The Australian legal system is federal and there is almost always an interaction between state and federal laws.
Laws governing co-operatives are state and territory laws, however, federal laws governing the issue of securities will impact:
- Directly if the security offer is across a state or territory border
- Indirectly if the offer is a public offer of debentures or CCUs43.
When a federal law impacts, either directly or indirectly with a co-operative security offer, the costs of making the offer will escalate. The high costs arise from higher regulatory fees and more preparation costs due to the greater compliance requirements. The higher cost of such an offer may be justified if the amount of capital to be raised is correspondingly high.
The amount of capital sought under most community investment offers is unlikely to warrant the higher costs of a cross border or public offer. This is consistent with experience in the United Kingdom under Community Share Offers44.
Offers that are within the co-operatives’ ‘home’ state and that are made to members involve lower lodgement fees, lower preparation costs and are likely to aim for modest investment amounts. Confining offers to members should not be seen as a limiting factor. Offers of membership and subsequent or consequent offers to members can reach a sizable ‘crowd’ when active membership is well drafted to enable reasonable participation by members. In 2014, an estimated 23,000 people became members of co-operative entities in the UK through community share offers45.
Public offers and offers across a state or territory border will involve greater caution and consideration because of the increased costs and possible need for specific professional assistance. Accordingly, the information provided in respect of disclosure requirements is focussed on offers of securities to members, as these offers are more closely aligned to the scope of a community investment offer.