Financial and ASIC briefing

Why the Bottom Pub Co-op proposal does not, and will not, offer fixed dividends or first-mortgage positions to community members at this stage.

Last reviewed: 2026-05-09. Sources cited inline. See the full reference list for sources and verification status.

This briefing is the financial-discipline counterpart to the legal and licensing briefing. It explains, with statute references, the line that public communications cannot cross at Stage 1 — and why an earlier draft of this proposal sat squarely on the wrong side of it.

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1. What the original draft said, and why it was a problem

An earlier internal draft proposed paying community investors a 5% annual dividend, returning their capital at Year 15, and securing the offer with a first mortgage over the property. Each of those is, individually, a regulated financial offer. Together they constitute an unregistered public offer of debt securities or financial products, which under Australian law is the kind of thing that triggers serious ASIC consequences if marketed to the public without compliance.

The Bottom Pub rework removes that language entirely. This briefing explains why.

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2. The Corporations Act 2001 — when fundraising becomes regulated

The Corporations Act 2001 (Cth) is the federal legislation governing securities and financial products. Public offers of securities, debentures, and managed investment schemes generally require a regulated disclosure document (a prospectus or PDS) unless an exemption applies.

ASIC’s Regulatory Guide RG 87: Charitable schemes and school enrolment deposits sets out the working definitions for when a community-style offer crosses into regulated territory.

When an offer is a debenture

“A chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body.”

— Corporations Act 2001 (Cth), s.9 definition; explained in ASIC RG 87.

If a community offer involves promising to repay a sum at a future point — for example, “we will return your capital in Year 15” — the offer is, in substance, a debenture. Public debenture offers are regulated under Chapter 6D of the Corporations Act and require both a prospectus and an appointed trustee for the security holders.

When an offer is a managed investment scheme

A managed investment scheme exists where:

“(a) people contribute money or money’s worth as consideration to acquire rights (interests) to benefits produced by the scheme; (b) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits …; (c) the members do not have day-to-day control over the operation of the scheme.”

— Corporations Act 2001 (Cth), s.9; explained in ASIC RG 87.

A community pub project where members put in capital, the capital is pooled to acquire and operate the property, and members do not run the business day-to-day, sits very close to this definition. Crossing it triggers Part 5C registration and Part 7.9 disclosure obligations — substantially more burdensome than the CNL Disclosure Statement regime alone.

Why a first-mortgage security specifically triggers regulation

Offering community members a first mortgage as security against their investment turns the contribution into a secured debt instrument. That is a debenture by another name. Per ASIC RG 87, a body offering debentures to the public must “have a trust deed and trustee (Ch 2L); and issue a prospectus and comply with certain fundraising requirements”. Promising “secured by a first mortgage” to community members in a public document, without the trust deed, the trustee, and the prospectus, is the textbook scenario ASIC enforces against.

The Co-operatives National Law explicitly applies Chapter 6D of the Corporations Act to public offers of co-operative debt securities — the BCCM’s Community Investment Handbook is the recognised practice reference for this overlap. There is no co-op exemption from the debenture rules.

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3. The s.708 small-scale exemptions — what they actually allow

Section 708 of the Corporations Act provides several exemptions from the prospectus requirement. The two most often discussed for community-scale capital raises are:

Small-scale personal offers — the “20/12 / $2M” rule

Personal offers of securities are exempt from the disclosure regime if, in any rolling 12-month period, the aggregate raise does not exceed $2 million from no more than 20 investors. The offer must be a genuine personal offer — meaning offers can only be made to people the offeror has reason to believe are likely to be interested based on previous contact, professional connection, or some other genuine pre-existing relationship.

Plain-English summary: Allied Legal — ASIC Fundraising Requirements. Statutory text: s.708(1)–(7) of the Corporations Act 2001 (Cth).

What this means for a community pub: a public-facing campaign in a local newsletter, on a website open to anyone, or at a public meeting where attendees haven’t been individually pre-qualified, is not a “personal offer”. It cannot rely on the 20/12 exemption.

