When a large shareholder quietly buys enough shares to control a company, the remaining shareholders find their investment in the hands of someone they never dealt with. Takeover rules make control changes open and fair to minorities. In Papua New Guinea they sit in Part VI of the Capital Market Act 2015.
The 33 percent trigger
“Control” means the acquisition or holding of, or entitlement to exercise or control the exercise of, voting shares or voting rights of more than 33 percent, or such other amount as may be prescribed in the Code, in a company, howsoever effected.
“Company” means a public company whether or not listed, plus any entity the Code prescribes. An “acquirer” includes persons acting in concert, and section 276(3) presumes concert between a corporation and its related companies, its directors and their close relatives, a superannuation fund it established, and a fund manager and any unit trust whose investments it manages on a discretionary basis. Their holdings are counted together when the 33 percent line is tested.
How the Code is made and applied
Section 277(1) provides that the Minister may prescribe a Code, published in the National Gazette, on the recommendation of the Securities Commission, and may amend it the same way. The Commission administers the Code, issues rulings interpreting it, and may inquire into any actual or potential takeover (section 277(4)). It must promote an efficient, competitive and informed market: shareholders must know who the acquirer is, have reasonable time and information to assess the offer, share equally in any premium paid for control, and be protected from oppression by the directors of either side (section 277(5)). Section 277(6) adds a national interest test: the Commission must issue permanent restraining orders if a takeover is not in the national interest of Papua New Guinea.
The Takeovers Code 1998 was repealed by section 117 of the Securities Commission Act 2015 along with the Securities Act 1997. Obtain the current Code from the Commission; the 1998 text is dead.
Mandatory offers and exemptions
Section 278 contains three core obligations. A person who makes a takeover offer must follow the Code and rulings. An acquirer who has obtained control must make a takeover offer for the voting shares it does not already hold. And an acquirer with control may not buy more voting shares except in accordance with the Code. Breach of any of the three is an offence punishable by a fine of up to K10,000,000 or ten years’ imprisonment, or both (section 278(4)).
Section 279 lets the Commission exempt any person, offer or class of offers from Part VI, the Code and rulings, on conditions. In 2023, when Newmont acquired Newcrest Mining, whose shares were quoted on PNGX as well as in Australia, it was reported that the Commission granted exemptions so that the Australian scheme of arrangement could proceed without a separate PNG offer process. The terms of any exemption are a matter for the Commission’s own records.
Enforcement by the Commission and the Court
| Measure | Section | Detail |
|---|---|---|
| Administrative action for non-compliance | 280(1) | Direction to comply, penalty up to K10,000,000, reprimand, denial of exchange facilities, suspension or delisting, restitution |
| Restraining order | 280(2), 281 | Up to 21 days; freezes acquisitions, disposals, votes, transfers and share issues; hearing first |
| Permanent compliance order | 282 | Bans misleading statements, compels disclosure and corrective statements |
| National Court orders | 283–289 | Voting bans, freezing, forced sale, forfeiture, voiding agreements, compensation |
| Pecuniary penalty (civil standard) | 292 | Up to K500,000 for an individual or K5,000,000 for a body corporate per act; three-year limit |
| Criminal offences | 293–294 | Breach of a Commission order: K1,000,000 or five years (K10,000,000 for a corporation); false or misleading documents: K10,000,000 or ten years |
Sections 283 and 284 call the route to the Court an “appeal”, but in substance it is an application by the Commission, the exchange, the company, a shareholder or a recent bidder; most applicants need the Commission’s consent or ten days’ inaction. The Court may excuse inadvertent breaches (section 290). See orders the National Court can make.
Compulsory acquisition and minority rights
Once an offer for all the shares has been accepted, within four months, by holders of nine-tenths of the shares not already held by the bidder, the bidder has two months to serve notice on dissenting shareholders that it will acquire their shares on the offer terms (section 295). A dissenter may apply to the National Court within one month to block the acquisition or alter the terms, and faces no costs order unless the application was vexatious (section 297). The mirror right in section 296 lets a minority holder require a 90 percent bidder to buy them out. Unclaimed consideration is held on trust and, after ten years, passes to the Commission (section 295(8)–(10)).
Does the Code apply to unit trusts?
Only to the extent the Code says. Section 276 defines “share” to include “a unit in an entity that is prescribed in the Code” and “shareholder” to include a unit holder in such an entity. Unless the Code prescribes listed unit trusts, a person who buys more than 33 percent of the units need not offer for the rest. Unit holders rely instead on the trust deed, the substantial holding disclosure rules, and their rights under Part V, including the power to vote on changes of trustee.
The presumptions of concert in section 276(3) can catch a trustee or fund manager whose discretionary portfolios, added to a client’s own shares, cross 33 percent of a listed company. Monitor aggregate holdings and seek a ruling or exemption before the line is crossed.
Sources
- Capital Market Act 2015 — ss 276–297 (Part VI)
- Securities Commission Act 2015 — s 117(3) (repeal of the Takeovers Code 1998)
- Securities Act 1997 (repealed)
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.