Legal Consultation #1

MF Madeline Fountain Public Seen by 16

This thread is to place, discuss and edit our list of questions for our initial meeting with Moores in the next week. If you have a question please write it here and then RC members can comment or suggest edits to ensure our time with the legal team is efficient.


Madeline Fountain Tue 27 Oct 2020 10:21PM

One of the main reasons the "two entity solution" has been chosen is to protect the assets, particularly the cash (operating profit) of the event by having a separate entity that "holds" it. The cultural org is the holding entity, and its purposes allow for financial support of aligned projects.

1. The event carries the most risk, so the operational entity may find itself in a position of significant liability, like compensation if a volunteer or participant is injured. I am not personally comfortable with the ethics of having a safe harbour from liability in this scenario and wonder how other NFPs manage this.

2. If the Holding entity owns the operational entity as a wholly owned subsidiary, is the concept of safe harbour or protection of the assets voided by that ownership structure?

3. In the case that the operating entity becomes insolvent, would the Holding entity be liable to pay creditors if it owned the Ops entity? If the supply contracts are with the ops entity is there any chance that the holding entity may be tapped to pay?


'King' Richard Martin Thu 5 Nov 2020 9:20AM

I think I know the answer to question 3, though worth asking. The liability to the Holding Entity is only what is stated in the limited liabilty clause in the Child CLG Entity, which is owned (via Non-Distributing Membership) by the parent Holding CLG Entity.

ie somewhere in the Child CLG Entity there will be a clause that states the liability of its members.

In this case there will be one member of the Child CLG Entity, which is the parent Holding CLG Entity.

This liability clause is usually set at a very small peppercorn amount of say $1.


'King' Richard Martin Thu 5 Nov 2020 10:03AM

I think I know the answer to question 2, though worth asking. The assets held by both Enties are completely seperate to each other.

The only link between the 2 Entities is that the parent Holding CLG Entity (The Cultural Org) is the sole member of the child CLG Entity (The Production Org), where the parent Holding CLG Entity (The Cultural Org)'s only liability, as a member, is the amount stated in the limited liability clause of the child CLG Entity (The Production Org).

Keep in mind they are registered as two completely seperate incorporated Entity bodies, and operate, as such, by their two seperate Boards, who are accountable to their members.

In the case of the parent Holding CLG Entity (The Cultural Org) its members are Broad Based group of members it has approved according to its constitution/rules.

In the case of the child CLG Entity (The Production Org) its sole member is the single member according to its constitution/rules of the parent Holding CLG Entity (The Cultural Org).

It is likely, from previous vision discussions, that the Board of the child CLG Entity (The Production Org) could be named the Town Council, where it's member Councillors could be its Directors, appointed by a combination of representatives of stakeholder groups (ie Indigenous rep), or elected poisitions by the broad based group members of the parent Holding CLG Entity (The Cultural Org).

There could also be appointments by the Board of the parent Holding CLG Entity (The Cultural Org), and/or Board members of the parent Holding CLG Entity (The Cultural Org) designated to be on the child CLG Entity (The Production Org)' Town Council.

Members of the Board of the Holding Entity and its child Entitie's Town Council are all registered with ASIC as directors of each respective seperate Entity, responsible for the compliance and conduct of each seperate Entity.


'King' Richard Martin Thu 5 Nov 2020 10:23AM

I think I know the answer to question 1, though worth asking. The example of the injured volunteer would usually be handled by Volunteer and/or Public Liability insurance.

The real question, without entertaining the morality of safe harbour schemes relates more to safe haven approaches for separating risk.

Where it should be asked if the model being entertained of having a single membership Subsidiary of a Holding company is a sound way to seperate asset from risk.

It should also, open up to asking if there are other worthwhile approaches that haven't been considered ie Trusts or using existing company structures as part of a wider risk mitigation scheme.


Madeline Fountain Fri 6 Nov 2020 3:47AM

What if the injured party is a participant who has bought a ticket to the event? This is the really questionable area we are yet to cover...the indemnity issue on Theme Camp sites, when that MOU is in place, still sits very uneasily with me. I would really like some discovery about the thinking behind the MOU and whether it is a requirement of the insurance company to underwrite Burning Seed. If so our members who are from creative collectives deserve to have some clear advice about their liability.

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Madeline Fountain Tue 27 Oct 2020 10:55PM

  1. Which entity should be the ticket vendor?

  2. If the Cultural org sells the tickets and therefore "holds" the cash assets generated by the event, doesn't that void the concept of protecting the assets from the risk of the event?

  3. a. If the Ops entity is the ticket vendor (which makes more sense to me) what is the recommended process to ensure the operating profit is transferred to the Cultural org to use towards its purposes without losing funds to tax liabilities?

  4. Should the two entities remain separate in terms of ownership but have a unit trust for the revenue to be held in (that they share ownership of in an agreed proportion)??


'King' Richard Martin Thu 5 Nov 2020 1:41PM

This is a really tricky area. Keep in mind some of this might, in part, require accounting advice on the best way to move money between entities, as taxation issues come into play here, as well.

There will also be licencing questions between the two entities, for the use of the Burning Seed name and how that is finacially recompensed.

If the Cultural Org is also a registered charity, to benefit from not having to pay Income Tax, then that also comes into play in these considerations.


Madeline Fountain Tue 3 Nov 2020 12:56AM

  1. What it is the best way to enshrine cooperative principles in the constitution when the entity is a CLG and not a co-op?

  2. If there is only 1 member of the operational entity (being the holding entity) how do we set it up to allow the operational crew the power to elect the Facilitation sub-committee?

  3. Is it advisable to have chapters or different types of members of the Cultural Org?


'King' Richard Martin Thu 5 Nov 2020 1:11PM

Question 1 is more a constitution drafting question. I've mentioned before this all relates to the drafting style of the person at Moores who is commissioned to write the rules, that will determine how the task is approached.

It's still worth asking as it will require them to be forthcoming on how they will be approaching the drafting of the document.

The same applies for how the 10 principles will be enshrined, in both constitutions/rules.

Question 2 Is pretty easy to approach and the hard part is for the REC Restructure Committee is to be clear in instructions, when it comes to drafting of what it wants.

It's worth asking though, because it does flesh open discussion about electoral colleges and and how they can be written into this type of document.

Question 3 might be one of those question where they might throw it back on the REC Restructure Committee.

They might say that's for you to work out and come back to us with what you want and we'll draft it how you want it.

It's still worth asking to see how they respond and what insight they may provide.

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