Sophisticated and wholesale investor exemptions

Sections 708(8) and 708(11) exempt offers made only to “sophisticated investors” (broadly, individuals who meet net-asset or income thresholds, or are advised by a licensed adviser in writing) and to wholesale clients under s.761G/761GA. The thresholds change over time and require qualification on a per-investor basis. ASIC’s RG 87 confirms the wholesale-client framework applies to community-style offers as well.

What this means for a community pub: these exemptions are about a small number of qualified individual investors, not the general community. They are not a route to a community capital raise.

What is not exempt

Anything that doesn’t fit a specific s.708 exemption requires a prospectus or PDS. Saying “we’ll raise $X from the community at Y% return” without one of:

• a prospectus / PDS lodged with ASIC; or
• a CNL-approved Disclosure Statement (for ordinary co-op shares); or
• a verifiable fit within s.708 small-scale or wholesale exemption,

is, in substance, an unregistered public offer.

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4. The CNL Disclosure Statement — what substitutes for ASIC

For ordinary co-operative shares (rather than debt instruments), the CNL provides a substitute regime. A distributing co-op offering shares must prepare a Disclosure Statement — a regulated document explaining the financial obligations and liabilities of co-op membership — and have it approved or lodged with the state Registrar before any offer is made. See the legal and licensing briefing for the detail.

The CNL Disclosure Statement is cheaper and simpler than an ASIC prospectus, but it is not optional, and it is not “advisory”. Advertising shares without a current approved Disclosure Statement is an offence under the CNL.

For debt instruments (debentures, secured loans, first-mortgage positions), the CNL does not substitute — the full Corporations Act Chapter 6D regime applies on top.

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5. The line at Stage 1: lawful versus unlawful language

This project is at Stage 1 — gauging community interest. No legal structure has been chosen. No Disclosure Statement has been drafted or approved. No prospectus has been lodged. The line for public communications follows directly:

Not lawful at Stage 1

• “5% annual dividend” — promises a fixed return; debenture territory if the underlying instrument is debt, regulated co-op share if equity.
• “75% total return over 15 years” — same problem; in addition, fictitious precision absent a financial model.
• “Investor capital returned in Year 15” — promises repayment; debenture by definition.
• “Secured by a first mortgage over the property” — secured debt instrument; full Chapter 6D regime applies.
• “Buy in for $X, get Y in return” — any fixed return offer to the public is regulated.

Lawful at Stage 1

• “We are testing whether there is enough community interest to justify formal feasibility work.”
• “Any future fundraising would be subject to legal advice, the appropriate regulatory regime (CNL Disclosure Statement or ASIC prospectus, depending on structure), and community decision.”
• “No money is being asked for at this stage, no offer is being made, and no return is being promised.”
• “The legal structure has not been chosen; the choice between distributing and non-distributing co-operative shapes everything that comes next.”

The Bottom Pub site uses only language in the second category. That is a deliberate, structural choice — not a marketing tone.

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6. Tax and accounting — the mutuality principle and what it means in operation

A community pub structured as a co-operative is not a single tax entity in the way a small Pty Ltd is. The mutuality principle in Australian tax law treats a co-op’s two streams of trading differently:

• Mutual trading (sales to active members) — surplus from this trading is generally not assessable income. The principle is that members are trading with themselves, not earning a profit from themselves.
• Non-mutual trading (sales to anyone who is not an active member — passing tourists, walk-ins, accommodation guests) — assessable income, taxed normally.

The ATO publishes formulas for separating mutual and non-mutual trading expenses. In operation that means the pub’s point-of-sale system has to track member-versus-non-member transactions cleanly, and the accountant has to run that separation through every BAS and tax return. (Source: The application of business taxation to socially oriented co-operative entities in Australia, UNSW academic paper — full URL pending verification, but the principle is reflected in ATO Tax Determinations on club mutuality.)

If the co-operative is structured as a distributing co-op and meets the requirements of Division 9 of the Income Tax Assessment Act 1936, it can claim a tax deduction for patronage rebates paid to members in proportion to their trading with the co-op. That’s the legitimate way a distributing co-op returns surplus to members — not as a “dividend” with the ASIC-fundraising connotations, but as a rebate tied to actual trading volume.

