Plain language law

New Zealand law explained for everyone

Companies Act 1993

Directors and their powers and duties - Transactions involving self-interest

141: Avoidance of transactions

You could also call this:

“Cancelling transactions involving company directors”

You can cancel a deal your company made if one of your directors was involved in it. You have three months to do this after everyone who owns part of the company finds out about the deal. This could be through the company’s yearly report or some other way.

But you can’t cancel the deal if your company got a fair price for it. To decide if the price was fair, you look at what your company and the director knew when the deal was made.

If your company makes this kind of deal all the time as part of its normal business, people will assume you got a fair price.

If someone wants to keep the deal going, and they knew (or should have known) that the director was involved, they have to prove the price was fair. In other cases, it’s up to your company to show that the price wasn’t fair.

You can only cancel a deal because a director was involved in it by using this rule or by following your company’s own rules.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM320676.

Topics:
Business > Industry rules
Business > Fair trading
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140: Disclosure of interest, or

“Directors must disclose their business interests to the company”

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142: Effect on third parties, or

“How cancellation of a company's transaction affects innocent buyers”

Part 8 Directors and their powers and duties
Transactions involving self-interest

141Avoidance of transactions

  1. A transaction entered into by the company in which a director of the company is interested may be avoided by the company at any time before the expiration of 3 months after the transaction is disclosed to all the shareholders (whether by means of the company's annual report or otherwise).

  2. A transaction cannot be avoided if the company receives fair value under it.

  3. For the purposes of subsection (2), the question whether a company receives fair value under a transaction is to be determined on the basis of the information known to the company and to the interested director at the time the transaction is entered into.

  4. If a transaction is entered into by the company in the ordinary course of its business and on usual terms and conditions, the company is presumed to receive fair value under the transaction.

  5. For the purposes of this section,—

  6. a person seeking to uphold a transaction and who knew or ought to have known of the director's interest at the time the transaction was entered into has the onus of establishing fair value; and
    1. in any other case, the company has the onus of establishing that it did not receive fair value.

      1. A transaction in which a director is interested can only be avoided on the ground of the director's interest in accordance with this section or the company's constitution.