2.4 The ASIC Instrument

ASIC’s approach to regulating small-scale schemes is explained in RG 91 [2016].

[RG 91.26] “A horse racing syndicate is an arrangement under which a group of people agree to contribute money in return for a share of prize money won by a racehorse. The syndicate members may contribute money to obtain a percentage ownership stake in the racehorse, or the owner of the racehorse may lease the racehorse to the operator of the syndicate. Sometimes, other benefits are available to members of a syndicate, such as an entitlement to attend social events.”

[RG 91.27] “Generally, a horse racing syndicate will be a managed investment scheme under s9 of the Corporations Act. ASIC Corporations (Horse Schemes) Instrument 2016/790 provides conditional relief to the promoter and manager of a small-scale horse racing syndicate from the requirement to register the syndicate under the managed investment provisions in Ch 5C of the Corporations Act.”

The ASIC Instrument is a grant by ASIC to the thoroughbred industry of conditional relief from specific provisions of the Act considered onerous if applied to small-scale schemes. The relief is in the form of industry co-regulation, with ASIC exercising its administrative power and appointing the Principal Racing Authorities of the various states and territories as lead regulators and delegating to them the responsibility for administering the terms of the ASIC Instrument within their respective jurisdictions.

The scope of the relief is limited to the terms of the ASIC Instrument.

  1. It applies only to small-scale schemes in which “there are no more than 50 participants” and “the total amount sought from the issue of scheme interests to participants does not exceed $500,000”, and operates to relieve the promoter and operator of such schemes from the obligation to comply with the provisions of section 601ED relating to scheme registration, which would otherwise require that they be established and operated as ASIC registered managed investment schemes.
  2. Only promoters and schemes that comply with the terms of the ASIC Instrument are eligible to be administered by the lead regulators. All other promoters and schemes must comply with the Act and remain subject to the direct regulatory power and authority ASIC.

The relief does not extend to the numerous other provisions of the Act relating to managed investment schemes, including Chapter 7 [Financial services and markets], that are also relevant to the promotion of schemes, and with which promoters must comply.

Promoters are not relieved from having to comply with those provisions of Chapter 7 relating to licensing, conduct, and transfer of title, etc.

The terms of the relief require that:

  1. the “promoter”:
    1. hold an appropriate AFS licence [or be an authorised representative of a licensee]; and
    2. be approved and on the register of approved promoters [or approved authorised representatives] of a lead regulator; and
  2. the “offer of shares” be the subject of a disclosure statement and scheme agreement approved by a lead regulator prior to the offer being made.

The ASIC Instrument states in Part 2 – Exemptions:

  1. Horse racing syndicates


    Exemption

    1. A person that is a promoter or a manager of a horse racing syndicate does not have to comply with subsection 601ED(5) of the Act in relation to the operation of the syndicate.

      Where exemption applies

    2. The exemption in subsection (1) applies in relation to a horse racing syndicate where all of the following are satisfied:
      1. the promoter of the syndicate:
        1. holds an Australian financial services licence authorizing the promoter to provide financial services in relation to the syndicate; and
        2. is registered by a lead regulator as the promoter of the syndicate;
      2. there are no more than 50 participants in the syndicate;
      3. the total amount raised from the issue of interests in the syndicate does not exceed $500,000;
      4. each Product Disclosure Statement given in relation to interests in the syndicate:
        1. contains the information and statements required by subsection (3); and
        2. has been approved by the lead regulator;

          Note: Because a reference to a Product Disclosure Statement is taken to:

          1. include the information and statements contained in any Supplementary Product Disclosure Statement (section 1014D of the Corporations Act); and
          2. be a reference to any Replacement Product Disclosure Statement for the syndicate must meet the requirements of paragraph (d).
      5. if:
        1. applications for the minimum number of interests in the syndicate are not received; or
        2. the minimum amount for the syndicate has not been raised;

          within 6 months after the date on which the Product Disclosure Statement in respect of the syndicate is approved by the lead regulator all money received from any person who applied to participate in the syndicate, together with interest (if any) which accrued in respect of that money, is repaid within 10 business days after the end of that 6 month period;

           

      6. from 45 days after:
        1. applications for the minimum number of interests in the syndicate are received; or
        2. the minimum amount for the syndicate has been raised;

          the syndicate is registered with the lead regulator;

      7. the syndicate agreement for the horse racing syndicate includes the terms referred to in subsection (4), unless these terms are excluded, modified or varied with the written agreement of all participants in the syndicate.”


        Product Disclosure Statement requirements

    3. For the purposes of subparagraph (2)(d)(i), the information and statements required in the Product Disclosure Statement are all of the following
      1. the information required by Subdivision C of Division 2 of Part 7.9 of the Act;
      2. the name of the horse or horses to which the syndicate relates;
      3. the name of the promoter of the syndicate;
      4. the name of the manager of the syndicate;
      5. an undertaking by the promoter that the promoter will, within 45 days after:
        1. applications for the minimum number of interests in the syndicate are received; or
        2. the minimum amount for the syndicate has been raised;

          register the syndicate with the lead regulator;

      6. a statement that the manager will be required to manage the syndicate in accordance with the syndicate agreement and any rules, regulations or guidelines made by the lead regulator in relation to such manager or management;
      7. details of fees and costs in relation to the syndicate

        Note: Fees and costs in relation to the syndicate would include fees paid by the promoter or manager to trainers or suppliers and costs related to the promoters’ business such as administration and legal costs.

