It would be interesting to hear some alternatives for an AOC for flying schools. For example, what checks would be in place to prevent any instructor setting up "You Beaut Flying School" without any kind of control.
As for the mountains of paperwork, they are there more to protect us from lawyers and insurance companies rather than CASA.
Just as relevant however big or small your aeroplane.
I heard of one ultralight club who apparently have recently been sued for a couple of mill(?) when a doddery pilot, allegedly not medically fit to drive a car, crashed his ultralight, killed himself and paralysed his passenger. Yes this could happen anywhere, the lawyers will find somebody who didn't exercise duty of care somewhere; at least with an AOC it's a bit easier to prove that you've done all you can to ensure safety.