1.3.1 First Question: Do people contribute money or money’s worth as consideration to acquire rights (“interests”) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not)?

The answer to this question is “Yes”.

1. The nature of the enterprise
   
   

   A horse racing scheme can reasonably be defined as:
   

   “the arrangements made between 2 or more people to own or lease a thoroughbred horse for the purpose of using it for racing ”.

   In the words of Owen J in ASIC v Chase Capital [63] “…The scheme is the entire operation…” [Also see ASIC v Takaran [15] and [16]].
   
2. The nature of the “contributions” by members
   

   When considering where a horse racing scheme fits within the context of the managed investment scheme regime, it is important to distinguish between:
   

   1. schemes that involve the pooling of members’ contributions for use as the property of the scheme (typical of partnership and unit trust-based “investment” schemes); and
   2. schemes that do not involve pooling, but rather the use of members’ contributions in a common enterprise that constitutes the scheme (typical of co-ownership contract-based “enterprise” schemes);
      
      

      as this has significant implications for differentiating the property of the scheme from property owned directly by individual investors and used in the operation of the scheme.

      The members’ contributions to a typical horse racing scheme are:

   1. if a partnership or unit trust-based “investment” arrangement – money or money’s worth paid to or on behalf of the scheme; or
   2. if a co-ownership contract-based “enterprise” arrangement:
      
      
      1. the right to use their respective interests (in the horse) in the operation of the common enterprise that constitutes the scheme; and
      2. money paid to or on behalf of the scheme.

         The structure of the arrangements can be influenced by numerous factors, including taxation considerations. The most common is “co-ownership” [as distinct from “partnership” or “unit trust”], with a clear distinction in the Owners Agreement between the ownership of the horse and the scheme property, considering such arrangements to be more flexible and accommodating of the varying and often changing needs of the individual members.

         “Co-ownership” arrangements are the most commo form of racehorse ownership involving multiple parties, with the ownership interests held proportionately by up to 20 members in the normal course, and up to 50 in the case of schemes that are eligible for the relief afforded by the ASIC Instrument, as “tenants-in-common”, subject to the Owners Agreement or deed.

         

3. The nature of the “rights (interests) to benefits” produced by the scheme
   
   

   The definition of a managed investment scheme recognises that the benefits may be either financial benefits, or benefits consisting of rights or interests in property. It is not a prerequisite for a horse racing scheme to satisfy the definition of a managed investment scheme that the motivation of the individual members to participate in the scheme is to derive a financial benefit. In fact, there is no necessary relationship between the speculative nature of the scheme (and low probability of a financial return) and the arrangements satisfying the definition.

   ASIC states in paragraph 32 of RG91 [2016]:

   “Regulation under the co-regulatory arrangements, subject to appropriate conditions about the content of the agreements, should promote informed and confident investment in the relevant horse racing syndicates, which are small in scale. We have also taken into account that participation in racing often occurs for the pleasure of following horse racing and having a stake in the performance of a racehorse, rather than primarily to produce financial benefits”.

   Each member’s rights to benefits produced by the scheme will include the rights to:

   1. participate as a member of the scheme in racing the horse “a whole” for the benefit of the group [a benefit to which the members are entitled as the holders of rights or interests in property]; and
   2. receive any distributions of income (net prize money) earned, in the same proportions as their individual interests in the scheme [a financial benefit produced by the scheme].
      
      The members will typically be paid their distributions either:
      
   1. by the manager from the scheme’s designated bank account administered by the manager (after the total amount of net prize money is paid into that account by the relevant principal racing authority); or
   2. by the relevant Principal Racing Authority directly to each member’s nominated bank accounts.
      
      

      The method of distribution of net prize money is not significant in determining the nature of the benefit or the scheme.