Eric Watson's battles: has the high flyer been brought low?

Wednesday, 13 March 2019

Karaka's Te Hihi estate sold in 2018 by Eric Watson's Cullen Investments.

ANALYSIS: Inland Revenue's $60 million High Court win against businessman Eric Watson marks the likely beginning of years of appeals to higher courts, a well as his other court tussles with Sir Owen Glenn.

He reportedly has a fortune worth $450m, although such rich list figures are highly speculative - wealthy folks even sometimes lobby for higher or lower figures depending on whether they are trying to impress bankers or divorce courts.

Eric Watson has been ordered to pay Inland Revenue more than $60m.

Kiwis are probably most familiar with Watson-associated Hanover Finance, which collapsed in 2010 after the global financial crash owing 36,500 investors NZ$554m, with only a small amount ever recovered.

His own assets are hard to pin down - last year he sold Te Hihi estate in Karaka, an Auckland restaurant, and half share of the Warriors Rugby League team.

Eric Watson pictured in 2018 with coach Stephen Kearney before he sold his half share of the Warriors.

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But these were relatively small assets. According to overseas court reports Watson owns real estate in the UK and has shares in US-based companies Long Blockchain and Naked.

He was recently reported to have bought a share in a property on Vomo Island, Fiji, with mate Mark Hotchin, his business partner of Hanover Finance fame.

So it's unlikely he will be looking at used cars or off-the-rack suits in the near future, but it may hamper his deal-making.

The Inland Revenue case was only one of several disputes.

It followed the successful win by Glenn in London last year over separating their business interests.

Although Glenn won $80m in compensation after unwinding their investment partnership, Watson told the London court he could not pay.

When asked by lawyers how he afforded a high flying lifestyle - Watson said he had got some money off his Mum, and he had sold art works.

Given Glenn's publicised health issues, Watson may just need to remain patient as appeals roll slowly through the courts.

Also during 2018, Watson defended a lawsuit filed by shareholders in undies company Bendon in New York, claiming they were owed more shares than they received in a New York Stock Exchange float.

There were funding problems and the value of Bendon shares halved to US$4.

The Inland Revenue case outlined how Watson had moved to the UK in 2002, where media have often reported a lavish lifestyle and attractive women at his side, similar to reports about his nemesis Glenn.

The essence of the complex Inland Revenue case was whether Watson had structured his financial affairs to avoid tax in New Zealand - the court concluded he had.

'Mr Watson was concerned to ensure his permanent place of abode, for tax purposes, changed from New Zealand to the United Kingdom,' High Court Justice Matthew Palmer ruled.

'I accept that, in making such a move, it is common for a high net worth individual to seek to disestablish New Zealand tax residency, and plan remittance of assets and income to the United Kingdom accordingly. That could involve using off-shore entities to hold assets, as it did here.

'He restructured his business affairs so his shares in Cullen Investments were replaced by loans owed by Cullen Group to conduit companies in the Cayman Islands…

'The Commissioner of Inland Revenue assessed Cullen Group as having avoided $59.5m of non resident withholding tax,' Justice Palmer concluded.