John George Russell, the 81-year old man who owes around $500 million to Inland Revenue, has been formally declared bankrupt.

At the High Court at Auckland this morning Associate Judge Hannah Sargisson asked the court registrar to call for Russell's appearance twice, before calling on lawyer for the Inland Revenue Kyleen Naik-Leong.

Naik-Leong indicated the Commissioner for the IRD wished to proceed, and at 10.35am Russell was bankrupt.

Inland Revenue's so-called "public enemy number one" told the Business Herald last month he would not challenge this bid to bankrupt him, and was raising the white flag.

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Russell developed an infamous template the Court of Appeal called a "blatant tax-avoidance scheme" as an accountant and former merchant banker.

How did he rack up the $500m bill?

In 2003 the IRD reassessed Russell's personal income and said he should have declared income of $15.76m between 1985 and 2000 instead of $298,700.

This assessment was upheld by the High Court in 2010 and Russell failed to overturn it when he took the case to the Court of Appeal in 2012.

Russell's original tax bill was around $5m, but penalties and compound interest over 25 years inflated it to $138m at the time of his High Court case, and in excess of $177m when he went to the Court of Appeal.

The bill has now ballooned to almost $500 million due to penalties and compound interest.

John Russell didn't fight the bankruptcy file. Photo / Jason Oxenham
John Russell didn't fight the bankruptcy file. Photo / Jason Oxenham

Russell's plan to pay it back

After the IRD got a High Court judgment against Russell last year, he took numerous legal steps in an attempt to get the tax department to accept a plan that he pay back his debt at a rate of $1000 a week until he dies.

These efforts failed in September and a judge said the offers were the only thing that stood between him and bankruptcy. Russell has always maintained he's in the right.

"It's a fait accompli really," he told the Business Herald last month.

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"I know in advance what the court's going to decide so there is no point in turning up. They're actually saving me money. I'd been spending a lot of money trying to get them to take $1000 per week - well, it works out at $1460 all up (including tax on earnings) - and they don't want to take it," he said from his Kawakawa Bay home.

"I'd rather not be bankrupted and that was basically why I'd resisted all along but it's a minor consequence in my particular case," he said.

Situation 'of his own making'.

In the September decision that signaled the end of the fight, Associate Judge Hannah Sargisson said Russell's situation was of his own making.

"In a situation such as this, where Mr Russell has knowingly engaged in large-scale tax avoidance over a period of years, and wasted large amounts of public money on unmeritorious challenges, the broader public interest is clearly engaged against setting aside the bankruptcy notices," she said.

"It is true that the core tax debt is a very small proportion of the total debt, and that the difference can be attributed to interest and penalties {and interest and penalties on those sums, compounding over a period of years). I can understand how Mr Russell, faced with a debt of this size, might think that the law itself is unjust.

"But the situation is one of his own making, created by his own failure to recognise the core debt and either pay it or reach a compromise with the IRD at an early stage."

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