Most schemes end the way the trust deed, the members or the trustee decide. Where those mechanisms fail, because the trustee is insolvent, the members are deadlocked or the scheme has been mismanaged, the Capital Market Act 2015 gives the National Court (the “Court” in section 2(1)) a set of winding-up powers.
Section 267: the two grounds
The Court may, by order, direct the trustee of a registered scheme to wind up the scheme if (a) it “thinks it is just and equitable to make the order”; or (b) within three months before the application, execution or other process issued on a judgment in favour of a creditor “against the trustee in its capacity as the scheme’s trustee” has been returned unsatisfied.
The just and equitable ground is borrowed from company law and is deliberately open. Situations in which a court might find it satisfied include a scheme whose purpose has disappeared, a trustee and members who can no longer work together, a loss of confidence caused by proven mismanagement or self-dealing, or a scheme left without a trustee after the Commission revokes the trustee’s licence and no replacement can be found. The unsatisfied execution ground is a test of solvency. A creditor who has obtained judgment against the trustee as trustee, issued execution and received nothing has shown that the scheme cannot pay its debts. The judgment may come from a court in Papua New Guinea “or elsewhere”.
Who may apply
| Ground | Applicants | Section |
|---|---|---|
| Just and equitable | The trustee, a director of the trustee, a member of the scheme, or the Commission | 267(2) |
| Unsatisfied execution | A creditor | 267(3) |
A single unit holder can apply. There is no minimum holding, in contrast with the 75 percent by value needed for a special resolution under section 265. A Port Moresby retiree with a small holding in a scheme that has stopped reporting may therefore go to Court, although the Commission is usually the better-placed applicant and should be told first. See how to complain.
Section 269: appointing a person and giving directions
An order to wind up does not by itself remove the trustee from the process; section 268(1)(c) still requires the trustee to carry out the winding up under the deed. Section 269 fills the gap where that is not enough. The Court may appoint a person “to take responsibility for ensuring a registered scheme is wound up” in accordance with the deed and the Court’s orders, if it thinks that necessary, including because the trustee “has ceased to exist or is not properly discharging its obligations” (section 269(1)). It may also give directions about how the scheme is to be wound up where the deed’s provisions “are inadequate or impracticable” (section 269(2)). The same four applicants as in section 267(2) may ask for these orders. The Act does not call the appointee a liquidator, but the role is similar, and the person inherits the duty under section 270 to hand unclaimed money to the Commission.
Section 268(1) obliges the trustee to wind up in accordance with the deed “and any orders under Section 169(2)”. Section 169 deals with prospectuses; the reference is a misprint for section 269(2), which section 268(2) cites correctly.
Unregistered schemes
Section 188 applies where a person operates a scheme in contravention of section 184(1), that is, without a licensed trustee or without registration. The Commission, the scheme’s trustee or a member may apply to have the scheme wound up, and the Court “may make any orders it considers appropriate”. Section 188(3) adds that every promoter, director, chief executive, chief financial officer and company secretary is guilty of an offence carrying the section 184(2) penalty of a fine of up to K10 million or ten years’ imprisonment, or both. See operating without registration.
Protective orders short of winding up
Winding up is the last resort. Section 256(1) lets the Court make “any order which it considers appropriate to protect the interests of existing or prospective members of the scheme”, and section 256(2) lets a trustee seek directions on the performance of its functions. On the Commission’s application under section 449 the Court may appoint a receiver of a licence holder’s property, including property it holds on trust, or vest property in the Commission or a Court-appointed trustee. These tools can preserve a scheme while a new trustee is found under sections 202 to 204, rather than ending it.
Winding up the trustee company
Winding up the scheme is different from liquidating the trustee. Section 450 provides that, notwithstanding the Companies Act 1997, a company covered by section 449(1) may be wound up on the petition of the Commission, a stock exchange, a derivatives exchange or a clearing house where it has held a licence that has been revoked or surrendered, or has contravened a securities law, whether or not charged or convicted. The liquidation then proceeds under the Companies Act. Because scheme assets in a trust account are not available to pay the trustee’s own debts (section 193(5)), the trustee’s liquidation does not swallow the fund; the scheme needs a new trustee or a section 267 order of its own.
A company in liquidation has a statutory liquidator with powers and duties fixed by the Companies Act, and its creditors have a formal voice. A unit trust has no statutory liquidator: the trustee itself conducts the winding up under the deed unless the Court appoints someone under section 269, and the procedure comes from the deed and the Court’s directions. Unit holders should check what their deed actually says before relying on it.
Sources
- Capital Market Act 2015 — ss 2(1) (“Court”), 184, 188, 193(5), 202–204, 256, 265, 267–270, 449, 450
- Companies Act 1997 — liquidation provisions
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.