A court case that sought to remove the liquidators of collapsed fashion group Mosaic Brands has wrapped up, with the judge ruling they can keep their post, but noted an extra, external investigator should be involved.
Mosaic Brands – the company that once managed several retail apparel brands including Noni B, Katies, Millers and Rivers – was placed into voluntary administration in October 2024, owing around $250 million in liabilities. Several months later, and after all its retail subsidiaries were wound up, creditors had voted to liquidate the entire group.
Five days after that vote, one of Mosaic Brands’ creditors – Shaoxing Newtex Imp & Exp Co Ltd – filed a court application in the Federal Court of Australia, calling for the removal of FTI Consulting’s Kathryn Evans, David McGrath, Kate Warwick and Vaughan Strawbridge as liquidators of Mosaic Brands.
The creditor had alleged a lack of independence due to prior connections between Strawbridge and the collapsed fashion group, alongside two other contentions – an alleged invalid vote to wind up Mosaic Brands and that Strawbridge, as lead liquidator, should have exercised his casting vote in favour of appointing alternative liquidators.
According to the court judgment, Strawbridge was a partner at Deloitte from between 2008 and 2020. From around March 2020, Deloitte was retained to provide services to the Mosaic Group pursuant to three engagements in which Strawbridge was either primarily responsible or the “review partner”.
Judge Moore J pointed out this is not simply about whether Strawbridge has done some prior work with Mosaic, but whether he will show partiality in his current role. The court in the end had dismissed this notion.
The judge also indicated that the winding-up vote had run according to due process, and was not persuaded by the argument that Strawbridge should have exercised his casting vote.
In his final summary, Judge Moore J highlighted that removing the current FTI Consulting liquidators could delay outcomes from the ongoing investigation.
“The defendants submit that the removal and replacement of the Liquidators would cause significant prejudice to the creditors, who will not only lose the benefit of the investigations performed to date and the substantial funding available to the Liquidators, but will have the detriment of the considerable time that a replacement liquidator would need to spend familiarising themselves with the Mosaic Group’s books and records and the complex business affairs of the Mosaic Group,” the judge shared. “I accept this submission.
“Mr Strawbridge and the other Liquidators have been considering and investigating the affairs of the Mosaic Group for over a year, since 28 October 2024. Their removal will necessarily result in delay and duplication of work, and the identified funding available to the replacement liquidators was considerably less.”
Judge Moore J concluded his verdict by suggesting the appointment of special purpose liquidators to deal with claims against Mosaic’s directors, the fashion group’s law firm Hamilton Locke which Strawbridge had spoken with in 2020 and Deloitte, "other than claims against Hamilton Locke or Deloitte that can have no connection with the period prior to Mr Strawbridge’s retirement from Deloitte.”
Another hearing has been called for December 8 to resolve this verdict.
Strawbridge told creditors in a circular this week that until the formal orders have been made regarding the special purpose liquidators, the firm’s role with Mosaic remains unchanged.
The group of liquidators continued their investigation after Mosaic was placed into liquidation on July 2 this year, and still have more work to do according to a statutory report shared to creditors on October 1 this year. This includes lodging a supplementary report with ASIC.
The statutory report indicated that Mosaic Brands was potentially insolvent from December 31, 2020 – “and potentially earlier” – until the time of FTI’s appointment in October last year.
The gross amount of unsecured debts incurred by Mosaic since its insolvency, and that remain outstanding as at October 1, total around $196 million.
FTI noted that based on the current estimated date of insolvency of December 2020 and funding being available to commence and pursue an action, its then estimate of a recovery from a potential insolvent trading claim is between $38 million and $77 million, before costs and funding.