No.. you don't stop issuing AOCs etc. CASA just have to have the case and the guts to raise the bar to an appropriate standard without buckling to the commercial pressure of those that may not be able to comply. Many existing CPL schools would not be able to do that without a big ongoing donation from their owner/s. This would not discriminate in my view.
It is not the instructors, but the system that permits such junior instructors to operate without appropriate supervision. The instructors are just the victims and until they have been around for a while, they just don't know what they don't know.
Stormywx.. a good post, you sound switched on and appreciate your limitations. Good luck.