The Capital Market Act 2015 uses two labels for pooled investment vehicles. “Unit trust scheme” is the traditional Papua New Guinea term, used by the Pacific Balance Fund. “Managed investment scheme” is the broader modern term. Almost every section of Part V applies to “a unit trust or managed investment scheme”, so the second term tells you how far the Act reaches.
The three-part definition
A scheme is a managed investment scheme where (a) its purpose or effect is “to enable persons taking part in the scheme to contribute money, or to have money contributed on their behalf, to the scheme as consideration to acquire interests in the scheme”; (b) those interests “are rights to participate in, or receive, financial benefits produced principally by the efforts of another person under the scheme”, whether actual, prospective or contingent and whether enforceable or not; and (c) “the holders of those interests do not have day-to-day control over the operation of the scheme, whether or not they have the right to be consulted or to give directions”.
All three elements must be present. Take a group of 50 teachers who each pay K5,000 to a promoter who promises to buy and let out flats in Lae and share the rent. They have contributed money for interests (element a); the rent is produced by the promoter’s efforts, not theirs (element b); and they cannot direct which flat is bought or when it is let (element c). That is a managed investment scheme, whether or not anyone calls it a unit trust or issues anything called a unit.
Contrast a family that pools money to buy one block of land and holds the title jointly. The Act expressly excludes a scheme in which each participant holds an interest in “separately identifiable underlying property”, holds the legal and beneficial interest (or the legal interest is on a bare trust), and the value does not depend on other participants’ contributions. Pure risk insurance contracts and life insurance policies are also excluded.
The definition in section 2 is headed “management investment scheme”, while the rest of the Act (and the exclusions within the definition itself) say “managed investment scheme”. The two are plainly intended to be the same thing; the inconsistency is a drafting slip, not a separate concept.
How it relates to a unit trust scheme
A “unit trust scheme” is defined separately in section 2 as an arrangement providing facilities for participation “as beneficiaries under a trust” in profits or income from acquiring, holding, managing or disposing of equity securities, debt securities, derivatives or any other property. The key word is trust. Every unit trust scheme is a managed investment scheme (investors contribute, a trustee produces the return, investors lack control). But a managed investment scheme need not be structured as a trust at all; it might be a contractual arrangement or a partnership-like pool. The Act catches it anyway, and section 184 then requires a licensed trustee, so in practice every registered scheme ends up as a trust. See what a unit trust is.
When a scheme must be registered
Section 184 prohibits establishing or operating a unit trust or managed investment scheme unless the operator is a licensed trustee appointed by the members and the scheme is approved and registered by the Commission; the penalty is a fine of up to K10 million or ten years’ imprisonment, or both. Section 187 then sets the thresholds at which registration becomes compulsory.
| Trigger (section 187(1)) | Meaning |
|---|---|
| More than 20 members | Joint holders count as one; an interest held in trust is counted as the beneficiary’s where the beneficiary is presently entitled or controls the trustee (section 187(4)) |
| Promoted by a professional promoter | The scheme was promoted by a person, or an associate of a person, in the business of promoting such schemes, regardless of size |
| Closely related schemes | The Commission may determine in writing that several schemes are closely related; each must register once their combined membership exceeds 20 (section 187(2)) |
A scheme below all three thresholds—say twelve relatives pooling money through a private trustee—is still a managed investment scheme, but registration is not compulsory. If an unregistered scheme is operated in breach of section 184, the Commission, the trustee or any member may ask the National Court to wind it up, and every promoter and director is guilty of an offence (section 188). See registration and operating without registration.
Examples in Papua New Guinea
- Balanced unit trusts. The Pacific Balance Fund, established by deed in 2001 with Melanesian Trustee Services Ltd as trustee, invested public money across shares, property and cash.
- Property trusts. The Pacific Property Trust, the other scheme approved under the 1997 Act, held income-producing real estate. Section 210(2)(b) lists property trusts as a recognised type.
- Money market funds. Pools invested in short-term bank deposits and government securities, listed in section 210(2)(f).
- Landowner funds. The Commission has approved the Lihirian Investment Fund, with a landowner-owned company licensed as trustee and fund manager, described in the press as the first new scheme approved in more than 24 years.
Superannuation funds are not managed investment schemes under this Act; they are regulated separately by the Bank of Papua New Guinea. See types of scheme and unit trusts, companies and super funds.
Why the label matters
Once an arrangement is a managed investment scheme, interests in it are a “capital market product” (section 2), dealing in them is a regulated activity needing a capital market licence (section 34), offering them to the public needs a registered prospectus (section 128), and the trustee owes the statutory duties in section 191. Promoters who call their pool an “investment club” or “savings group” to avoid these rules are still caught if the three elements are present.
Sources
- Capital Market Act 2015 — ss 2(1) (“management investment scheme”, “unit trust scheme”, “capital market product”), 34, 128, 184, 187, 188, 191, 210(2)
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.