The trustee holds the members’ money, but the members are not powerless. The Capital Market Act 2015 gives them the ultimate sanction of removal, and Papua New Guinea’s courts have already confirmed that decisions of this kind belong to the unit holders.
The power in section 201
“(1) Where members of a registered scheme want to remove the trustee, they may take action under Division 5 for the calling of a members’ meeting to consider and vote on a resolution that the current trustee should be removed and a resolution choosing a new trustee. (2) Where the members vote to remove the trustee and, at the same meeting, choose a new trustee that consents, in writing, to becoming the scheme’s trustee (a) as soon as practicable and in any event within two business days after the resolution is passed, the current trustee shall lodge a notice with the Commission asking it to alter the record of the scheme’s registration to name the trustee for the scheme; and (b) if the current trustee does not lodge the notice … the new trustee may lodge that notice; and (c) the Commission shall comply with the notice when it is lodged.”
Two resolutions are needed: one to remove, one to choose. The replacement must be a corporation holding a capital market licence that authorises it to operate the scheme (sections 189 and 199), and its written consent must exist before the notice is lodged (section 201(3)). The outgoing trustee cannot block the change by sitting on the notice, because the new trustee may lodge it, and the Commission “shall comply”. Until the record changes, however, the old trustee remains trustee (section 198). See how the trustee is changed.
Getting the meeting called
Division 5 supplies the machinery. Under section 214 the trustee must call a meeting on the written request of members holding at least 10 percent of the votes or of at least 100 members, within 21 days of the request, for a date no later than two months after it. The trustee circulates the resolution and bears the cost (section 214(12)). If the trustee does not call the meeting within 21 days, members holding more than half the votes of those who requisitioned may call it themselves (section 215); the trustee must then pay their reasonable expenses itself, and if it uses scheme assets it must repay three times the amount, with directors and the chief executive personally liable if it does not (section 215(4)–(6)). Members with 10 percent may alternatively call a meeting at their own expense (section 216), and the Court may order one (section 217). See requiring the trustee to call a meeting.
Sections 214 to 216 speak of meetings to vote on a “proposed special resolution”, which section 2 defines for unit holders as 75 percent by value of the units voted. Section 201 itself says only “a resolution”. The Act does not reconcile the two. Members proposing removal should frame it as a special resolution and check what the deed requires; a trustee facing removal should expect any shortfall below 75 percent to be contested.
Each unit carries one vote (section 239), but the trustee and its associates cannot vote on a resolution in which they are interested unless the scheme is listed (section 241). See the trustee’s own units.
The winding-up trap
The trustee must ensure the scheme is wound up where “the members pass a resolution removing the trustee but do not, at the same meeting, pass a resolution choosing a new trustee that consents to becoming the scheme’s trustee”. Removal without a replacement ends the fund. Members who want the scheme to continue must line up a licensed, consenting successor before the meeting and put both resolutions on the same agenda.
Where the trustee retires voluntarily and no successor is chosen, the Commission instead appoints an interim trustee (section 200(3)). The harsher consequence is reserved for removal. See winding up and interim trustees.
The 2006 Pacific Balance Fund removal
The one Papua New Guinean precedent concerns removal of a manager under the old two-party structure, but its reasoning applies to trustees today. In 2006 Nasfund, holding 21 percent of the units in the Pacific Balance Fund, alleged serious breaches of the deed by the manager, Pacific Equities and Investment Ltd. The deed obliged the trustee to call a meeting of the more than 30,000 unit holders. The manager obtained a National Court injunction stopping the meeting. In National Superannuation Fund Ltd v Pacific Equities and Investments Ltd [2006] PGSC 12; SC845 Lay J stayed the injunction so far as it prevented the meeting, holding it arguable that the trial judge was wrong to treat the manager’s future as a matter for the court “when the Trust Deed quite clearly gave that right and responsibility to the Unit Holders”, that courts should be reluctant to interfere with the trustee’s duties and unit holders’ rights under the deed, and that “transparency and accountability in the application of funds invested by the public” outweighed the interests of the corporations administering the trust. The meeting proceeded on 14 July 2006 and the unit holders voted to remove the manager. In Pacific Equities and Investment Ltd v Melanesian Trustee Services Ltd [2007] PGNC 24; N3122 Hartshorn J refused the manager an injunction against that resolution, finding no serious question to be tried where the manager had five weeks’ actual notice and had its lawyer address the meeting. See the 2006 case and the 2007 case.
Sources
- Capital Market Act 2015 — ss 2 (“special resolution”), 189, 198–201, 214–217, 239, 241, 268(1)(d)
- National Superannuation Fund Ltd v Pacific Equities and Investments Ltd [2006] PGSC 12; SC845
- Pacific Equities and Investment Ltd v Melanesian Trustee Services Ltd [2007] PGNC 24; N3122
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.