understand those legal obligations.


We have been speaking to a number of technology companies looking into ICOs as well as the more traditional crowd sourced equity funding.  The combination of our expertise in traditional corporate/financial capital raising structures and our broad industry knowledge in the technology sector has placed Motus Legal in a unique position to help clients wanting to explore this space.


Get in touch with us at Motus Legal if you want to know more.

The team at Motus Legal
 

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Refresher on tax incentives for early stage investors

If you operate an early stage innovation company (ESIC) that is looking to raise equity capital from investors, then those investors may be eligible to receive attractive tax incentives.  These ‘early investor tax incentives’ include non-refundable carry forward tax offsets and exemptions on capital gains tax, however certain criteria must be satisfied before the tax incentives become available.


Qualifying as an ESIC
For your company to be an ESIC to which the tax incentives apply, the company must:
•    have been incorporated in Australia within the last three income years (this may be extended to the last six income years if the company had expenses of less than $1million during the last three income years);
•    be at an early stage in its development (which is assessed against four statutory tests); and
•    be developing new or significantly improved innovations for commercial purposes (which can be self-assessed using a ‘100-point innovation test’ or can be determined by the ATO using a ‘principles-based innovation test’).


Investment conditions
An equity capital raising undertaken by your ESIC will only attract the tax incentives if the investment satisfies a number of conditions.
•    The investor must have purchased newly issued shares directly from your ESIC.  Preference shares and other debt-like investments are not covered.  Convertible notes, however, may be eligible for the tax incentives provided that your company qualifies as an ESIC and satisfies the other criteria at the time the notes are converted into shares.
•    The investor must not hold more than 30% of the shares in your ESIC or any entity connected with your ESIC immediately after the new shares are issued. 
•    Your ESIC and the investor must not be affiliates of each other (i.e. where they could reasonably be expected to act in accordance with the directions of the other – such as a director of your ESIC).
•    The investor must not be acquiring the shares as an employee or contractor under an employee share scheme.


What are the tax incentives?
Investors who satisfy the criteria and purchase new shares in your ESIC may be eligible to receive:
•    a non-refundable carry forward tax offset of 20% of the amount paid by the investor in purchasing the shares (the tax offset is capped at a maximum of $200,000 in each income year); and
•    an exemption from any capital gains tax (CGT) on those shares if the shares are continuously held for at least 12 months but less than ten years (however capital losses on the share held less than ten years must be disregarded).  The $200,000 cap on the tax offset incentive does not limit the shares that qualify for this modified CGT treatment.


Sophisticated investors vs other investors
To take full advantage of these tax incentives, investors in your ESIC must be ‘sophisticated investors’ under the Corporations Act.  This said, more limited early stage investment tax incentives are available for investors that are not sophisticated investors.

At Motus Legal, we specialise in helping our clients with capital raising at all stages of their development, so come talk to us if you are considering raising capital.  As always, specialist tax advice should be sought - and we can work your tax advisor to get that right.
 

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Equity crowdfunding rules live - September 2017

Legislation allowing public companies to raise equity-based funds from the crowd is set to commence on 29 September 2017.  Under these new rules, compliant public companies will be able to raise capital from a large number of investors, each making a relatively small investment in exchange for shares in the company.

To be eligible, the public company must:
•    Be an unlisted public company limited by shares;
•    Have consolidated gross assets of less than $25 million (including any of the company’s related parties);
•    Have consolidated annual revenue of less than $25 million (including any of the company’s related parties);
•    Have its principal place of business and majority of directors ordinarily residing in Australia;
•    Not have a substantial purpose of investing in security interests in other entities or in managed investment schemes.

Currently, only fully paid ordinary shares may be offered under the regime, and the maximum that may be raised in any rolling 12-month period is $5 million.  Investors will be limited to investing up to $10,000 annually per company.

While the new laws commencing in September relate only to public companies, the rules do allow some lee-way to private companies wishing to convert to a public company in order to access to equity crowdfunding regime.

