Paving the way to innovate

Innovation is fundamental to drive future productivity in Australia. Readily available finance is critical to make this possible, especially if you plan a start-up, and absolutely vital if your venture is a new fintech (financial technology) company. Here we explore some of the recent changes to law, which could help pave the way to a successful fintech business or early-stage innovative start-up.
A recent report predicted that fintech sector revenues will see rapid growth of 75% each year reaching a value of $4.2 billion by 2020. The Government took steps in 2016 and 2017 to help early-stage innovation companies (ESICs) and fintech businesses.

Back in 2016, the Government showed its support for such innovation by proposing:

• 2016 tax incentives for early-stage investors;
• amendments to the venture capital measures to assist with raising funds;
• to limit the requirement for employee share scheme (ESS) disclosure documents to be made public by start-ups;
• to relax the “same business test” by introducing a “similar business test”; and
• to allow taxpayers to assess the effective life of most intangible depreciating assets.

You may want to work out if you are an early-stage innovation company; it may be appropriate to gain clarification on this from the ATO. Alternatively, you may wish to invest in such a company. Speak to us if you need to make sense of the various investment tax exemptions, including the 20% tax offset for early-stage investments and the CGT exemption for direct and indirect investments.
Fintech versus traditional banking
Fintech start-ups are set to redefine financial services and the way in which we save, borrow, and invest money. The Government has shown that it wishes to break down current barriers to welcome new financial services into the marketplace. Existing barriers include the limitation on closely-held ownership in the banking sector, prohibition on the use of the word ‘bank’, and complex bank licensing processes. Working with the APRA, the Government will remove such barriers to foster greater competition in the market. This will lead to lower prices, better service and greater banking choice for customers.
Building on earlier incentives
To help Australia become “the innovation and fintech nation”, the Treasury’s media release in May 2017 described further incentives. These are summarised below.
Crowd-sourced funding made easier
Recent draft legislation proposes to open up crowd-sourced funding (CSEF) to a wider range of businesses providing additional sources of capital. Proprietary companies who use this form of funding can have an unlimited number of shareholders. Such shareholders will be protected by the higher governance and reporting obligations that CSEF proprietary companies are obliged to meet, which includes:

• having a minimum of two directors;
• conducting financial reporting in accordance with accounting standards;
• meeting audit requirements;
• observing restrictions on related party transactions; and
• granting minimum shareholder rights to participate in exit events.

Removing double taxation
In the past, purchasers of digital currency have paid goods service tax (GST) twice, first on the initial purchase and again in the exchange of such currency for other goods/services subject to GST. From 1 July if you are buying digital currency, you will not suffer GST on any purchases of digital currency you make. This will make it easier to operate if you are dealing in digital currency.
Testing makes perfect
Being able to test out your new fintech offering/service is vital to ensure your success. In support of this the Government will introduce an improved regulatory “sandbox”, aimed at financial services, to allow you to test such services first – without a licence – in a timeframe over two years. Protections and disclosure requirements will be in place to protect consumers.
Towards 2030
By collaborating with Innovation and Science Australia the Government will develop a Research Infrastructure Investment Plan and a 2030 Strategic Plan for Australia to further support the economy and promote innovation.
Want to find out more?
Further incentives are likely to be forthcoming to early-stage innovation, especially within the fintech sector. We will keep you abreast of such changes as they happen.
If you are thinking of starting up a new digital business, if you plan to launch a new financial product or service, or to invest in one, and you want to make the most of the new incentives, talk to us first.

Insolvent trading: new safe harbour defence

Insolvent trading. If you’re a company director you know only too well that those two words are bad news. The good news is that the law that has held directors personally liable for corporate debt in cases of insolvency has recently changed, giving directors a “safe harbour” to encourage them to save their business from liquidation for the benefit of the company and its creditors before it’s too late. But only in limited circumstances.
Protection for directors to help save companies
A new defence or safe harbour has been introduced to protect company directors from being personally liable for insolvent trading, as long as they can meet several criteria.
The idea behind the new law – which took effect in Sept 2017 – is to promote a more positive business culture and an incentive to encourage directors to look for ways to turn around the fortunes of the company before all hope is lost and while there is still value to salvage.

