Related Party Transactions in New Zealand: An Empirical Study of a Flawed System

Abstract

Between 2006 and 2010 approximately 32 finance companies went into receivership, liquidation or were bailed out by the Government in New Zealand. The total combined outstanding debt from these failures exceeds NZD$5.3 billion. Excessive, unregulated, and in some cases, undisclosed, related party transactions have been cited by commentators as being a contributing reason for many of these failures. In light of these concerns, this article, using empirical analysis, questions whether the regulatory approach to related party transactions in New Zealand is adequate and where applicable, suggests improvements to that framework, making comparisons with Australia. It concludes that Australia has a more rigorous system but that related party transactions are inherently problematic under any circumstances.

Keywords: companies, directors, directors duties, related party transactions, self-dealing