How Does the Securities Commission Approve a Prospectus in Papua New Guinea?

Under the Capital Market Act 2015 no units may be offered to the public until the Securities Commission has registered the prospectus (section 128). This article follows a prospectus from submission to lodgement with the Registrar of Companies.

What the issuer must submit

Section 129(2) provides that no prospectus shall be approved unless it is submitted together with:

• a written application for approval;
• copies of all consents required under section 140(1) from every person named as having made a statement in the prospectus, or on whose statement a statement in the prospectus is based (valuers, auditors, lawyers, the fund manager and so on);
• copies of all material contracts referred to in the prospectus or, for an unwritten contract, a memorandum of its full particulars, verified as the Commission requires;
• all other information or documents the Commission requires.

For a unit trust the issuer is the trustee (section 2), and the material contracts will typically include the trust deed, the fund management agreement and any custody or property management contracts. For the content rules the prospectus must meet, see what a prospectus must contain.

Grounds on which approval must be refused

Two points deserve attention. First, the Act says “shall refuse”: these are not discretionary considerations but mandatory bars. The paragraphs are joined by “and” in the printed text, but they can only sensibly be read as alternative grounds, any one of which requires refusal. Second, paragraph (e) is specific to unit trusts. A trustee is approved and licensed subject to conditions; see who can be the trustee. If the trustee has breached those conditions, for example by failing to hold scheme property separately, the Commission must refuse to register the scheme’s prospectus until the breach is cured. The fitness ground in paragraph (f) reaches any breach of the Companies Act 1997 by the issuer.

Before approval is given

While the application is pending the document is a “registrable prospectus” (section 128(6)). The Commission may publish it for public information (section 128(4)), but the publication must not indicate that the Commission recommends the securities or takes responsibility for the statements in it (section 128(5)). The issuer may not issue it, circulate application forms or accept applications until registration, and may advertise only by a notice consented to by the Commission containing the limited particulars allowed by section 137(4). See the advertising rules.

The Commission may also relieve the issuer from particular content requirements where compliance is unnecessary for the protection of likely investors and would be an unreasonable burden (section 131(3)–(5)).

After approval

Approval triggers three obligations:

• Statements in the prospectus. The issued document must state that it has been approved by the Commission and lodged with the Registrar of Companies, and that approval “shall not be taken to indicate that the Commission recommends the securities or assumes responsibility for the correctness of any statements made or opinions or reports expressed in the prospectus” (section 131(1)(b)).
• Lodgement with the Registrar. Section 130 requires the issuer to lodge a copy of the approved prospectus and the accompanying application form with the Registrar of Companies before the date of issue. Neither the Registrar nor the Commission is taken to have authorised or prepared the prospectus (section 143(1)).
• Deposit for inspection. Within three days after approval, the issuer must deposit copies of every section 140 consent and every material contract or document referred to in the prospectus at its registered office in Papua New Guinea and, for a unit trust, at the registered offices of the issuer and the trustee or at the address stated in the prospectus. They must be kept for the period the Commission specifies and be open to inspection by any person free of charge (section 129(3)).

That inspection right lets a prospective investor, or an adviser acting for a superannuation fund, read the actual fund management agreement or property valuation rather than the summary in the prospectus.

What approval does and does not mean

Approval is not permanent. If the prospectus proves defective, or the issuer breaches the securities laws, the Commission may issue a stop order under section 141, and new developments may oblige the issuer to file a supplementary or replacement prospectus under section 134. False information given to the Commission in the approval process is itself an offence under section 120, carrying a fine of up to K10,000,000 or ten years’ imprisonment, or both.