GST. Once turnover crosses the $75,000 GST registration threshold (which a working pub will do quickly), the co-op must register, charge GST on taxable sales, claim GST credits on taxable purchases, and lodge BAS. Standard small-business obligations apply.

Accounting and audit obligations under the CNL. The CNL classifies co-ops by size and imposes scaled financial-reporting duties (CNL Part 3.3). Large co-ops must produce audited or independently-reviewed annual financial reports for members. Small co-ops have lighter reporting obligations but still must annually resolve as to solvency.

ACNC charity registration as an option. A non-distributing co-op with a community-purpose object may be eligible for ACNC charity registration, which carries tax concessions and grant eligibility. The trade-off is severe: a registered charity cannot pay returns or distributions to members, so the choice between a distributing co-op (returns possible, no charity status) and a non-distributing-with-charity-registration (tax concessions, asset lock, no member returns ever) has to be made up-front.

Capital-stack tax treatment. Member shares at par value are generally treated as debt for accounting purposes (because members can request a refund at par). Co-operative Capital Units (CCUs) and debentures issued under CNL Part 3.4 are debt instruments; interest paid on them is deductible, but issuing them triggers ASIC and CNL disclosure rules (covered in section 4 above).

The accounting framework is more involved than a single-entity small business; that’s a real cost the feasibility model has to carry, not a footnote.

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7. Why publishing fixed surplus splits and 25-year visions is reckless at Stage 1

Earlier drafts of this proposal published exact surplus-distribution percentages — 40% reinvest, 30% community grants, 20% rebates — alongside a 25-year vision of scholarships, climate-resilience projects, and broad civic philanthropy. Both were removed. Here’s why.

There is no surplus to allocate at Stage 1. Hospitality margins are inherently tight. Australian small-business hospitality has high attrition in years 1–3; ATO small-business benchmarks for the pub/tavern industry consistently show low net margins after rent, COGS, and labour. Promising specific percentages of imagined surplus to specific causes before a single year of trading is unsupported.

The Co-operatives National Law constrains the conversation anyway. - A non-distributing co-op cannot pay returns or rebates to members. The 30%-grants line might be lawful (depending on rules) but the 20%-rebates line wouldn’t be. - A distributing co-op can pay rebates and limited returns under Division 9 of the Income Tax Assessment Act 1936, but only if the structural choice has been made and the rules approved by the Registrar. None of that has happened. - Surplus-distribution policy is a board-and-member decision under the rules, taken annually after the audited result is in. It is not a marketing line.

The 25-year vision creates expectation that becomes operationally inflexible. Once a community has read “scholarships and climate projects in 25 years”, the project becomes harder to course-correct in year 4 if the trading reality demands a different priority order. Civic ambition is good; pre-committing it in print before the business has proven it can survive year 3 is a way to disappoint people later.

Honest replacement language at Stage 1:

• We are testing whether the community wants to explore this idea seriously.
• If the project ever generates a surplus, what to do with it is a board-and-member decision under the rules — taken once a year, after the audited result is in. We do not pre-commit percentages.
• Long-term ambition is real. The pub becoming a place that supports the wider Cygnet community over time is the point. But “supports” is not “40% to grants” — that’s a calculation, not a commitment.

That keeps the civic intent without crystallising a financial promise the project cannot underwrite.

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8. Why this matters even in Stage 1

It would be easy to argue that Stage 1 is “just gauging interest” and therefore exempt from financial-product law. That argument is wrong, for two reasons:

1. ASIC’s enforcement bar isn’t “are you actually selling yet?”, it’s “are you marketing a financial product to the public?” A public website or newsletter that names a return rate and a payback timeline is marketing the product, even if no money has changed hands.
2. The community deserves a proposal that doesn’t quietly mislead them. Telling people “we’ll pay you 5%” and only later — quietly, in fine print — disclosing that no such promise can lawfully be made would be exactly the kind of failure of trust that this project’s posture is designed to avoid.

So the Bottom Pub rework removes all return language. Not as performative humility, and not because we don’t know — but because the law on this is unambiguous, and saying anything else would put both the project and the community at risk.