      8. details of any actual or perceived conflict of interest of the promoter or manager in relation to the syndicate;
      9. #;
      10. for each horse to which the syndicate relates, a statement as to whether the promoter was entitled to a free service to its sire;
      11. for each horse to which the syndicate relates, the purchase price and, where applicable, the passed-in price of the horse;
      12. for each horse to which the syndicate relates:
        1. if the participants in the syndicate are to have unencumbered title to the whole of the horse:
          1. a copy of the letter (vendor release statement) from the vendor or auction house confirming that the horse has been devolved to the syndicate or participants in the syndicate with unencumbered title, or confirmation by the promoter that the vendor release statement will be provided to the lead regulator before or on registration of the syndicate with the lead regulator; and
          2. a statutory declaration made by the promoter that:
            1. the promoter has a legally enforceable right to possession of the horse or that the promoter will, before or on registration of the horse racing syndicate with the lead regulator, have a legally enforceable right to possession of the horse; and
            2. the promoter will, before or on registration of the syndicate with the lead regulator, ensure that the participants in the syndicate will have unencumbered title to the horse; and
          3. confirmation that any personal property security interest registered against the title to the horse has been released or will be released and that the promoter will, before or on registration of the syndicate with the lead regulator, confirm to the lead regulator that the personal property security interest has been released; or
        2. if the participants in the syndicate lease the whole of the horse under a finance lease agreement in a standard form:
          1. a copy of the standard form of finance lease agreement; and
          2. a statutory declaration made by the promoter that the promoter will, before or on registration of the syndicate with the lead regulator, ensure that participants in the horse racing syndicate lease the horse under a finance lease agreement in that standard form;
      13. a notice that a participant may elect to have a horse tested for a prohibited substance under the Australian Rules of Racing, with the cost of testing to be borne by all participants (whether or not they elected to have the horse tested).


        The role of the manager

    4. For the purposes of paragraph (2)(g), the terms of the syndicate agreement are:
      1. the manager of the horse racing syndicate must manage the syndicate in accordance with the terms of the syndicate agreement throughout its duration unless that person:
        1. retires after being given written consent by the majority of the participants of the syndicate not associated with the retiring manager;
        2. is removed in accordance with the terms of the agreement; or
        3. otherwise retires or is removed after being given written consent by the lead regulator; and
      2. if the manager of the syndicate retires or is removed in accordance with paragraph (a), a new manager will be appointed and that manager will become subject to the terms of the syndicate agreement.


        Conditions of the exemption

    5. A manager that relies on the exemption in subsection (1) in relation to a horse racing syndicate must:
      1. keep accounting records that correctly record and explain the transactions and financial position of the syndicate and that would enable financial statements to be prepared in respect of the syndicate from time to time; and
      2. in respect of each financial year, prepare financial statements in respect of the syndicate; and
      3. lodge the financial statements in respect of the horse racing syndicate with the lead regulator within 90 days after the end of each financial year; and
      4. if ASIC asks the manager in writing for a copy of the financial statements in respect of the syndicate, give the copy of those statements to ASIC within 14 days; and
      5. keep a separate account with an Australian bank in respect of the syndicate and use that account for the deposit and payment of all money relating to the operation of the syndicate.
    6. A promoter that relies on the exemption in subsection (1) in relation to a horse racing syndicate must comply with the conditions in subsection (7) to (14) in relation to the syndicate.
    7. The promoter must provide the lead regulator with a copy of all of the following in relation to the horse racing syndicate:
      1. the syndicate agreement and any changes to the syndicate agreement – promptly after the syndicate agreement is entered into or the changes are made;
      2. any finance lease agreement and any changes to the finance lease agreement – promptly after the finance lease agreement is entered into or the changes are made;
      3. any other agreement (relevant agreement):
        1. establishing or affecting the syndicate; or
        2. that relates to the syndicate and to which a participant in the syndicate is a party;

          and any changes to a relevant agreement – promptly after the relevant agreement is entered into or the changes have been made;

      4. each Product Disclosure Statement, before it is given to an offeree;
      5. any other information to be provided by the promoter or statement that is reasonably likely to induce people to acquire interests in the syndicate – before it is published.
    8. The promoter must not give an offeree a Product Disclosure Statement unless the promoter has received the approval of the Statement from the lead regulator.
    9. The promoter must not, without the approval of the lead regulator, advertise interests in the horse racing syndicate or publish any statement that is reasonably likely to induce people to acquire interests in the syndicate.
    10. The promoter must provide to the lead regulator any assistance or information reasonably required by the lead regulator in relation to the promoter or the horse racing syndicate.
    11. The promoter must not engage in acts or omissions in relation to the horse racing syndicate unless the promoter reasonably believes those acts or omissions are in compliance with any rules, regulations or guidelines made by the lead regulator that apply to the promoter in relation to the syndicate.
    12. The promoter must provide to ASIC any assistance or information reasonably required by ASIC in relation to the promoter or the horse racing syndicate.
    13. The promoter must, before or on registration of the horse racing syndicate with the lead regulator, ensure that either:
      1. The participants in the horse racing syndicate have unencumbered title to the whole of the horse racing syndicate horses; or
      2. The participants in the horse racing syndicate lease the whole of the horse racing syndicate horses under a finance lease agreement in standard form.
    14. The promoter must comply with section 1017D of the Act as if interests in the horse racing syndicate were a managed investment product”.

manager” is defined as:

  1. “in relation to a horse racing syndicate, means the person:

    1. holding office as manger under the syndicate agreement; or
    2. otherwise holding office as manager of the horse racing syndicate with the approval of the lead regulator; and …”.

 “participant” is defined as:

“a person who holds a beneficial interest in a horse racing syndicate or a private horse breeding scheme whether jointly or otherwise.”

It should be noted here that this definition of “participant” treats persons who hold interests jointly differently to how they are treated under the Act.

Under the Act, the joint holders of an interest in a scheme count as a single member.

The PDS for each Horse racing syndicate must be approved by a lead regulator before the promoter can proceed with the “offer of shares”.