Does your racehorse partnership fall under the category of a managed investment scheme?
There’s been a lot of grey area in the past about whether a horse falls under a managed investment scheme (MIS) where trainers are offering shares in horses that have been purchased through sales or privately.
To clarify we thought we would outline the key points that deems I horse partnership a managed investment scheme;
Day to Day Control
Co-ownership arrangements will not be a MIS (and therefore are not regulated) if the co-owners themselves retain control over the day-to-day operation of the syndicate.
In other words, co-owners must make, or have the “real” ability to make, the decisions relating to:
(a) the horse’s career, and
(b) how the co-owners organise themselves.
Decisions about the horse’s career
These are decisions that can best be categorised as “racing” and “racing related” activities.
Examples include racing programs, interstate and overseas racing campaigns, gelding of an entire or the matter of retirement from racing.
Decisions that a trainer would ordinarily make in their capacity as a trainer without consulting a horse’s owners are not decisions relating to the racing syndicate’s operations. For example, decisions about the composition of the horse feed or which shoes the horse should wear are decisions you, as a trainer, would make which do not need to be made in consultation with the horse’s owners.
Other examples include decisions you are entitled to make without consulting the owners or a managing owner under clause 2 of Racing Australia’s Standard Training Agreement (or any alternative equivalent training agreement).
Decisions about the organisation of co-owners
Other day to day control decisions concern the legal relations between co-owners. Decisions about who can be a co-owner, how, when and why money is paid and how co-owners formally relate to each other are examples of day to day control decisions concerned with the co-owner’s legal relations.
When do co-owners decide?
Whether co-owners are able to make decisions is not just about what is said in the legal documents (e.g. the training agreement or co-ownership agreement). The co-owners must have actual control in practice, not merely on paper.
Equally, Trainers are experts in their field (racehorse training). Co-owners’ can and should consult with trainers to benefit from trainers’ advice on racing related decisions. This is no different to relying on the advice of a vet or another expert. Relying on a trainer’s expert advice does not mean co-owners are not making decisions or that they lack day to day control.
In short, co-owners are allowed to rely on a trainer’s advice and trainers are able to give advice on racing decisions. What is important is that co-owners are able to make, and are responsible, for the decision to rely on that advice.
This checklist is helpful in deciding whether a co-ownership arrangement you are involved in is a MIS or not.
If you answer YES to any of these questions, the arrangement is likely be an MIS promoted or managed by a trainer (with legal consequences for the trainer):
- Does the trainer in their capacity as a trainer singularly make the decisions about the horse or the horse’s career?
- Does the trainer in their capacity as a trainer make decisions about the ongoing operation of the syndicate – that is, how the co-owners organise themselves? For example, changing the terms of, or parties to, the co-ownership agreement or altering the financial arrangements between the co-owners?
- In practice, do the co-owners delegate all decisions about the horse’s career or the ongoing operation of the syndicate to the trainer or another person, such as a syndicate manager?
- does the trainer in their capacity as a trainer administer all the financial arrangements with the co-owners?
If your co-owners delegate some but not all decisions about the horse’s career or the ongoing operation of the syndicate to the trainer or another person, whether you are involved in a MIS will be a question of fact and degree. As a result, it is not possible to succinctly state a rule covering every scenario. If you are concerned you might be involved in a MIS, you should seek legal advice.