As mentioned last week, co-operatives already have capital raising instruments available. We believe that Co-operative Capital Units (CCUs) structured as an equity instrument (as opposed to a debt), are the most easily accessed financial vehicle for co-operatives to receive Crowd Sourced Funding (‘CSF’). This is potentially a very useful approach for co-operatives like those serving communities in the Murray-Darling Basin. This is because member assets can remain protected, as CCU holders do not have the voting rights that the members of a co-operative have, but are still entitled to a return (such as a fixed dividend based on the market rate) – ensuring that the investment opportunity is attractive to investors.
Why include co-operatives?
The rationale for only allowing public companies to be able to access CSF is arguably about ensuring that they are held accountable (as they have greater reporting obligations than a private company). Yet, the Co-operatives National Law includes much of the Corporations Act 2001 (Cth) financial obligations. Like public companies, co-operatives have financial reporting and auditing requirements which ensure that co-operatives are accountable and transparent, therefore it provides a great opportunity for co-operatives to be included into the CSF Bill or for existing co-operatives in the future.
Impact on co-operative principles?
Under the legislation, members need to approve the issue of CCUs and as CCU holders would not have member rights, the co-operative principles are intact, as these do not apply to CCU holders.
Benefits for Murray Darling Basin and other producer communities
Murray Darling basin communities provide an example of the potential for synergy between co-operatives and CSF because they are integral to the nation, contributing to food security for Australia and are major contributors to Gross National Product.
To remain viable and develop sustainably into the 21st Century, regional co-operatives need access to capital, without increasing the risk of takeover by external interests. Further, climate models suggest that rainfall patterns in the Murray Darling basin will change by 2050, placing greater pressure on water resources and a challenge for communities. Even now with the Commonwealth water buy-backs and other interests buying water licenses, there is growing pressure on communities that rely on the land to survive. Importantly, co-operatives are well suited to these areas as they already have stronger ‘community’ than their urban, corporate counterparts. We believe CSF can play an important role for ensuring the sustainability of these communities via CCUs as locals who are not members of the co-operative can invest, allowing that co-operative to access capital, stay competitive continue to benefit that community.
The current CSF Bill is promising as it reduces regulatory requirements to connect investors and business. However, co-operatives present a chance for a further evolution of CSF, with regulatory requirements similar to public companies and CCUs available as a capital raising instrument, there is good reason to include co-operatives in any CSF discussions.
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