An Australian fashion giant, Mosaic Brands, has faced allegations of trading while insolvent for several years, a violation that carries severe penalties. The company, known for brands like Noni B, Millers, Rivers, Autograph, Crossroads, and Katies, reportedly may have been insolvent as early as December 2020, accumulating significant unsecured debts exceeding $196 million.
Administrators appointed by FTI Consulting, a prominent advisory firm, revealed a preliminary finding suggesting that Mosaic Brands might have operated while insolvent for four years before its eventual collapse. The company entered administration last year, leaving behind a substantial debt of $361 million to $392 million to creditors both in Australia and internationally.
Insolvency, which signifies a company’s inability to meet its financial obligations, is a serious offense under the Corporations Act, prohibiting trading under such circumstances. The report by FTI Consulting indicated that potential liability for insolvent trading claims against Mosaic Brands could range between $38 million and $77 million, making it one of the most significant insolvency claims in Australian history.
Experts in insolvency law emphasized the gravity of the situation, highlighting the potential personal liability of directors if found guilty of trading while insolvent. The report noted that investigations are ongoing, focusing on the directors’ actions and potential defenses they may invoke.
Mosaic Brands’ directors reportedly attempted to avail themselves of safe harbor protections introduced under the Corporations Act to shield themselves from insolvent trading actions. These provisions aim to offer directors flexibility in restructuring a company to improve outcomes for creditors without resorting to external administrators.
Professor Jason Harris, an insolvency expert, described the case as a landmark in Australian legal history, stressing the stringent requirements directors must meet to qualify for safe harbor protections. The report suggested that further scrutiny is necessary to ascertain if Mosaic Brands’ directors adhered to these criteria consistently.
The fallout from Mosaic Brands’ insolvency was significant, with the company closing over 650 stores and laying off thousands of employees. The company’s acquisition spree, led by former CEO Scott Evans and CFO Luka Softa, culminated in a massive debt burden that ultimately led to its collapse.
As the company faces liquidation, unsecured creditors, owed millions both domestically and internationally, are left uncertain about potential recoveries. The fate of Mosaic Brands now rests in the hands of creditors, who will decide on the company’s future in an upcoming meeting.
Despite assertions from former and current directors defending their actions, the implications of Mosaic Brands’ collapse reverberate through the Australian retail landscape, underscoring the challenges faced by the fashion industry in a tumultuous economic climate.
Stay tuned for Dateline’s investigative series, ‘The Cost of Doing Business,’ shedding light on the downfall of Mosaic Brands and its broader implications for the retail sector.
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