A unit trust is not a company. It has no legal personality of its own; its leases, custody agreements, bank accounts and share registrations are all in the trustee’s name. Replacing the trustee could unravel everything, were it not for the statutory transfer in Part V of the Capital Market Act 2015.
The statutory transfer in section 206
“(1) Where the trustee of a scheme changes, the rights, obligations and liabilities of the former trustee in relation to the scheme become rights, obligations and liabilities of the new trustee. (2) Notwithstanding Subsection (1), the following rights and liabilities remain rights and liabilities of the former Trustee: (a) any right of the former trustee to be paid fees for the performance of its functions before it ceased to be the trustee; and (b) any right of the former trustee to be indemnified for expenses it incurred before it ceased to be the trustee; and (c) any right, obligation or liability that the former trustee had as a member of the scheme; and (d) any liability for which the former trustee could not have been indemnified out of the scheme property if it had remained the scheme’s trustee.”
Subsection (1) is a statutory novation. The moment the Commission alters its record under section 198, the new trustee stands in the former trustee’s shoes for every right and obligation “in relation to the scheme”: rent from a fund property, a broker’s bill, a redemption due to a unit holder. No deed of assignment and no counterparty consent is needed. See how the trustee is changed.
What stays with the former trustee
Earned fees and past expenses. Paragraphs (a) and (b) preserve the former trustee’s right to be paid fees for work done, and to be indemnified for expenses incurred, before it left office. Those rights can only ever be exercised against the scheme property as the deed allows, because section 210(3) requires fee and indemnity rights to be specified in the deed and makes them “available only in relation to the proper performance of those duties”.
Its units. Paragraph (c) keeps any units the former trustee holds, with their rights and liabilities, in the former trustee’s hands. It becomes an ordinary member. See the trustee’s own units.
Non-indemnifiable liabilities. Paragraph (d) is the most important. A trustee is normally entitled to be indemnified from the fund for liabilities properly incurred. It is not entitled to indemnity for liabilities arising from its own breach of duty, fraud or negligence. Those liabilities do not pass to the new trustee; they stay with the company that incurred them. So a unit holder suing for losses caused by the former trustee’s breach of section 191 sues the former trustee, not its successor, and the new trustee does not inherit a fine or civil penalty imposed for the former trustee’s contraventions. See suing the trustee.
Documents: section 207
Section 207(1) provides that a document to which the former trustee is a party, in which it is referred to, or under which it has or might have acquired a right or liability, and which is capable of having effect after the change, “has effect as if the new trustee (and not the former trustee) were a party to it”. A lease, custody agreement, management agreement or guarantee signed for the fund continues with the new trustee as party. Section 207(2) excludes documents so far as they relate to matters that section 206(2) leaves with the former trustee: a contract under which the former trustee personally agreed to compensate members for its own default, for example, stays its own.
Section 49(1) reinforces this from the licensing side: revocation, suspension or cessation of a licence does not avoid or affect any agreement, transaction or arrangement entered into before it, or any right or liability arising under one.
Books and assistance: section 205
The former trustee must, as soon as practicable, give the new trustee all books the Act requires to be kept for the scheme, and “give other reasonable assistance to the new trustee to facilitate the change of trustee”. The register of members under section 250, minutes under Division 5, the trust account records under section 193 and the separate book entries under section 194(1)(c) are the core. When the Commission appointed an interim trustee of the Pacific Balance Fund in 2023 it directed the outgoing trustee to transfer “all custody and authority of PBF’s assets and bank accounts” and to hand over “the books and PBF records”, as recorded in Melanesian Trustee Services Ltd v Securities Commission of Papua New Guinea [2023] PGNC 356; N10524.
Titles and bank accounts in practice
Section 206 vests rights in the new trustee as a matter of law, but third parties act on their own records. Banks will not let a new signatory operate the trust account until mandates are replaced, and Australia and New Zealand Banking Group (PNG) Ltd v Melanesian Trustee Services Ltd [2019] PGNC 100; N7805 shows a bank declining to act on a court order it was not party to. Land titles held in the former trustee’s name must be transferred at the titles registry; share registrations in listed companies must be re-registered; the central depository and PNGX must be notified. A new trustee should obtain a certified copy of the Commission’s altered record and, if cooperation under section 205 is refused, Court orders under section 256.
Sources
- Capital Market Act 2015 — ss 49(1), 191, 193, 194(1)(c), 198, 205–207, 210(3), 250, 256
- Australia and New Zealand Banking Group (PNG) Ltd v Melanesian Trustee Services Ltd [2019] PGNC 100; N7805
- Melanesian Trustee Services Ltd v Securities Commission of Papua New Guinea [2023] PGNC 356; N10524
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.