A bankrupt businessman with tax avoidance convictions is suing independent MP Brendan Horan and Radio Live in a $650,000 defamation claim.

Colin Henderson is being represented by Brian Henry, who has also acted as Winston Peters' lawyer, and passed information to the NZ First leader about Horan, a former MP for the party.

The Herald has confirmed that Colin Henderson, 66, has taken a case in the High Court at Auckland against Mediaworks and Mr Horan over comments made by the NZ First-turned-independent MP on Radio Live.

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Mr Henderson is understood to have sought $300,000 from Mediaworks, which owns the radio station, and has also sought $350,000 from Mr Horan.

The case is the latest in a series of allegations following the falling out between Mr Peters and Mr Horan, who was dumped from NZ First after accusations he had misused money from his mother Olwen's bank account before she died.

A police investigation is currently under way into the spending although the trust executor's inquiry found "no evidence which would enable me to found a claim against Brendan".

Mr Horan denies any wrong-doing and has said Mr Henderson was one of those feeding information to Mr Peters.

A letter written by Mr Henry, a friend of Mr Peters who has previously acted for the NZ First leader, says the defamation occurred during an interview with Mr Horan on Radio Live about the allegations levelled against the MP.

In his letter, Mr Henry said his client sought an apology and $300,000 in settlement.

The Herald understands the case has now been filed seeking "general damages" from Mediaworks and $350,000 in damages from Mr Horan.

The Herald cannot detail the comments which lie at the heart of the claim but Mr Henry's letter described them as a "grave smear on Mr Henderson's reputation".

Mr Henderson is currently bankrupt and was convicted in 1997 on 30 sample charges of smuggling and 30 charges of wilfully making false import entries to avoid tax.

Mr Henry confirmed he was acting for Mr Henderson but would not comment further. Mr Henderson also refused to comment.

Mediaworks' lawyer Clare Bradley would also not comment on the legal action.

Mr Peters spoke at the NZ First conference on the weekend of a "clamp down on tax evasion" as a way of funding the party's policy of removing GST on food.

He confirmed he had spoken to Colin Henderson about Mr Horan but wanted to make no comment on any matter before the courts.

Mr Peters acknowledged Mr Henderson had passed on information about Mr Horan but when told his tipster was an undischarged bankrupt with tax-related convictions, said he had never acted on any of it.

"His mother spoke to me from beyond the grave," he said in relation to Mrs Horan's will, which asked for an investigation into spending from her account after her death.

Asked if he had referred Mr Henderson to Mr Henry, he said: "There are a number of barristers I know. When people come into my clinics, or come to see me, the least they can expect is confidentiality."

Mr Horan used Parliamentary privilege today to question Mr Henderson's choice of lawyers, saying: "The connection and connotations involved with the leader of New Zealand First's pet barrister representing an undischarged bankrupt who avoided tax tell their own story."