Papua New Guineans who lack the time, money or knowledge to buy shares and property themselves have long been able to buy units in a unit trust instead. The law around them was rewritten in 2015.
The statutory definition
A “unit trust scheme” means “any arrangement made for the purpose of, or having the effect of, providing facilities for the participation by persons as beneficiaries under a trust in profits or income arising from the acquisition, holding, management, or disposal of (a) equity securities, or (b) debt securities, or (c) derivatives; or (d) any other property”.
Three ideas sit inside that definition in section 2 of the Capital Market Act 2015. There is a trust: a trustee holds property for the benefit of others. There is participation: many people join, and each shares in the profits or income. And the trust’s business is investment: it acquires, holds, manages and sells shares, bonds, derivatives or other property such as land.
Units and unit holders
An investor’s share of the fund is expressed in units. Section 2 includes “units in a unit trust scheme” in the definition of “securities”, so the rules that govern shares and bonds largely govern units as well. Part V of the Act calls the investor a “member” or “unit holder” (section 183), and gives each member one vote for each unit held (section 239). The number of units a person holds, and the price paid for them, are recorded in the register of unit holders that the trustee must keep (section 250). A unit holder owns a proportionate interest in the whole fund, not any particular asset.
Scheme property
Section 183 defines “scheme property” as the contributions of money or money’s worth to the scheme, money borrowed or raised by the trustee for the scheme, property acquired with those contributions, and the income and property derived from them. Section 191(2) requires the trustee to hold the scheme property “in trust for the unit holders or members”, and section 191(1)(g) requires it to be clearly identified as scheme property and held separately from the trustee’s own property and from any other scheme. If the trustee company fails, its creditors cannot touch the scheme property (section 193(5)).
The trustee
Under the 2015 Act the trustee is the central figure. Section 189 makes the licensed trustee “the principal responsible entity” of the scheme, and section 190 requires it to operate the scheme and perform the functions given to it by the trust deed and the Act. The trustee must be a corporation holding a capital market licence that authorises it to operate a unit trust or managed investment scheme. It may appoint a fund manager, but remains answerable for what the manager does (section 190). See who can be the trustee and the trustee’s duties.
The trust deed
The relationship between the trustee and the unit holders is governed by a trust deed, which section 212 makes “legally enforceable as between the members and the trustee”. The deed must be approved and registered by the Securities Commission before it has any effect (section 208) and must make adequate provision for the price of units, the trustee’s investment powers, how members’ complaints are dealt with, winding up, and the specific nature of the scheme (section 210). See what the deed must contain.
Registration and licensing
Section 184 provides that a person “shall not establish or operate a unit trust or managed investment scheme” unless the person is a licensed trustee appointed by the members and the scheme is approved and registered by the Securities Commission. The penalty for breach is a fine of up to K10 million or ten years’ imprisonment, or both. Registration is compulsory once a scheme has more than 20 members or is promoted by someone in the business of promoting schemes (section 187). Offering units to the public requires a prospectus registered by the Commission (section 128). See registration and prospectuses.
How a unit trust compares with other investments
- A bank deposit is a debt owed to you by the bank at a fixed rate. A unit is a beneficial interest whose value can fall as well as rise, and there is no guarantee of the capital unless the deed creates a guaranteed or capital-protected fund (section 210(2)).
- Shares make you a member of one company. Units give you a spread of investments chosen by a professional, for a fee.
- A superannuation fund is a compulsory retirement scheme regulated by the Bank of Papua New Guinea under the Superannuation (General Provisions) Act 2000. Super funds are themselves large investors in unit trusts; Nasfund’s holding in the Pacific Balance Fund drove the litigation described later in this series.
See unit trusts, companies and super funds.
Unit trusts in Papua New Guinea
The best known is the Pacific Balance Fund, established under a deed of 22 October 2001 between the Investment Corporation of Papua New Guinea and Melanesian Trustee Services Ltd, with Nasfund as a substantial unit holder. Its history, from 2006 to 2023, is told in the cases at the end of this series. The Securities Commission has since approved new schemes, including a landowner investment fund with a locally owned licensed trustee. Check the Commission’s current list of licensed trustees and registered schemes before investing.
The Act uses “unit trust” and “managed investment scheme” side by side and applies Part V to both. The second is the broader modern term and covers pooled schemes that may not use the word “unit” at all. See what a managed investment scheme is.
Sources
- Capital Market Act 2015 — ss 2(1) (“securities”, “unit trust scheme”), 128, 183, 184, 187, 189–191, 193, 208, 210, 212, 239, 250
- Superannuation (General Provisions) 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.