ASIC raises concerns over CSF non-compliance

The Australian Securities and Investment Commission (ASIC) has formally notified Crowd Sourced Equity Funding (CSEF) intermediaries that it is concerned that companies using the mechanism to raise funds are not complying with their obligations under the Corporations Act.

In an email to its network of lawyers and accountants who advise on funding raises, one of the intermediaries, Birchal, relayed the corporate watchdog’s concerns.

“We’re reaching out to our CSF partners with an update on recent discussions we’ve had with ASIC about CSF company compliance with certain regulatory obligations,” the email said.

“ASIC has formally notified us (as CSF intermediary) of its concerns regarding CSF companies’ non-compliance with various obligations under the Corporations Act, in particular:

  • failure to lodge its Annual Financial Report and Directors’ Report
  • failure to lodge ASIC Form 484 & CSF notification form after the raise.

“We’ve reviewed ASIC’s records for the companies that have raised funds on Birchal and have identified non-compliance in these areas. We’ve followed up with those companies,” the email noted.

Brews News contacted ASIC in relation to its concerns and the regulator confirmed it was working with intermediaries to ensure they are proactive with due diligence.

“We are engaging with CSEF intermediaries that have hosted CSEF offers to ensure they are proactive in performing due diligence checks, educating and reminding CSF offeror companies of their ongoing important compliance obligations, including the lodgement of financial statements with ASIC and communication with investors,” an ASIC spokesperson said in an emailed response.

“We conduct random and targeted surveillance on issuers and intermediaries to check their compliance with the law, including in response to reports of misconduct from investors or intermediaries. ASIC has a range of powers to check compliance and investigate suspected breaches of the law.”

ASIC declined to provide the specific advice it had provided to intermediaries.

Birchal last year reported that it was the country’s largest crowd-sourced funding platform, responsible for 70 per cent of Australia’s crowd-sourced funding volume. It has hosted raises totalling more than $145 million with more than 200,000 people having invested through the platform.

In the email to its professional partners, Birchal asked that they assist to ensure compliance.

“We’d be grateful if you could also keep this on your radar, and remind companies of their obligations (to the extent you have an ongoing engagement with them).

“We feel a joint effort in assisting companies with these obligations is good for the industry!”

While Birchal has encouraged financial and legal advisors to assist with compliance, the platform has itself initiated a number of campaigns despite the companies raising being in breach at the time.

Brews News first raised the growing issue of non-compliance with Birchal in last August, though the company didn’t respond to questions at that time about the appropriateness of this practice.

In response to questions this week asking whether it would continue to launch campaigns for non-compliant businesses, Birchal CEO Matt Vitale provided the following response:

“As a CSF intermediary, Birchal performs its services in accordance with its obligations under the CSF regime. We believe company compliance with its statutory obligation to lodge an Annual Report & Director’s Report with ASIC is important for transparency and continued confidence in the industry. We’re working with ASIC on this matter.

“As a result, we also undertake additional activities to assist companies. This includes:

  • preparing and providing guidance materials & instructions, which are in addition to the information sheets and guidance published by ASIC
  • monitoring company compliance with its statutory reporting obligations under the Corporations Act based on ASIC records
  • following up with companies where we detect any non-compliance based on ASIC records
  • communicating with companies when lodgement deadlines are approaching, including instructions on how to satisfy their obligations
  • reminding companies when they need to lodge reports

“We also communicate with, and provide guidance, to professional service providers engaged by companies, including accountants, lawyers and registry services.

“CSF intermediaries along with accountants, lawyers, registry services and other professional service providers all have a role to play in encouraging good corporate governance and compliance,” the response said.

Non-compliance has been a growing issue for the alternative funding scheme. The first brewery to raise using the format, Endeavour Beverages, has not filed director’s or financial reports since 2021, prompting angry shareholders to consider legal action.

Equitise, the intermediary that Endeavour used, has said that it can’t force a company to act.

“Unfortunately not. But when people raise with us, we obviously make sure [the company is] aware of their requirements and ongoing responsibilities and try and do what we can to help aid and assist them in that,” co-founder and director Jonny Wilkinson told Brews News last year.

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