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Sunday, Jun 15, 2025
Outside the box.
Mosaic Brands Administration Reveals Potential Insolvency and Legal Challenges
Australia's largest specialty fashion group may have operated while insolvent, incurring significant debts and potential director liabilities.
Administrators from FTI Consulting have issued a preliminary finding indicating that Mosaic Brands, Australia's largest specialty fashion group, may have been trading while insolvent for as long as four years prior to its admission into administration last year.
The company is reported to possess debts ranging from $361 million to $392 million owed to various creditors both domestically and internationally.
Insolvency, as defined under the Australian Corporations Act, occurs when a company can no longer fulfill its financial obligations.
Trading under such conditions is prohibited and can result in severe penalties.
FTI Consulting's report, dated 13 June, estimates that a successful claim for insolvent trading against Mosaic Brands could amount to between $38 million and $77 million, marking potentially one of the most significant insolvency claims in Australia’s history if pursued.
The administrators also noted that further investigations are needed, including the examination of potential defenses available to the company’s directors.
Should a legal case be pursued regarding insolvent trading, it could implicate some or all of the directors personally, resulting in personal liability for any recovered funds related to the claim.
Directors of Mosaic Brands were approached for personal financial disclosures but declined to provide information.
Additionally, the report discusses the directors’ attempts to utilize safe harbour protections beginning in March 2020. These provisions, established under the Corporations Act in 2017, offer safeguards for company directors from insolvent trading litigation provided they aim to restructure the business in a manner beneficial to creditors, without needing external administration.
The safe harbour protections were specifically activated for Mosaic Brands from 25 March 2020 to 31 March 2021, during designated periods that coincided with the COVID-19 pandemic.
After 1 April 2021, the company intermittently invoked these protections until it entered voluntary administration in October 2024.
Professor Jason Harris, an expert in insolvency and safe harbours from the University of Sydney, has characterized this case as a landmark event in Australian corporate law, highlighting the extensive duration of safe harbour usage by the company's directors.
There are defined criteria that directors must satisfy to avail themselves of safe harbour defenses, raising questions about whether Mosaic Brands' directors adhered to these standards throughout their trading period.
Mosaic Brands is known for operating over 650 retail stores and had employed upwards of 4,000 staff prior to its downfall.
The company, under the leadership of CEO Scott Evans and CFO Luka Softa from 2014 until early 2024, acquired several mid-tier fashion brands, including Noni B and Vintage Souls, to establish itself as the preeminent specialty fashion retailer in Australia.
Evans and Softa resigned just months before the company sought administration.
Currently, the company's new CEO, Erica Berchtold, took the helm in April 2024 amid the financial turmoil.
As Mosaic Brands enters the liquidation process, unsecured creditors—including those from Bangladesh, China, and India—are expected to convene on 20 June to deliberate on the company's future.
FTI Consulting recommends liquidation, indicating the likelihood that no funds will be available for unsecured creditors unless a liquidator can successfully realize recoveries.
Documents submitted to the Australian Securities and Investments Commission highlight pushback from certain directors against allegations of wrongdoing, asserting their commitment to fiduciary duties and compliance with safe harbour provisions.
An inquiry into the circumstances surrounding the collapse of Mosaic Brands continues, as more developments are anticipated in the forthcoming reports regarding the cost of doing business in this context.
The company is reported to possess debts ranging from $361 million to $392 million owed to various creditors both domestically and internationally.
Insolvency, as defined under the Australian Corporations Act, occurs when a company can no longer fulfill its financial obligations.
Trading under such conditions is prohibited and can result in severe penalties.
FTI Consulting's report, dated 13 June, estimates that a successful claim for insolvent trading against Mosaic Brands could amount to between $38 million and $77 million, marking potentially one of the most significant insolvency claims in Australia’s history if pursued.
The administrators also noted that further investigations are needed, including the examination of potential defenses available to the company’s directors.
Should a legal case be pursued regarding insolvent trading, it could implicate some or all of the directors personally, resulting in personal liability for any recovered funds related to the claim.
Directors of Mosaic Brands were approached for personal financial disclosures but declined to provide information.
Additionally, the report discusses the directors’ attempts to utilize safe harbour protections beginning in March 2020. These provisions, established under the Corporations Act in 2017, offer safeguards for company directors from insolvent trading litigation provided they aim to restructure the business in a manner beneficial to creditors, without needing external administration.
The safe harbour protections were specifically activated for Mosaic Brands from 25 March 2020 to 31 March 2021, during designated periods that coincided with the COVID-19 pandemic.
After 1 April 2021, the company intermittently invoked these protections until it entered voluntary administration in October 2024.
Professor Jason Harris, an expert in insolvency and safe harbours from the University of Sydney, has characterized this case as a landmark event in Australian corporate law, highlighting the extensive duration of safe harbour usage by the company's directors.
There are defined criteria that directors must satisfy to avail themselves of safe harbour defenses, raising questions about whether Mosaic Brands' directors adhered to these standards throughout their trading period.
Mosaic Brands is known for operating over 650 retail stores and had employed upwards of 4,000 staff prior to its downfall.
The company, under the leadership of CEO Scott Evans and CFO Luka Softa from 2014 until early 2024, acquired several mid-tier fashion brands, including Noni B and Vintage Souls, to establish itself as the preeminent specialty fashion retailer in Australia.
Evans and Softa resigned just months before the company sought administration.
Currently, the company's new CEO, Erica Berchtold, took the helm in April 2024 amid the financial turmoil.
As Mosaic Brands enters the liquidation process, unsecured creditors—including those from Bangladesh, China, and India—are expected to convene on 20 June to deliberate on the company's future.
FTI Consulting recommends liquidation, indicating the likelihood that no funds will be available for unsecured creditors unless a liquidator can successfully realize recoveries.
Documents submitted to the Australian Securities and Investments Commission highlight pushback from certain directors against allegations of wrongdoing, asserting their commitment to fiduciary duties and compliance with safe harbour provisions.
An inquiry into the circumstances surrounding the collapse of Mosaic Brands continues, as more developments are anticipated in the forthcoming reports regarding the cost of doing business in this context.
