A unit trust deed is a private document between a trustee and investors, but in Papua New Guinea it cannot operate until a public regulator has approved it. Division 4 of Part V of the Capital Market Act 2015 puts the Securities Commission in the position of gatekeeper for the deed, separately from its role in registering the scheme itself.
Submission: no effect until registered
“The trustee shall submit the trust deed of a unit trust or a managed investment scheme to the Commission for approval and registration and such deed shall not have effect unless so registered.”
A deed signed by a trustee and a promoter, however carefully drafted, creates no enforceable scheme until the Commission registers it. Units issued under an unregistered deed rest on nothing, and the operator is exposed to the section 184 offence. Section 208(3) requires the application to follow “such procedure or other requirement as may be specified by the Commission”, so obtain the Commission’s current form and checklist before lodging.
The Commission’s three options
On an application section 208(2) allows the Commission to approve the deed; on approval, to register it “with such revisions or subject to such terms and conditions as it thinks fit”; or to refuse to approve it. The Commission can therefore insert or amend clauses rather than send the whole document back, and may attach conditions such as a fee cap or a reporting obligation. A trustee that proceeds on the unrevised text, or ignores a condition, is operating outside the registered deed and in breach of its duty under section 191(1)(i) to make payments only in accordance with the deed and the Act.
When the Commission must refuse
Section 208(4) says the Commission “shall refuse” to approve a deed in three situations.
| Ground | Section |
|---|---|
| The deed does not comply with the Act, or with any other requirement the Commission has specified | s 208(4)(a) |
| The making available, offer or invitation of units to which the deed relates has not been approved by the Commission under section 118(1) | s 208(4)(b) |
| The trustee has not been appointed for the purposes of the deed by the members of the scheme | s 208(4)(c) |
The first ground sends the reader to section 210 and to the Commission’s guidelines. The third reflects section 184(1)(a): the members, not the promoter alone, must have chosen the trustee. The second is harder to apply. Section 118 approvals flow from section 116, which requires approval for listing units on a stock market but, in section 116(4), expressly excludes units in a unit trust from the authorisation needed for unlisted securities. Read literally, ground (b) would block every unlisted scheme; the sensible reading is that it applies where the offer is one that section 116 requires to be approved, chiefly a listed scheme. The three grounds are also joined by “and”, which taken literally would require all three before refusal is mandatory; the evident intention is that any one suffices, with the Commission retaining a discretion under section 208(2)(c) in any event. Section 208(5) then provides that, subject to those grounds, the Commission “shall register a deed together with an application for its registration”, so a compliant deed cannot be held up indefinitely.
The “and” in section 208(4) and the cross-reference to section 118(1) are drafting defects in the Act as printed. Trustees should treat each ground as independent and, for an unlisted scheme, confirm with the Commission that no section 116 approval is required before relying on that view.
Lodging the deed with the Registrar
Section 209 requires the trustee to lodge the approved and registered deed “with the Registrar of Companies within seven days”. The Registrar administers the Companies Act 1997, and the lodgement gives investors and creditors a public file where the deed can be inspected. The same seven-day rule applies to a supplementary deed, which once registered is deemed part of the principal deed under section 211(7). Failure to lodge is an offence by virtue of the general penalty in section 461: a fine of up to K10 million or ten years’ imprisonment, or both.
The link to the prospectus
Deed registration is a condition of raising money, not a licence to do so. Before units are offered, section 128 requires a registered prospectus, and section 129 lists the grounds on which the Commission must refuse one. Section 129(1)(e) is specific to schemes: the Commission shall refuse a prospectus for a unit trust or managed investment scheme where “there has been a failure to comply with any term or condition in relation to an approval of a trustee”. Conditions attached to the trustee’s licence or to the deed therefore follow the scheme into the offer stage. Section 129(3) further requires every material contract, including the deed, to be kept at the registered offices of the issuer and the trustee for free inspection. See prospectus approval.
Challenging a refusal
A refusal, or an approval on terms the trustee considers unreasonable, is a decision of the Commission. Under section 111 of the Securities Commission Act 2015, as replaced by the Securities Commission (Amendment) Act 2023, the trustee may seek review by the Board within 30 days of being notified, and under section 114 may then appeal to the National Court on a question of law. In Oil Search Ltd v Tongayu [2021] PGNC 22; N8785 the Court accepted that a party seeking to confirm the validity of approvals the Commission had already granted could proceed by originating summons rather than appeal. See challenging a decision.
Sources
- Capital Market Act 2015 — ss 116, 118, 128, 129(1)(e), 129(3), 184, 191(1)(i), 208, 209, 210, 211(7), 461
- Securities Commission Act 2015 — ss 111, 114 (as amended 2023)
- Companies Act 1997
- 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.