The receivers of the Mosaic Brands Limited Group (MBL) now know the answer to the question of which company in the Group was the true employer of MBLs almost 3,000 sacked employees, and the answer will neither surprise nor delight the receivers’ appointor.
” …. in the language of the case law, there was no intelligible business purpose, or at least no proper rational purpose, for having an employer entity that was incapable of meeting its obligations”. Justice Ashley Black.
NSW Supreme Court judge Ashley Black yesterday declared that MBL was the true employer, despite the Group’s employees’ signing employment contracts with group entity Noni B Holdings Pty Ltd.
Sensibly the court, having been sufficiently informed by the applicant receivers and their counsel Daniel Krochmalik, found that a company that earned no revenue and had no bank account could not seriously reconsidered to be an employing entity for the purposes of determining competing claims for money from group entities – like MBL – that did generate revenue and possessed the means to deposit it and deal with it.
KPMG’s Amanda Coneyworth, Ryan Eagle, Gayle Dickerson and David Hardy approached the court in June to resolve this question having netted some $205 million selling inventory in the wake of a failed attempt to sell the business as a going concern.
Inevitably in the wake of that failure MBL’s 2,800 employees were progressively sacked and, mindful of the impending claims tsunami Employee and Workplace Minister Murray Watt on February 28 granted MBL employees early access to the FEG entitlements scheme, despite the Group not being placed into liquidation until July 1.
Now nobody reading iNO is unaware that the FEG Recovery Unit headed by pugnacious litigator Henry Carr has a standing invitation to every circulating asset banquet going, and never declines the opportunity to deprive a secured creditor of a first bite.
That’s why the Commonwealth appeared before Justice black as an interested party and secured creditor HUK 137 Pty Ltd – a subsidiary of Hilco Global – did not. What would have been the point?
As Justice Black indicated yesterday: “The inventory realisations largely, if not exclusively, comprise realisations of circulating assets and the Receivers recognise that those realisations must be
applied first to pay certain employee priority claims (at least if Employees are employed by Mosaic Brands) before they can be distributed to the secured creditors, namely HUK and noteholders, by reason of s 433(3)(c) of the Act.”
With FEG having paid the employee entitlements for most MBL workers the Commonwealth took their place as priority unsecured creditor and neither HUK 137 or the Noteholders were going to get a seat at the table before Carr and his team had picked the turkey clean.
The decision gives the receivers the guidance they needed to make the right call as to priority of payment but that’s far from the end of the Mosaic story.
In their initial RoCap submitted in November 2024 the receivers identify a claim from Deloitte Finance Pty Ltd for $219, 508.30.
INO asked Coneyworth if the Deloitte claim relates to advice provided to MBL ahead of its 2022 restructuring, which saw MBL shrink its number of employer entities from four to just one, Noni B Holdings.
While we received no response prior to publication Coneyworth did provide some interesting commentary in her affidavit in support of the true employer application.
“There does not appear to me to have been any business objective that was served by having Noni B as the employer of the Employees, given that it had no revenue or assets, was at all times incapable of meeting its obligations to the Employees and was, in consequence, completely reliant upon Mosaic Brands,” she said.
Well, somebody must’ve thought it was a good idea and iNO will continue to investigate the basis for Deloitte’s claim and whether or not it relates to this decidedly odd decision.
Then there is of course the application of China-based creditor Shaoxing Newtex Imp & Exp Co Ltd (Shaoxing) which is seeking to have Vaughan Strawbridge, Kate Warwick, Kathryn Evans and David McGrath removed as liquidators of the MBL group on the basis of an alleged conflict and lack of independence.
Those allegations, which the liquidators and Strawbridge in particular reject, are based on the involvement of Deloitte in MBL’s COVID-era restructurings and Strawbridge’s former role as a partner at Deloitte, despite him leaving in 2020.
The liquidators have meanwhile countered with a security for costs application. Hearing for the replacement and security for costs applications are scheduled for next week.
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Further reading:
Mosaic true employer case a “zero sum game”
Creditor takes on Mosaic liquidators over conflict
What a big surprise that Justice Black would have that to say! That well known “elephant” was standing in front of him, and he was not someone who would ever ignore it.