Creditors circling Eric Watson may pose problems for the cash-strapped parent of lingerie maker Bendon, which owes the high-profile ex-pat businessman $2.7 million.                             
The debt arose in 2018 in a complex arrangement involving Watson’s Cullen Group when Naked Brand Group bought the global online licence to sell Frederick’s of Hollywood lingerie from interests associated with Watson for $19.9 million in new shares and forgiven debt.
Watson had just wrapped up a deal to essentially list Bendon on the US Nasdaq exchange through Naked, although negotiations had dragged on far longer than initially signalled as the parties argued over the value of the Kiwi company’s assets.
The Frederick’s licence had been subleased to Bendon. Naked bought the licence outright in November 2018, issuing shares worth $6.9 million at the time and forgiving $13.1 million of debt owed by Watson’s Cullen Investments. It also took on a $2.2 million loan Fredericks owed Watson personally, which had grown to $2.7 million as at July 31.

Impairment charges

Naked has since written down the value of the licence by $1.9 million and in the six months through July, the company completed an operational review and invested in a new platform to cut operating costs over the next 12 to 18 months.
Naked was already struggling before the Bendon lifeline emerged. It had a fraction of the sales its bigger Kiwi counterpart generated when the Watson first mooted the deal in early 2017.
However, Bendon also struggled with profitability before the deal with Naked and the merged lingerie company hasn’t been able to rely on funding from Watson, who lost major battles with New Zealand’s Inland Revenue Department over his tax affairs and an acrimonious split from former business partner Owen Glenn.
Naked is continuing to operate with its bank’s good graces, having been in breach of various lending covenants with Bank of New Zealand for years. The company’s in the process of negotiating a new banking arrangement, which requires it to raise another US$15 million on top of the US$32.4 million it raised last year.

Problematic loan

That makes Watson’s loan problematic if it were to be called, with Naked reporting an operating cash outflow of $9.7 million in the six months ended July 31. It was only the sale of new shares and convertible notes that left Naked with $1.5 million in the bank, given it had already fully drawn down its $20 million loan with BNZ.
Who ultimately benefits from the Watson loan will likely be contested. Some of Watson’s assets have been frozen by the UK High Court as Glenn seeks to assert an order for 43.5 million pounds plus interest; IRD is pursuing about $114.7 million in unpaid taxes, interest and penalties.
Just before Christmas, the High Court appointed Vivian Fatupaito and Luke Norman of KPMG as liquidators of the Cullen Group and several other companies were subsequently moved into liquidation.

Complex interests

In their first report, Fatupaito and Norman said they had been trying to unravel complex, cross-border interests, and the significant number of related party transactions.
The liquidators said they’d been in touch with Glenn’s legal team about the freezing order, and have agreed with the IRD to delay a planned appeal while they consider whether it’s worth continuing with it.
They decided against calling a creditors’ meeting, saying there weren’t enough assets to meet the cost of holding a meeting and that there were limited prospects of funds being available to unsecured creditors.