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capital raising

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

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