Companies, unit trusts, superannuation funds, savings and loan societies and bank accounts all take money and promise something back, which is why they are often confused. The law treats them very differently, and the differences decide what you own, who answers to you and where you complain.
Unit trust versus company
A company registered under the Companies Act 1997 is a legal person in its own right. It owns its assets, signs its own contracts and can sue and be sued. Shareholders own shares, which give them votes and dividends but no direct interest in the company’s property. Directors manage the company and owe their duties to it.
A unit trust is not a legal person. The Capital Market Act 2015 requires the trustee, which must itself be a corporation holding a capital market licence (section 189(2)), to hold the scheme property “in trust for the unit holders or members” (section 191(2)). The unit holders are beneficiaries with a proportionate beneficial interest in the whole fund. Contracts are made by the trustee, and when the trustee changes, its rights and liabilities pass to the new trustee (section 206).
The trustee shall “act in the best interests of the members and, if there is a conflict between the members’ interests and its own interests, give priority to the members’ interests”.
Both shares and units are “securities” under section 2, so a public offer of either needs a registered prospectus (section 128), and both can be quoted on PNGX. But a company can be any business; a registered scheme can only do what its deed and the Act allow (section 184). See the company law series.
Unit trust versus superannuation fund
A superannuation fund is also a trust, but it exists for one purpose: retirement savings. Under the Superannuation (General Provisions) Act 2000 employers must contribute for their employees, the fund, its trustee, its investment manager and its fund administrator must each be licensed, and the Bank of Papua New Guinea supervises them. Members generally cannot withdraw until retirement or another permitted event.
A unit trust is voluntary. Anyone may buy units, and, if the scheme is liquid, may redeem them under the deed at any time (section 257). The regulator is the Securities Commission, not the central bank. The two vehicles meet in practice because super funds are large investors in unit trusts: the National Superannuation Fund held about 21 per cent of the Pacific Balance Fund in 2006, which is why it led the unit holders’ action in National Superannuation Fund Ltd v Pacific Equities and Investments Ltd [2006] PGSC 12; SC845.
Unit trust versus savings and loan society
A savings and loan society under the Savings and Loan Societies Act 2015 is a member-owned co-operative. Members save with the society and borrow from it; the society lends to its own members rather than investing in the market. Supervision sits with the Bank of Papua New Guinea. A unit trust does not lend to its members; it invests the pool in securities and property, and the return is whatever the fund earns.
Unit trust versus bank deposit
A deposit is a debt. The bank owes the depositor the amount deposited plus agreed interest, whatever happens to the bank’s investments, and banks are prudentially supervised by the Bank of Papua New Guinea under the Banks and Financial Institutions Act 2000. The Capital Market Act expressly excludes bank deposits and passbooks from its definition of “debenture” and excludes debt securities issued by banks from “debt security” (section 2), so a deposit is not a capital market product at all. A unit is the opposite: nobody owes the unit holder a fixed sum. The unit’s value rises and falls with the scheme property, and only a guaranteed or capital protected fund (section 210(2)) offers any floor.
Side by side
| Vehicle | What you hold | Governing Act | Regulator |
|---|---|---|---|
| Unit trust | Beneficial interest in pooled scheme property | Capital Market Act 2015, Part V | Securities Commission |
| Company | Shares in a separate legal person | Companies Act 1997 | Registrar of Companies; Securities Commission if securities offered publicly or listed |
| Superannuation fund | Member account in a retirement trust | Superannuation (General Provisions) Act 2000 | Bank of Papua New Guinea |
| Savings and loan society | Membership and savings in a lending co-operative | Savings and Loan Societies Act 2015 | Bank of Papua New Guinea |
| Bank deposit | A debt owed by the bank | Banks and Financial Institutions Act 2000 | Bank of Papua New Guinea |
What protects the investor in each
For a unit trust the protections are the trustee’s licence and statutory duties (sections 189–192), the segregated trust account that creditors of the trustee cannot touch (section 193(5)), the registered deed enforceable by members (section 212), the right to call meetings and remove the trustee (sections 201, 214), a six-year right to sue the trustee for loss caused by its contraventions (section 262), the Securities Commission’s surveillance and licence powers (sections 48, 196), and the Capital Market Compensation Fund under Part IX. A shareholder relies instead on directors’ duties and the remedies in the Companies Act; a super fund member and a depositor rely on the Bank of Papua New Guinea’s prudential supervision.
A promoter who offers a product that is “like a bank account but pays more” is usually describing a managed investment scheme. If the promoter is not a licensed trustee and the scheme is not registered, section 184 is being broken and the K10 million penalty applies. See how to spot an unlicensed scheme.
Sources
- Capital Market Act 2015 — ss 2(1) (“debenture”, “debt security”, “securities”), 48, 128, 184, 189–193, 196, 201, 206, 210(2), 212, 214, 257, 262; Part IX
- Companies Act 1997; Superannuation (General Provisions) Act 2000; Savings and Loan Societies Act 2015; Banks and Financial Institutions Act 2000
- National Superannuation Fund Ltd v Pacific Equities and Investments Ltd [2006] PGSC 12; SC845
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.