Watson’s company put into liquidation

Eric Watson’s Cullen Group has been placed into liquidation by court order over a $500,000 bill.

The company has been involved in a long-running court dispute with Inland Revenue, and costs associated with that battle pushed it into liquidation.

Justice Matthew Palmer ruled in March this year that Cullen Group was part of a ‘‘web of entities’’ associated with Watson and designed to reduce his tax bill.

After moving to the United Kingdom in 2002, Watson restructured his business affairs so that shares in Cullen Investments, formerly Blue Star Capital, were replaced by loans worth $291 million, owed by Cullen Group to companies in the Cayman Islands – Modena Holdings and Mayfair Equity.

Because Modena and Mayfair were not ‘‘associated persons’’ with the Cullen Group, the arrangements were covered by Inland Revenue’s approved issuer levy (AIL) tax regime which was set up to encourage investment in New Zealand by reducing the cost of New Zealanders borrowing from non-residents. But the Cullen Group arrangement introduced no new funds to New Zealand. Using the AIL regime, Cullen Group was able to pay tax at 2 per cent on the $397m of interest it paid the companies, rather than non-resident withholding tax of 15 per cent. Inland Revenue assessed Cullen Group as having avoided $59.5m of non-resident withholding tax in this manner, while it paid only $8m under AIL.

On top of the $51m tax owed, Justice Palmer also ordered Cullen Group to pay use-of-money costs, interest and penalties.

Cullen Group’s appeal against the decision is set to be heard in February but Inland Revenue has pursued it for the $505,399.55 in costs in the interim, anyway.

Inland Revenue issued a statutory demand to Cullen Group to pay that debt and then applied to put Cullen Group into liquidation.

Cullen Group applied to the High Court for a stay of enforcement of the costs award and for a stay of the liquidation proceedings, saying that if it was forced to pay the bill it could be pushed into liquidation – and that a liquidator was unlikely to pursue its appeal.

That was rejected by Palmer: ‘‘The costs award, owing for almost eight months, should not be enough to tip Cullen Group into insolvency and liquidation unless those controlling Cullen Group, including in particular Mr Eric Watson, wish it to do so.

‘‘And a party owing costs under a judgment cannot force a stay of the judgment by effectively threatening its own liquidation.’’