The Securities Act 1997 served Papua New Guinea for two decades. It set up a Securities Commission that operated from 1998 as a division of the Investment Promotion Authority, licensed unit trust trustees under section 72, maintained a Fidelity Fund, and governed the only two schemes approved in that period, the Pacific Balance Fund and the Pacific Property Trust. The 2015 reforms replaced it root and branch.
The repeal
“(1) The Securities Act 1997 is hereby repealed. (2) The Securities Regulation 1998 is hereby repealed. (3) The Takeovers Code 1998 is hereby repealed.”
The Securities Commission Act 2015 did the repealing because it is the Act that re-creates the regulator. The substantive rules moved to the Capital Market Act 2015, which commenced on 15 December 2017, and a new Take-overs Code is made under section 277 of that Act. See what the two Acts are.
The main changes
| Area | Under the 1997 Act | Under the 2015 Acts |
|---|---|---|
| Regulator | Commission housed within the Investment Promotion Authority | Independent body corporate with its own Board, CEO, fund and investigation powers (SC Act Parts II–V) |
| Licensing | Trustees licensed under s 72 | One capital market licence authorising named regulated activities: dealing in securities, trading in derivatives, fund management, corporate finance advice, investment advice, financial planning (CMA ss 34–37, Schedule 2) |
| Unit trust structure | Manager and trustee shared control under the deed | Licensed trustee is “the principal responsible entity” and is liable for whatever its agents do (CMA ss 189, 190) |
| Unit holder meetings | Rights depended largely on the deed | Statutory code: calling meetings, notice, members’ resolutions, proxies, voting, minutes (CMA ss 213–249) |
| Market misconduct | Offences | Offences plus civil liability to injured investors and civil action by the Commission (CMA ss 323–325, 446–447) |
| Investor compensation | Fidelity Fund (Part III) | Capital Market Compensation Fund (CMA Part IX); the old fund’s money transferred to it (SC Act s 123) |
The trustee becomes the responsible entity
The most important change for unit holders is structural. Public unit trusts of the older pattern vested the property in a trustee bound to deal with it as directed by a manager, usually a private company. Section 189 of the Capital Market Act removes the ambiguity: the licensed trustee is the principal responsible entity, and section 190(3) treats everything a fund manager or other agent does, or fails to do, as done by the trustee, “even if such duties or functions were performed fraudulently or outside the terms of their engagement”. See trustee versus fund manager.
Illustration: the Pacific Balance Fund under the old law
The weaknesses of the old structure were exposed in 2006. The Pacific Balance Fund’s trustee, Melanesian Trustee Services Ltd, was licensed under section 72 of the 1997 Act; its manager was Pacific Equities and Investment Ltd. The Securities Commission directed the trustee to terminate the manager, and the manager appealed to the National Court under section 13 of the 1997 Act. Separately, the National Superannuation Fund, holding about 21 per cent of the units, complained of breaches of the deed, and the trustee called a unit holders’ meeting as the deed required. The manager obtained an injunction stopping the meeting. In National Superannuation Fund Ltd v Pacific Equities and Investments Ltd [2006] PGSC 12; SC845, Lay J stayed that injunction so far as it prevented the meeting, holding that the deed gave unit holders, not the court, the right to decide the manager’s future, that a manager preparing the accounts owes unit holders a positive duty of disclosure, and that “transparency and accountability in the application of funds invested by the public” outweighed the interests of the corporations administering the trust. The unit holders removed the manager on 14 July 2006, and 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.
Under the 2015 Act those rights no longer depend on how a deed happens to be drafted. Members with 10 per cent of the votes, or 100 members, can require a meeting (section 214), members can remove the trustee by resolution (section 201), and a member may sue the trustee for loss caused by its contraventions (section 262). See the 2006 case explained.
What happened to existing schemes and licences
Part IX of the Securities Commission Act kept the old regime’s acts alive. Pending applications and matters before the Commission continued (section 118); pending appeals and causes of action were unaffected (section 119); references to the repealed Act are read as references to the new one (section 120); and every licence, approval, direction and decision under the 1997 Act “shall be deemed to have been made, given or done under” the new Act and remains in force until amended or revoked (section 121(1)). Liability for offences under the old Act survives (section 121(2)), and securities issued before commencement remain valid (section 121(3)). In practice this is how the Pacific Balance Fund and its trustee’s section 72 licence moved into the new system without re-registration, and why the Commission could later revoke that licence under section 48 of the Capital Market Act.
Section 121(3)(b) says nothing in the new Act applies to an issuer “in respect of any securities” offered before commencement. Read literally this would exempt pre-2017 schemes from Part V altogether, which cannot have been intended given section 121(1). Readers should treat Part V as applying to existing schemes but note the ambiguity.
Sources
- Securities Commission Act 2015 — ss 117–123
- Capital Market Act 2015 — ss 34–37, 48, 189, 190, 193, 201, 213–249, 262, 277, 323–325, 446, 447; Schedule 2
- Securities Act 1997 (repealed) — ss 13, 72; Part III
- 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.