ASIC issues first crowd-sourced funding regime stop order

ASIC

ASIC has issued an interim stop order preventing Hirehood Pty Ltd (Hirehood) from offering securities under its crowd-sourced funding (CSF) offer document published on the VentureCrowd Pty Ltd intermediary platform. ASIC has made this interim order in the public interest to protect retail investors looking to invest in this offer.

This is ASIC’s first use of its stop order powers in relation to a CSF offer under the Corporations Act 2001 (Corporations Act).

ASIC took action in relation to Hirehood’s use of a nominee arrangement. This arrangement did not permit investors to directly acquire ordinary shares in Hirehood. Instead, shares issued by Hirehood were intended to be held by a related party of the intermediary, as nominee on bare trust for the shareholders.

For an offer to be valid under the current CSF regime, only fully paid ordinary shares can be offered. Hirehood’s nominee arrangement resulted in investors holding only an equitable interest in the fully paid ordinary shares, rather than full legal and equitable ownership rights normally associated with the ownership of ordinary shares.

ASIC also took action as the offer document did not comply with the minimum content requirements prescribed in the Corporations Act and Corporations Regulations 2001, which includes providing sufficient detail about the issuer’s business model.

While ASIC acknowledges that the CSF regime is designed to facilitate flexible and low-cost access to capital, ASIC reminds issuers and intermediaries that we will act where CSF offers are not made lawfully.

ASIC conducts targeted surveillances to ensure issuers and intermediaries are adhering to the legislative requirements of the CSF regime. ASIC will actively enforce compliance with the CSF framework and will exercise its stop order powers or take enforcement action if necessary to address any breaches.

Background

The interim order for Hirehood has been made on an urgent basis to protect retail investors. The interim order is valid for 21 days unless revoked earlier. Hirehood will have an opportunity to make submissions before any final stop order is made by ASIC.

ASIC’s Regulatory Guide 261: Crowd-sourced funding: Guide for companies (RG 261) and Regulatory Guide 262: Crowd-sourced funding: Guide for intermediaries (RG 262) assists issuers and intermediaries to comply with the legislative requirements of the CSF regime under the Corporations Act. Issuers and intermediaries should ensure they are familiar with the principles in the guidance set out in RG 261 and RG 262.

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