What Are the Rules on Advertising an Offer of Units in Papua New Guinea?

The prospectus is meant to be the only sales document for a public offer of units. If promoters could run glossy advertisements alongside it, investors would never read the prospectus. Section 137 of the Capital Market Act 2015 therefore controls everything published around an offer.

The prohibition

“Notice” is defined very widely as any notice “published in a document, newspaper or periodical or on any medium or in any manner capable of suggesting words and ideas” (section 137(11)). Radio, billboards, websites, Facebook posts and WhatsApp broadcasts are all covered. The ban extends to notices about units of a scheme not yet formed (section 137(2)), the stage at which promoters are most tempted to build excitement. Nothing in the section limits liability under any other law (section 137(9)), so a misleading advertisement may also breach section 145 and Part VII.

Notices before the prospectus is approved

Section 137(4) permits a notice before approval only if it is published with the Commission’s consent, subject to any conditions imposed, and contains nothing beyond:

• the name of the issuer and, for a unit trust, the name of the scheme and its trustee;
• a concise statement of the general nature of the issuer’s main business or undertaking;
• the names, addresses and occupations of the directors or proposed directors;
• the names and addresses of the stockbrokers, underwriters and principal adviser;
• for debentures, the name and address of the debenture trustee;
• a brief description of listing status, or a statement that listing will be applied for with no assurance that it will be granted;
• the fact that a prospectus is being prepared and an offer is proposed, with a brief indication of the nature and number of securities and the likely timing;
• for a unit trust, a description of the persons from whom units will be available;
• anything else the Commission specifies in writing.

Forecast returns, comparisons with bank interest, photographs of the fund’s properties and endorsements are all outside the list, and a notice that includes them is unlawful.

Notices after the prospectus is approved

Once the prospectus is registered, section 137(5) allows a notice that states that a prospectus has been approved, specifies its date, says where a copy can be obtained, states that securities will only be issued on receipt of the application form attached to the prospectus, and contains any other matter the Commission specifies in writing. The purpose is to send readers to the prospectus, not to replace it. Notices under subsections (4) and (5) are not themselves prospectuses (section 137(8)), but they must still not be misleading (section 145(1)(c)).

Preliminary prospectuses

A “preliminary prospectus” helps an issuer set a price or settle the final contents of a prospectus (section 122). Under section 137(6) it may be circulated before approval only if a copy is first delivered to the Commission; it goes only to the sophisticated recipients listed in Schedule 6 (underwriters, licensed dealers and fund managers, other unit trusts, banks, insurers, buyers of K250,000 or more) or to persons the Commission allows in writing; its front page carries a conspicuous notice that it is not a prospectus, that no offer is being made and that no agreement to subscribe will be entered into; it has no application form; recipients do not pass it on; securities are issued only under a registered prospectus; and if the registered prospectus differs materially, recipients are told and the Commission receives a copy of the notice. The Commission may vary these requirements by order. Section 137(6)(b) also cites paragraphs (22) and (23) of Schedule 6, which has only 21 paragraphs; this appears to be a drafting slip.

Exchange reports, meeting reports and news

Section 137(7) exempts three kinds of report: a report on the affairs of a listed corporation or scheme published only to the stock exchange; a report of proceedings at a general meeting or unit holders’ meeting of a listed entity, containing nothing beyond the matters laid before the meeting; and a genuine news report or comment in a newspaper, periodical or broadcast about an approved prospectus or about one of those reports. The news exemption is lost if the journalist, the journalist’s agent or employee, the publisher or the broadcaster receives or is entitled to any benefit from a person interested in the success of the issue as an inducement for, or as a result of, the publication. Paid “advertorial” dressed as news is caught.

Stop directions and penalties

Where it appears to the Commission that a notice, preliminary prospectus or report contravenes section 137(1), is false or misleading, omits something material or contains a material misrepresentation, it may by written order direct the publisher to cease issuing or publishing it or to take other specified action (section 137(10)). Publishing a notice, preliminary prospectus or report in breach of subsections (1), (4), (5), (6) or (7) is an offence punishable by a fine of up to K10,000,000 or ten years’ imprisonment, or both (section 137(12)).