Who Can Be a Director or Chief Executive of a Licensed Capital Market Firm in Papua New Guinea?

Licensing a company is only half the picture. The people who run a trustee, fund manager or stockbroker decide whether investors’ money is safe. Section 51 of the Capital Market Act 2015 therefore controls who may sit on the board of a licence holder and who may be its chief executive, in addition to the ordinary rules in the Companies Act 1997. See how to apply for a licence.

Directors: the fit and proper test

The Act borrows the refusal grounds for a representative’s licence and applies them to directors. A person is not fit and proper if he or she is an undischarged bankrupt, has an unsatisfied judgment debt or a compromise with creditors, has been convicted of fraud, dishonesty, violence or a securities offence, has been the subject of Commission action under sections 443 to 445, has engaged in deceitful or oppressive business practices, has been investigated for money laundering, may not be able to act in clients’ best interests given “reputation, character, financial integrity and reliability”, or is otherwise unlikely to conduct business “efficiently, honestly or fairly”. See the refusal grounds.

A director does not need prior approval. Instead section 51(4) requires the firm to give the Commission written notice of every appointment, election or nomination to the office of director, and directors’ names appear on the public register under section 53.

Chief executive: prior approval

Section 51(2) is blunt: “A person shall not be appointed as a chief executive of a holder of a capital market licence without the approval of the Commission.” In deciding, the Commission may consider whether any of the same section 41(1) grounds applies and whether approval “would be contrary to the interest of the public” (section 51(3)). A trustee company hiring a new managing director must obtain the Commission’s sign-off before the appointment takes effect.

Ongoing duties to report

Fitness is tested continuously. Under section 51(5), a director or chief executive who later becomes aware of not meeting the criteria “shall immediately inform the Commission”, and under section 51(6) the firm must do the same. Section 51(7) declares such a person “disqualified from holding the office”, and section 51(8) obliges the firm to “ensure that no person holds office as a director or chief executive” while disqualified. Section 50 separately requires a licensed person to notify the Commission of any event that is a ground for revocation, such as an officer’s conviction or bankruptcy.

Removal on the Commission’s direction

This is a powerful override. Under the Companies Act a director is normally removed by shareholders’ resolution, and a chief executive’s contract may provide for notice or compensation. Section 51 cuts through both: shareholder approval is not required and removal is effective on receipt of the firm’s notice. Section 51(11) refers to a direction “under Subsection (8)”, but the direction power is in subsection (9); this appears to be a drafting error.

Section 51(12) makes contravening any part of section 51, or failing to comply with a removal direction, an offence. No penalty is stated, so the general penalty in section 461 applies: a fine of up to K10,000,000 or ten years’ imprisonment, or both.

Controllers and managers

The Commission’s inquiry under section 36(2) also reaches “managers and the controller”. Section 36(7) defines a “controller” as a person entitled to exercise or control not less than 15 percent of the votes attached to the voting shares, or with power to appoint a majority of directors, or with power to make and give effect to decisions about the business. Section 36(8) defines a “manager” as a person appointed to manage any part of the business, including an employee below chief executive level who exercises managerial functions or is responsible for the accounts. A shareholder who stays off the board but holds 20 percent of the votes is still a controller whose background the Commission may check.

Personal liability of officers

Section 456(1) provides that where a body corporate commits an offence under the Act, every person who was a director, chief executive officer, officer or representative at the time, or purported to act in that capacity, “is deemed to have committed that offence” unless he proves it was committed without his consent or connivance and that he exercised all the diligence he ought to have exercised. Section 456(4) extends “director” to shadow directors and anyone acting in the position whether validly appointed or not. See directors’ personal liability.