Big penalties have deterred directors
The significant civil penalties for insolvent trading of up to $200,000 for an individual and the possibility of being banned as a director for a number of years – and the stigma attached to being caught at the helm of a company trading while insolvent – have more than discouraged directors to stay the course.
Those directors would jump ship early and put the company in the hands of liquidators or administrators – at great financial (and emotional) cost to all involved, including of course creditors and employees. The heavy penalties would also naturally deter directors from taking risks to try to save the business, as well as more broadly, deter investors and professional directors becoming involved in start-ups.
In the past, the only defence available to directors whose company traded while it was insolvent was to show that, at the time the company went into debt, the director had reason to think the company was solvent.
New defence: The test for directors
The new law aims to encourage restructuring and turnaround by providing protection for directors from being personally liable for insolvent trading if, after the director suspects the company may be insolvent, they can take a course of action that’s reasonably likely to lead to a better outcome for the company.
Additionally, the debt incurred needs to be connected with this course of action or the usual course of business.
The director will need to prove that they acted proactively in undertaking a restructure of the company as soon as they suspect insolvency, and will therefore need to keep a clear record of all the actions they took to try to save the company.
Want to find out more?
There are several critical issues here, such as how the test – taking a course of action that’s reasonably likely to lead to a better outcome – will be applied and how much the director needs to be connected to this course of action.
We are here to explain it all in detail and help you understand how it could work, and how it could help you in the future.

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Budget 2018: What’s in it for you

It’s May which means it’s Budget time. In the last full Budget before the next Federal election, the Treasurer delivered an election Budget with enough sweeteners for everyone including businesses, income tax relief for individuals, measures to boost superannuation, and help for older Australians.
The 2018-19 Budget was handed down on 8 May by Treasurer Scott Morrison. In the last full Budget before the next Federal election, ScoMo delivered what was widely perceived to be an election Budget with lots of sweeteners for everyone. So what’s in it for you?
Businesses
The Government styled themselves as the champions of business with already legislated tax cuts for small and medium Australia businesses as well as unincorporated small businesses. While there were no specific tax cuts for businesses in the Budget, “the Government remains committed to ensuring that Australian businesses remain internationally competitive and will progressively reduce the corporate tax rate for all companies through the 10-year enterprise tax plan.”
Small businesses will benefit from the Government extending the $20,000 instant asset write-off for a further 12 months to 30 June 2019. According to the Government, these small businesses will now have additional opportunities to reinvest in their business and replace or upgrade their assets.

Income tax relief

In addition to this relief, the Government will increase the top threshold of the 32.5% tax bracket to $90,000 from 1 July 2018. In a feat of forward planning, from 2022-23 the top threshold of the 19% tax bracket will be increased to $41,000 with the low-income tax offset to be increased to $645. According to the Government, these changes together will mean that taxpayers permanently receive tax relief.
Superannuation 
In the Budget, the Government announced measures to ensure that Australians keep more of their super, including:

• giving the ATO capacity to actively reunite Australians with their lost and inactive superannuation;
• capping certain superannuation fees at 3% for accounts with balances of less than $6,000;
• banning superannuation exit fees to make it easier for Australians to consolidate their superannuation; and
• tailoring insurance arrangements to ensure that they are opt-in rather than opt-out.

Older Australians
The Government has tried to please both pensioners and self-funded retirees with the following measures announced in the Budget:

• expansion of the pension loans scheme to those on the full pension and self-funded retirees to give them the option to boost their retirement income. Full pensioners will be able to increase their income by up to 50% of the Age Pension.
• expansion of the pension work bonus which will allow age pensioners to earn up to $300 per fortnight (up from $250) without reducing their pension payments. The bonus will also be extended to self-employed individuals who will be able to earn up to $7,800 per year.
• exemption from the superannuation work test for those aged 65-74 with superannuation balances below $300,000.
• standards of living in retirement will be boosted and retirees will have greater choice in how they receive their superannuation through the Government’s retirement income framework.

Want to find out more?
Do you want to find out more about how this Budget affects you and your future? We will help you find the answers and plan for your future.