Private companies are eligible to receive temporary reporting and corporate governance concessions for five years if the private company:
•    converts to a public company after 29 September 2017; and
•    completes an equity crowdfunding capital raise within 12 months.
If the concessions apply, then the converted company will be granted temporary relief from requirements relating to Annual General Meetings, appointing and auditing financial reports, and distributing annual reports to shareholders.

This said, and as we have discussed in previous posts, the Federal Government is currently considering extending the equity crowdfunding regime to private companies (subject to numerous compliance requirements).  Some commentators are suggesting that private companies wishing to obtain equity-based crowdfunding may be well advised to hold-off on converting to a public company until these new laws are either enacted or taken off the table. Watch this space.

At Motus Legal, we have helped many of our clients successfully undertake capital raising to fund their enterprises.  Get in touch with us if you are considering making use of the new equity crowdfunding regime for your own business.

Keep moving.

The team at Motus Legal
 

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Update on notifiable data breach scheme

As we have previously commented on in our blog post late last year, new laws are set to come into effect on 22 February 2018 which will require organisations covered by the Privacy Act 1988 (Privacy Act) to notify the Office of the Australian Information Commissioner (OAIC) and any affected individuals if an unauthorised disclosure of personal information occurs.

The OAIC has published draft resources on their website to assist organisation in understanding their compliance obligations (accessible at: https://www.oaic.gov.au/engage-with-us/consultations/notifiable-data-breaches/).

The draft resources cover:

·       Who must comply with NDB Scheme – the NDB Scheme will apply to you if you are an organisation or Australian government agency that is already covered by the Privacy Act;

·       Which data breaches are notifiable – a data breach is an ‘eligible data breach’ that requires notification if it is likely to result in serious harm to any of the individuals to whom the information relates (note that a data breach does not have to be ‘malicious’, such as a cyber-attack, for it to be an eligible data breach – accidental unauthorised disclosure may still require notification, for example);

·       How to notify – if the NDB Scheme applies to your organisation, your organisation must provide a statement to the OAIC, and notify individuals at risk of serious harm of the contents of that statement, if an eligible data breach occurs;

·       Australian Information Commissioner’s role in the NDB Scheme – the OAIC’s roles include receiving notifications of eligible data breaches, encouraging compliance with the scheme (including regulatory action in the event of non-compliance), and providing advice and guidance about the operation of the scheme.

It is important that you review your organisation’s policies, procedures and systems for securing personal information and preventing data breaches before they occur.  An effective data-breach response plan is also crucial to respond quickly if a data breach does occur, which may be the difference between averting serious harm and a breach requiring notification (which can be highly detrimental to an organisation’s reputation).

At Motus Legal, we have advised many of our clients on complying with their obligations under the Privacy Act.  Get in touch with us to prepare for the NDB Scheme before it comes into effect.

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ICO - the new way to raise capital quickly?

Recent months have seen an explosion in the number of ICOs (or “Initial Coin Offerings”) undertaken to raise project-development funds from the crowd.  This trend has not gone unnoticed by smart entrepreneurs eager to ride the wave, and has lead an increasing number of business owners to consider whether they too might use an ICO to raise capital for their own projects.  But what are ICOs, and how can they be used as crowd-sourced fundraising?

Initial Coin Offerings

At a high level, an ICO is essentially an event where a blockchain-based project sells “tokens” to early adopters and enthusiasts in exchange for money today (typically, using Bitcoin or other cryptocurrencies that can then be traded into Australian dollars).  It combines elements of crowdfunding with traditional capital raising activities, but with a crytocurrency element.

ICOs generally take place before the project is completed.  The crowd-sourced funds raised from the ICO can then be used to cover operational costs and the costs of completing and implementing the project.

Once the project has launched, the digital token can either be used in accordance with the project’s application (which will of course vary from case to case), or be traded on an exchange for other cryptocurrencies or dollars.  Investors in ICOs are therefore anticipating that demand for the tokens (and the price payable for the tokens) will increase in future, such that they can later sell their tokens for a return.

