What Rights Does a Unit Holder Have in Papua New Guinea?

A unit holder is a beneficiary under a trust, not a shareholder in a company, but the Capital Market Act 2015 gives members of a registered scheme a set of statutory rights that in many ways mirror those of shareholders under the Companies Act 1997. They fall into six groups.

The right to enforce the deed

Every promise in the deed, from the pricing formula to the fee cap and the withdrawal procedure, is a term a member can hold the trustee to. The Supreme Court in National Superannuation Fund Ltd v Pacific Equities and Investments Ltd [2006] PGSC 12; SC845 treated the Pacific Balance Fund deed as the source of the unit holders’ right to decide the manager’s future, and said courts should be reluctant to interfere with rights the deed gives unit holders. The deed cannot be changed without Commission approval, and fee increases need a two-thirds resolution (section 211). See enforcing the deed.

The right to information

• Book entries: the trustee must supply on demand copies of all entries in its books relating to the member’s transactions, and the member may inspect contract notes free of charge (section 195).
• Register extract: on request and payment of a reasonable fee, an extract showing the member’s name, address, units and amounts paid must be sent within 21 days (section 252(2)); failure is an offence (section 252(3)).
• Minutes: minute books of members’ meetings must be open for inspection free of charge, with copies supplied within 14 days of request (section 249).
• Prospectus documents: material contracts referred to in the prospectus may be inspected at the registered office without charge (section 129(3)).

The Supreme Court in SC845 added that a manager preparing the fund’s accounts owes a positive duty of disclosure to unit holders.

Meetings, votes and removing the trustee

Each member has one vote for each unit held (section 239). Members holding at least 10 percent of the votes, or at least 100 members, may require the trustee to call a meeting to consider a special resolution (section 214), may give notice of their own resolution (section 223) and may have a statement circulated (section 225). If the trustee fails to call the meeting within 21 days, members with a majority of the requisitioning votes may call it themselves at the trustee’s expense (section 215). A special resolution needs 75 percent of the value of units voted (section 2). Members may also resolve to remove the trustee and choose a new one (section 201), or to wind the scheme up (section 265). The trustee and its associates cannot vote on a resolution in which they are interested (section 241). See removing the trustee and the meetings articles in this series.

The right to withdraw

If the deed provides for it, a member may withdraw at any time while the scheme is liquid, and through withdrawal offers while it is not (section 257). The right and the procedures must be fair to all members (section 210(6)). See withdrawing.

Complaints, court orders and damages

Every deed must make adequate provision for “the method by which complaints made by members in relation to the scheme are to be dealt with” (section 210(1)(c)), so a member’s first step is the deed’s own procedure. Beyond it:

• Civil action: a member who suffers loss or damage because of conduct of the trustee that contravenes the Act may recover it by action against the trustee, whether or not the trustee has been convicted, within six years (section 262). Separate rights of action exist for prospectus misstatements (section 446) and market misconduct (section 323).
• Court orders: the Court may make any order it considers appropriate to protect the interests of existing or prospective members (section 256(1)), may rectify the register (section 253), appoint an interim trustee where the Commission has failed to (section 203) and order a winding up on just and equitable grounds (section 267).
• Regulatory action: a complaint to the Securities Commission is confidential (Securities Commission Act section 106), and the Commission may impose penalties and order restitution (Capital Market Act sections 443 and 445).

See how to complain and suing the trustee.

The Commission may sue on your behalf

Section 101(1) of the Securities Commission Act 2015 allows the Commission, “on behalf of a unit holder, an investor or a beneficiary to a security”, to file civil proceedings in the National Court to recover assets, securities or their value from an issuer, promoter, trustee, manager or anyone dealing with securities. Section 447 of the Capital Market Act gives a parallel power to recover loss caused by prospectus contraventions. For a small investor who cannot fund litigation, these are the most practical remedies in the Acts.