Syndication or co-ownership of sporthorses is an ever increasing occurrence. Splitting the ownership of a horse in this way can be an effective arrangement for raising funds to assist riders wanting to compete at a high level or perhaps importing a high value stallion. Syndication or co-ownership can be a fun and rewarding structure for all parties involved. However, it is essential that ownership structures of this nature are created in accordance with the appropriate legal parameters. It is important to note that syndication and co-ownership structures fall within a very complex legal framework that is largely set out in the Financial Markets Conduct Act 2013 (FMCA). The FMCA’s purpose is to promote and facilitate the development of fair, efficient and transparent financial markets.
The consequence is that the FMCA creates a variety of compliance requirements and restrictions which, unbeknown to most, will apply to the syndication and co-ownership of horses. Compliance with the FMCA is regulated by the Financial Markets Authority (FMA), which has the power to initiate or bring civil or criminal legal proceedings against a person or entity who does not comply.
FMCA compliance is an issue for sporthorse owners as the disclosure documentation necessary to meet the requirements under the FMCA is not only immense but also technical. This usually means that lawyers and other consultants will need to be engaged to create the disclosure documentation. Due to the legal costs alone, the formation of a complying syndicate or (co-ownership) is out of reach for most. Still, many New Zealand websites and social media pages promote the opportunity to purchase or lease a share in a syndicated or co-owned sporthorse. Whether people are unaware of the law that regulates these offers or they choose to ignore it, the risk for investigation from the FMA is a very real one.
Sporthorse owners often look to the racing industry’s ability to syndicate and surmise that they too can go-ahead and create their own syndicates or co-ownerships. Although this seems to be a logical approach, sporthorses are treated very differently from racehorses. This is because the racing industry has a specific exemption to FMCA compliance and regulation requirements, which is unavailable to sporthorse syndication and co-ownership. Sporthorse owners also often refer to overseas jurisdictions where syndications and co-ownerships are the norm. Unfortunately their rules do not apply here.
For those who approach us to assist in compliance with FMCA we are often asked “can I somehow get around the requirements?”. The starting point for the this question is no; In our experience, and in most instances, the FMCA will apply. You cannot “get around” the FMCA requirements. However, schedule one of the FMCA sets out a series of statutory exclusions where lighter compliance paths are appropriate. How you intend to sell the shares or manage the horse will likely determine the extent of compliance required under the FMCA. For example, if you wished to syndicate a horse to relatives or close business associates as defined in the FMCA, no disclosure would be required. This would significantly reduce the costs associated with the formation of the syndicate or co-ownership. However, most people are looking beyond their immediate networks for investment, which means advertising in some shape or form. The approach usually means that no exclusions will apply.
The desire and need for syndication and co-ownership structures in New Zealand is increasing. However, due to the high costs for individuals to complete the required disclosure, the industry as a whole will need to look into how compliance can be achieved in a more cost effective way. In recent discussions with FMA representatives this matter was raised and a potential solution was identified. However, sporthorse governing bodies (i.e. ESNZ) and breed societies will need to come together and join resources to formally approach the FMA with the proposal.
Until such time as a joint industry solution can be formed, if you are considering syndication or co-ownership of a sporthorse, speaking to a lawyer that is proficient in FMCA matters should be your first step.
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Alice Nunn is a Senior Solicitor in the Equine Team at Norris Ward McKinnon. You can contact Alice at [email protected].