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Proactive CFOS

Reverse takeovers Shareholder approval requirements – Exposure draft listing rule amendments

Australian Stock Exchange (ASX) proposes to amend its Listing Rules requiring a bidder to seek shareholder approval for a reverse takeover. These proposed amendments will improve the investor protection framework while supporting the efficiency and competitiveness of Australian listed companies in the market for corporate control.

A complete public consultation process was followed to sought feedback on the proposed amendments. Additionally, multiple consultation meetings were conducted with interested stakeholders. While the stakeholders who looked at this proposal from an investor’s perspective supported the implementation of amendments, and suggested that shareholder approval should be necessary for issues of securities exceeding 20-50% of existing capital, shareholders looking at the proposal from the perspective of listed entities did not support proposed changes.

Gap in the regulatory framework for reverse takeovers

ASX sought submissions on whether there was a gap in the regulatory framework related to reverse takeovers that warranted a change from the status quo.

Investor and governance groups submitted that there was a gap in the regulatory framework, and a few respondents expressed reverse takeovers to be fundamentally unfair. On the contrary, other respondents commented that there is no gap in the regulatory framework.

Costs of a shareholder approval requirement

ASX sought submissions on the direct and indirect costs of imposing a shareholder approval requirement for reverse takeovers and whether this requirement would affect ASX listed bidders’ ability to compete effectively in the market for corporate control.

Many respondents indicated that although the likeliness of additional direct and indirect costs is there, it would not have the said material impact. On the contrary, some respondents expressed that the significant costs and inefficiencies would reduce ASX listed companies’ ability to compete effectively in the market.

ASX’s response to consultation feedback

ASX proposed to proceed with the consultation proposal to require shareholder approval for reverse takeovers (issues in excess of 100% of existing capital).

Additionally, ASX acknowledges that bidder shareholders should have a say on transactions in which they are the target and that the shareholders should not be subject to unlimited dilution as a result of reverse takeover.

ASX also acknowledges the views that a threshold based on increase in share capital could result in transactions being restructured to avoid the shareholder approval requirement.

Proposed listing rule amendments

• Listing rule 7.2, exceptions 5 and 6

ASX proposes to amend Listing Rule 7.2, exceptions 5 and 6 so that they do not apply to issues under, or to fund, reverse takeovers. As per the amendment, an issue of shares under, or to fund, a reverse takeover will require approval under Listing Rule 7.1.

ASX also proposes ancillary amendments to Listing Rule 7.2, exceptions 5 and 6 and the definition of takeover to simplify the drafting of those sections.

• Equity securities

ASX will amend Listing Rule 7.1B to clarify that the number of equity securities to be issued to determine whether a transaction is a reverse takeover should be calculated in the same way as for other Listing Rule 7.1 calculations.

• Application to trust schemes and foreign takeovers

Listing Rule 7.2, exceptions 5 and 6 only apply to takeover bids or schemes of arrangement under the Corporations Act. ASX has in the past granted a waiver to extend exceptions 5 and 6, however this waiver will not be granted if the entity is engaged in a reverse takeover of the foreign company or trust.

• Application to Pro rata issues

Shareholder approval should not be required for a pro rata issue to fund a reverse takeover.

• Content of notice of meeting

ASX proposes to amend Listing Rule 7.3.8 to require bidders to disclose information “in relation to the reverse takeover”.

• Time within which securities must be issued

Currently, the time within which securities must be issued is 3 months. ASX proposes to extend the period from 3 months to 6 months.

• Amendments to voting exclusion statements and ancillary definitions

ASX proposes to amend the voting exclusion so that the reverse takeover target and its associates would not be allowed to vote in favour of the resolution to approve the proposed issues under, or to fund, the reverse takeover.

• Participation in the issue

ASX is proposing to replace the current reference in the voting exclusion for rule 7.1 to a person who “may participate” in the proposed issue with a person “who is expected to participate” in the proposed issue.

• Voting against a proposal

ASX proposes to amend Listing Rule 14.11 to provide that the persons excluded from voting are only precluded from voting in favour of the resolution, not against the resolution.