To date, ICOs have collectively raised hundreds of millions of dollars to finance early-stage projects.  This year alone, early-stage blockchain entrepreneurs have raised more money via ICOs than from venture capital.

ICOs vs IPOs and other capital raisings

ICOs are often compared to Initial Public Offerings (IPOs) of a company’s shares on a securities exchange, and there are some similarities between the two.  For example, both are used to raise money by selling a stake in something, and both ICOs and IPOs have investors who risk their capital for the opportunity to make a return through an increase in value and trading.

However, there are some important distinctions as well.  IPOs offer securities (i.e. shares) to investors, and are therefore subject to ASIC / ASX rules and regulation under the Corporations Act.  For instance, before an IPO can be undertaken, the company would need to go through the usual due diligence and prospectus preparation process, as well as admission to the ASX.

Even outside the IPO context, any conventional capital raising not using a disclosure document (such as prospectus) undertaken by issuing shares or other securities to investors are also subject to some strict rules under the Corporations Act.

By contrast, commentators have generally considered the purchase of tokens in an ICO to be the prepayment for goods or services, as opposed to a financial product falling within the government watchdog’s regulatory bounds.  Accordingly, ICOs are currently a relatively unregulated area.

ASIC Chairman, Greg Medcraft, recently discussed ICOs and noted that ASIC is still considering its position in relation to regulating these products.  The Chairman noted that ICO tokens are unlikely to be considered equity securities and stated that:

"They’re a very interesting concept.  An ICO is not equity – you're offering basically something that is the product of the entity that is doing the launch.  You're taking a bet on getting that product early.  How different is that if I go to Kickstarter and I buy something – a watch – and then I get that watch and sell it in the future? It's no different, is it?”

However, the Chairman also noted that certain ICO tokens might be sufficiently similar to securities to fall within ASIC’s mandate, particularly around the provision of financial services surrounding the ICO. 

Motus Legal already works in the traditional capital raising arena and well-versed in the financial products regulation space, and would love to explore potentially working on ICOs with another progressive businesses at the cutting edge of the capital markets. 

Come talk to us!

The team at Motus Legal

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Equity crowdfunding - new rules introduced

The Federal Government's recently introduced draft legislation, the Corporations Amendment (Crowd-Sourced Funding For Proprietary Companies) Bill 2017 (Bill), may at last make equity crowdfunding available to private companies.
 
You may recall that the Government already passed equity crowdfunding legislation in March (which is to come into effect this September).  However, a major point of contention in that legislation was the inability of private companies (which make up the vast majority of corporations in Australia) to access the regime.
 
The compliance costs of trading as a public company mean that relatively few private companies will go public in order to raise capital from the crowd under the current regime.  The recently introduced Bill is intended to address this by allowing companies to remain private.
 
If the Bill is passed by the Government, crowd-sourced investors will not be counted towards the fifty-shareholder limit that applies to private companies (although it is not yet clear what happens when these investors transfer their shares).
 
Crowdfunded private companies will also be exempt from takeover provisions under Chapter 6 of the Corporations Act; provided that the company amends its constitution to require a person who acquires more than 40% of the voting shares in the company to offer to purchase all other securities in the company on the same terms within 31 days.  The amended constitution must be lodged with ASIC if a crowdfunded company intends to rely on this exemption.
 
While allowing private companies to access the crowdfunding regime has been broadly welcomed, some commentators are questioning whether the obligations in the new Bill nonetheless require crowdfunded private companies to act as public companies in disguise.
 
The additional obligations that crowdfunded private companies must comply with under the Bill include:
•    having at least two Australian-based directors;
•    lodging annual financial and directors’ reports, which must be audited if the offer is over $1million;
•    complying with certain 'related party' provisions of the Corporations Act; and
•    maintaining a more comprehensive company register.
 
This said, the new Bill has been recognised as an important step towards making equity crowdfunding available to private companies and this is certainly an area to watch.
 
Get in touch with us at Motus Legal to talk more.
 

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