(1) In this Part “collective investment scheme” means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.
(2) The arrangements must be such that the persons who are to participate (“participants”) do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions.
(3)The arrangements must also have either or both of the following characteristics—
(a)the contributions of the participants and the profits or income out of which payments are to be made to them are pooled;
(b)the property is managed as a whole by or on behalf of the operator of the scheme.
(4)If arrangements provide for such pooling as is mentioned in subsection (3)(a) in relation to separate parts of the property, the arrangements are not to be regarded as constituting a single collective investment scheme unless the participants are entitled to exchange rights in one part for rights in another.
(5)The Treasury may by order provide that arrangements do not amount to a collective investment scheme—
(a)in specified circumstances; or
(b)if the arrangements fall within a specified category of arrangement.
Cases considering section 235 (36)
[2016] UKSC 17 · 20 April 2016Limits
The court interpreted the provision as distinguishing direct control of assets from indirect collective investment. Its broad opening description is narrowed by the requirements concerning participant control, pooling and management as a whole (see paras [53]-[63]; [89]-[102]).
Arrangements include legally binding and non-binding shared understandings and their necessary commercial consequences. They are assessed objectively when made. The relevant property is that from whose acquisition, holding, management or disposal the expected returns arise (see paras [53]-[58]; [91]-[93]).
Day-to-day control means the legal or practical ability to decide what happens to the relevant property. Its absence must be a prospective feature of the arrangements, rather than a conclusion drawn from investors' later exercise or non-exercise of control (see paras [58]-[61]; [94]-[95]).
The pooling and whole-property management criteria are alternatives. Each identifies a means by which participants may lose control of property to a collective scheme (see paras [96]-[99]).
The pooling limb was not satisfied because the arrangements envisaged pooling the proceeds of sale but not the participants' contributions, namely their plots. The FCA therefore relied on the alternative management limb (see para [96]).
The provision requires management of the scheme's property, not merely administration of its business project. It is satisfied where investors surrender practical control so that the operator manages the property collectively. The operators' planning and collective-sale functions met that standard on the facts found (see paras [60]-[62]; [97]-[102]).
Cited only.
The Treasury's broad exemption power did not remove the need for section 235 itself to provide intelligible criteria, given the criminal and contractual consequences of breach (see para [88]).
[2024] EWCA Civ 765 · 9 July 2024
The court applied the statutory definition of a collective investment scheme to the property arrangements. Investors participated in profits from property disposal without day-to-day control, their contributions were pooled and the property was managed as a whole (see paras [29]-[32]).
The court applied the requirement that the arrangements enable participants to receive profits or income from the acquisition, holding, management or disposal of property (see paras [29]; [31]).
The court applied the absence of participants’ day-to-day control over management to the schemes (see paras [29]; [31]).
The court applied the alternative characteristics of pooling contributions or profits, and whole management of the property, to conclude that the schemes fell within the definition (see paras [29]; [31]).
The court found that participants’ contributions were pooled under the implemented schemes (see para [31]).
The court found that the properties were managed as a whole by JHM as operator of the schemes (see para [31]).
[2023] EWCA Civ 466 · 28 April 2023
Applies the statutory description of an unregulated collective investment scheme to explain that the Scheme was outside financial-services authorisation and investor compensation protections, making independent professional advice central to the duty analysis. (see paras [34]-[35]; [96]-[102])
16 more judgments, and what each says about section 235, are in the
case-law panel in the full Act.