The liquidation of fallen tycoon Eric Watson's business empire is picking up pace, with legal action against the controversial financier personally now flagged and the public asked for assistance in locating a painting.
Watson was once one of New Zealand's most famous businessmen, but recent courtroom tangles with Inland Revenue and former business partner Sir Owen Glenn have seen him incur adverse judgments totalling hundreds of millions of dollars and endure a three-month prison sentence at the end of 2020 after English courts held him in contempt for hiding assets.
These rulings led to liquidators Vivian Fatupaito and Luke Norman of KPMG being appointed in December 2019 to 18 New Zealand-registered companies comprising Watson's Cullen empire.
In their third report, filed to the Companies Office yesterday, Fatupaito and Norman said Inland Revenue had revised its claim and was now seeking $118.4m from the group.
The tax claim largely stems from Inland Revenue unpicking a complex series of 2002 transactions routing related-party loans through the Cayman Islands intended to minimise tax and enable Watson to relocate himself and his wealth to the United Kingdom.
In 2019 - following more than a decade of legal dispute - the High Court at Auckland ruled Watson's Cullen entities had engaged in tax avoidance and ordered the repayment of $51.5m in non-resident withholding tax, and nearly two decades of interest costs.
Fatupaito and Norman reveal that as the tax net was closing in 2018, Cullen Group had obtained a legal opinion "asserting that there are likely claims against a law firm that advised CGL in the IRD dispute".
While the firm is not named, the High Court at Auckland had heard that a then-Russell McVeagh partner was a key engineer of the scheme later ruled to be avoidance.
Liquidators said this opinion was reviewed - and discounted and would not be pursued. "We, together with our solicitors, determined that the claims had no merit."
Requests for comment sent overnight to Russell McVeagh were not immediately answered.
Watson, who was released from London's Pentonville Prison last month, said the decision by liquidators not to pursue his former tax advisers left him "astonished".
"I am astonished that KPMG are not pursuing [Russell McVeagh] or their insurers for their at fault advice and structuring, plus their specific advice not to settle with the IRD. Wynn Williams gave a solid legal opinion to Cullen and KPMG that this was a very strong case, but for some reason KPMG have chosen not to pursue it," he said.
Watson intimated that he was now weighing his options: "This is not the last on this matter."
Liquidators said they had also begun moving against Watson personally, having identified "reciprocal loan accounts" between the businessman and his Cullen Investments.
"Demand has been issued on Mr Watson, however due [to] his incarceration, we have given him an extension of time to provide a response," the report said.
This matter is expected to come to a head within the next six months, with liquidators flagging court action against Watson if the matter is not settled: "If this matter is not resolved in the near future, we will be instructing solicitors to issue legal proceedings within the next reporting period."
Watson said he disputed the claims and would "vigorously defend" them.
Liquidators also said one of the companies in the group, Batty Road Holdings, had owned a number of artworks which - at the time of their appointment - were listed for sale at several art dealers.
These artworks were repossessed by liquidators, and $22,365 was generated in sales proceeds in the second half of 2020 - on top of nearly $45,000 in the six months prior - but noted one item had escaped their dragnet.
"We have been unable to locate a painting called Singer Songwriter II, 2001 by WD Hammond. If you know the whereabouts of this art, please contact us as a matter of urgency," the report by liquidators said.
Hammond is a Christchurch post-colonial gothic artist whose work is best-known for fusing humanoid bodies with avian heads.
Art sources contacted by the Herald said the missing artwork appeared to be one of a limited series of 100 lithograph screenprints produced in 2001. The source said the mass-production of the artwork reduced its value, and would also make tracing difficult.
Another print in the series recently sold at Webb's auction house for $6110.
Watson said he was unaware any artwork was missing. "There is not a painting missing that I'm aware of. Perhaps the liquidators should search properly."