Part IVA of the Investment Promotion Act 1992 was inserted by the Investment Promotion (Amendment) Act 1994. It regulates foreign participation in locally owned enterprises — a different question from whether a foreign enterprise may itself carry on business.
Section 36A — the prohibition
(1) The Authority may grant a certificate permitting a foreign enterprise to acquire a relevant interest in a national enterprise or in a citizen enterprise.
(2) Subject to section 36G, a foreign enterprise shall not acquire or hold a relevant interest in a national enterprise or a citizen enterprise unless a certificate has been granted under this Part.
(3) A foreign enterprise granted a certificate shall comply with any law applying to it, and such compliance is deemed to be a condition of every certificate issued under this Part.
The prohibition covers both the acquisition and the continued holding of a relevant interest. A foreign enterprise that acquires one lawfully but whose certificate is later cancelled is holding it without a certificate.
Section 36A(3) is also worth noting: compliance with any law applying to the foreign enterprise is deemed a condition of the certificate. So a breach of any other Papua New Guinean law is a breach of the certificate’s terms — and therefore a ground of cancellation or suspension under section 36, and an offence under section 41(1)(e).
Section 36B — what a “relevant interest” is
(a) ownership of any shares in, or any part of, the enterprise; or
(b) the power to control or otherwise direct the actions or activities of the enterprise; or
(c) ownership of any shares in, or any part of, an enterprise which owns shares in, or owns any part of, the enterprise.
(2) It is immaterial whether ownership or control is direct or indirect, express or implied, formal or informal, or is capable of being acquired or exercised only as a result of an agreement, arrangement, understanding or practice, whether conditional or unconditional — other than conditions pertaining to obtaining a certificate in compliance with the Act.
Any shares constitute a relevant interest. A single share in a national enterprise, held by a foreign enterprise, requires a Part IVA certificate.
Paragraph (b) goes further: control alone, with no shareholding at all, is a relevant interest. A management agreement or a funding arrangement that confers the power to direct the enterprise’s activities is enough.
Paragraph (c) follows the chain upwards, so an interest held through an intermediate company counts.
Section 36B(2) then closes off informal and conditional arrangements. The final words carve out only conditions relating to obtaining a certificate under the Act itself — so an agreement conditional on IPA approval does not, by that condition alone, create a premature relevant interest.
Sections 36C to 36E — application and certificate
| Part IV — carrying on business | Part IVA — relevant interest | |
|---|---|---|
| Application | s 28 | s 36C |
| Duties of the Authority | s 28(4), (4A) | s 36D(1), (2) — the same four criteria and four grounds of refusal |
| Decision period | 35 working days | 35 working days — s 36D(3) |
| Reasons | Required on refusal or altered terms | Required — s 36D(4) |
| Certificate | s 29 | s 36E |
| Variation | s 33 | s 36F |
A Part IVA certificate must contain:
- the name of the foreign enterprise;
- the name of the national enterprise or citizen enterprise;
- the activity and location where that enterprise is to carry on business; and
- any other prescribed terms and conditions.
Note that the certificate is specific to a named local enterprise. It authorises participation in that enterprise, not in national enterprises generally — which is why section 36F(1)(c) allows a variation of the national enterprise in which it participates.
Section 36D(1)(c) also differs slightly from its Part IV counterpart: the ability-to-finance criterion applies “where applicable”, recognising that a passive minority interest may not call for it.
The seller commits an offence too
A national enterprise and an owner or officer (however described) which or who sells, transfers or otherwise disposes of a relevant interest in a national enterprise to a foreign enterprise prior to that foreign enterprise obtaining a certificate under Part IVA is guilty of an offence.
Penalty: a fine not exceeding K100,000, with a default penalty of K10,000 for each day the offence continues.
The obligation does not rest only on the incoming foreign investor. A Papua New Guinean company — and its directors and shareholders personally — commit an offence by completing the sale before the buyer holds a certificate.
The practical consequence for any share sale to a foreign party is that completion must be conditional on the Part IVA certificate being granted. Section 36B(2) supports that structure by excluding, from the definition of a relevant interest, conditions pertaining to obtaining a certificate in compliance with the Act.
The foreign buyer is separately liable under section 41(1)(d) for acquiring or holding a relevant interest without a certificate.
Section 36G — the transitional provision
A foreign enterprise which, at the commencement of the Investment Promotion (Amendment) Act 1994, already held a relevant interest could apply within six months for certification under Part IV or Part IVA, and was deemed to be certified until the earlier of the expiry of that six months or the refusal of its application.
The window has long closed, but section 36G remains relevant to holdings dating from before 1994: it is the provision under which such a holding may have become and remained lawful.
Sources
- Investment Promotion Act 1992 — ss 3, 28, 29, 33, 36, 36A–36G, 40, 41
- Companies Act 1997
Before relying on anything here, read the current text of the Companies Act 1997 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.