Rules written for a public fund with thirty thousand unit holders can be an awkward fit for a landowner trust with sixty members or a fund offered only to superannuation funds. The Capital Market Act 2015 therefore gives the Securities Commission several dispensing powers, each with a shape applicants and investors should understand.
Exemption and modification orders under section 274
“The Commission may — (a) exempt a person from a provision of this part; or (b) declare that this part applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration.”
The power is confined to Part V, the unit trust Part; it cannot waive the prospectus rules in Part IV or the licensing rules in Part III. Within Part V, section 274(2) makes it flexible: an order may cover all or specified provisions, apply to all persons, specified persons or a class, and relate to all or specified securities. The Commission could, for example, relieve a small scheme from parts of the meetings code in Division 5, or modify the withdrawal timetable for a property trust whose assets take months to sell.
Conditions, publication and enforcement
Section 274(3) allows an exemption to be unconditional or subject to conditions, and section 274(4) requires the person concerned to comply with them. Enforcement is by the Court: under section 274(5) “the Court may order the person to comply with the condition in a specified way and only the Commission shall apply to the Court for the order”. A unit holder cannot sue on a condition, but can report a breach to the Commission. Section 274(6) requires every exemption or declaration to be in writing and gazetted, so an exemption that cannot be found in the National Gazette should be treated with suspicion. A breach of a condition for which no penalty is stated falls under the general penalty in section 461: a fine of up to K10 million or ten years’ imprisonment, or both.
Other exemption powers
| Power | Scope | Formalities |
|---|---|---|
| Securities Commission Act s 39 | Exempt any person or class from any provision of the SC Act, the Capital Market Act or the Central Depositories Act, on terms and conditions | Notice in writing; s 38(3) does not require exemptions to be gazetted |
| Capital Market Act s 131(3)–(6) | Relieve an issuer from, or vary, the form and content rules for a prospectus; compliance under the order is deemed full compliance | Only where compliance is unnecessary to protect persons who understand the risks and would unreasonably burden the issuer (s 131(5)); breach of a condition is an offence (s 131(8)) |
| Capital Market Act ss 125(1)(b), 126(1)(b) | Prescribe additional excluded offers, invitations and issues | Order published in the National Gazette |
| Capital Market Act s 116(6), Schedule 5 | Proposals that need no approval, plus others the Commission prescribes | Prescription by the Commission |
| Capital Market Act s 275 | Regulations may modify the operation of Part V for a scheme or class of schemes | Regulation by the Head of State on advice |
| Capital Market Act s 467(2)(f) | Regulations may exempt a person or class from any provision of the Act, on conditions | Regulation by the Head of State on advice |
Section 39 of the Securities Commission Act 2015 is strikingly broad: read literally it lets the Commission switch off any provision of the three securities Acts for any person by letter, and neither Act says how it sits with the narrower, Gazette-dependent section 274. The safer course is to seek a gazetted section 274 order, keep the written instrument on file and disclose it in the prospectus. See excluded offers and the Commission’s powers.
Exemptions in dispute: Oil Search v Tongayu
The one reported case about exemptions under the 2015 Act concerned not a unit trust but a capital raising. In 2020 Oil Search Ltd set out to raise up to AUD 1.6 billion through an offer to institutional investors in Australia and New Zealand and an offer to its Papua New Guinean shareholders. It needed approval under section 116 for the offshore offer, a prospectus approved under section 129 for the local offer, and exemptions under section 138, which otherwise treats a document offering newly issued shares for on-sale as a prospectus. Letters of 31 March and 16 April 2020 granted “Exemption 001-2020” and “Exemption 002-2020”. The difficulty was that two men each claimed to be Chairman of the Commission. One had signed the approvals; the other, claiming to be the lawful Acting Chairman, ordered PNGX to suspend trading in Oil Search shares. In Oil Search Ltd v Tongayu [2021] PGNC 22; N8785 Anis J rejected the argument that the company should have appealed under section 21(5) rather than seek declarations by originating summons: it was not aggrieved by a Commission decision but sought confirmation of decisions already made. The case shows that an exemption is only as good as the authority of the person who grants it. The Securities Commission (Amendment) Act 2023 has since replaced the single Chairman model with a Board and a Chief Executive Officer. See the case explained and how the Commission is governed.
An exemption relieves a person from specified provisions. It does not license fraud, false statements to the Commission (section 120) or market misconduct, and it does not displace the trustee’s duties of honesty and loyalty. Investors offered units in a scheme said to be “exempt” should ask to see the gazetted order and its conditions.
Sources
- Capital Market Act 2015 — ss 21(5), 116(6), 120, 125(1)(b), 126(1)(b), 129, 131(3)–(8), 138, 191, 274, 275, 461, 467, Schedule 5
- Securities Commission Act 2015 — ss 38(3), 39; Securities Commission (Amendment) Act 2023
- Oil Search Ltd v Tongayu [2021] PGNC 22; N8785
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.