Regulator queries BestStart’s $84m loans to rich-listers
The Department of Internal Affairs is asking questions after a charity set up by rich-listers to buy and operate their childcare giant now known as BestStart Educare made $84m in short-term loans to private companies and trusts connected to its founders last year.
BestStart is the country’s largest childcare operator — employing 4500 staff and caring for 15,000 children at more than 260 centres nationwide — and last year reported revenues of $289m, of which $211m came from government subsidies.
The Wright Family Foundation was set up in 2015 in a complex deal that saw the new charity acquire the business then known as Kidicorp for $332m from the Bay of Plenty Wright family.
The arrangement used vendor finance that sees $20m of BestStart’s now tax-free income sent annually to the Wright Family Trust.
Recently-filed accounts for the year to March 2022 show $153m has been paid to date to the Wright Family Trust, with $169m remaining outstanding.
The arrangement appears allowed by tax and charity laws, but in 2020 sparked concerns from members of the Tax Working Group over what they believed to be New Zealand’s “unusual” lack of requirements that private charitable foundations have arms-length governance.
The charity’s 2020 accounts show an audit by Inland Revenue of the 2015 charitable conversion triggered a $7m tax bill.
The accounts show a close relationship between the charitable Foundation and the Wright family, chiefly through married couple Wayne and Chloe who in 1996 founded what would later become BestStart.
Chloe and two of her children are trustees of the foundation, with lawyer William Holland the only independent trustee.
Wayne was chief executive of BestStart until 2018, and is trustee or director of a cluster of entities that rent properties used by BestStart as childcare centres.
Chloe and Wayne, through WCW Trustees, are on the board of the Wright Family Trust.
The foundation expanded its level of bank debt and at the end of March owed $24m on a BNZ working capital facility, up from just $1.9m the prior year.
The accounts also show the foundation paid $13.4m in rental fees to Wright family entities that own properties used by BestStart. This accounts for 35 per cent of BestStart’s total rent expense, up from $86m and 25 per cent in 2019.
The accounts also show two significant short-term loans were made by the foundation to Wright family entities: $16m to WFT Finance and
All related party transactions were arm’s length, made on a commercial basis, and satisfied the auditing processes of Ernst & Young.
Wayne Wright
$68m to the Wright Family Trust. The loans are recorded as being settled by balance date, but interest income recorded from them totalled only $175,669.
Wayne Wright this week declined to detail the terms of the loans, but told the Weekend Herald the matter was above-board.
“All related party transactions were arm’s length, made on a commercial basis, and satisfied the auditing processes of Ernst & Young,” he said.
A spokesperson for the Department of Internal Affairs, which regulates the sector through Charities Services, said the Foundation’s 2022 accounts passed muster.
“Charities Services has reviewed the financial statements for the Wright Family Charity Group. We consider these comply with the accounting standards, and related party transactions have been disclosed.”
The spokesperson said while related-party loans were not considered evidence of serious wrongdoing that would warrant a formal inquiry, questions would be asked.
“We will be engaging with the Wright Family Charity Group to seek an assurance that the related party transactions are supportive of its overall charitable endeavours.”
Since the engineering behind the charitable metamorphosis of Kidicorp into BestStart was revealed by the Herald in 2020 the Wright family began being included on the NBR’s wealth list — assessed as worth $360m this year — and have expanded their range of business interests.
A series of major property developments — the Botanic retirement village in Silverdale, Stubbs Farm in Warkworth, Longridge Country Estate in the Waikato and others — are being funded by WFT Finance and are slated to see 2000 new homes built.
Earlier this year the Wright family were also revealed to be the main backers of Sean Plunket’s online radio station The Platform, with companies office records showing Chloe Wright is one of the company’s two directors and a trust directed by Wayne and Chloe assigned 75 per cent of the media company’s shares.
Wayne Wright confirmed funding for The Platform — which has courted controversy with its interviews of extremists — came from one of his family’s private commercial entities, and not the charitable Foundation.
He characterised this investment as a “loan with interest from WFT Finance”.