There’s nothing like having FEG chieftain Henry Carr and his team standing in the shoes of almost 2,800 employees to keep receivers on their toes and the KPMG foursome appointed to the assets of the Mosaic Brands clothing enterprise are no exception.
“This is a zero sum exercise where the success of the Commonwealth would come at the expense of the secured creditors.” NSW Supreme Court judge Ashley Black.
With Carr and his people looking over their shoulders Amanda Coneyworth, Ryan Eagle, Gayle Dickerson and David Hardy have for some time been seeking to identify which entity among the Mosaic Brands Limited Group (MBL Group) was the “true employer”.
On Monday the receivers’ application for a declaration as to the answer to this question was heard by NSW Supreme Court Corporations List judge Ashley Black.
Prior to a restructure completed in mid-in 2022 there were four entities in the MBL Group which employed staff. Post that restructure there was one. Noni B Holdings Pty Ltd.
Why the architects of the restructure resolved to nominate a single employer entity in the group when it had no means to satisfy employee liabilities was not explored in any detail by counsel for the receivers Daniel Krochmalik, and whilst the court heard that Noni B Holdings didn’t even have a bank account, the receivers were on no account casting aspersions in the direction of those architects.
“We don’t suggest there is any impropriety,” Krochmalik told the judge after explaining the outcome of restructure. “We don’t for example suggest it’s a sham”. No indeed.
What the receivers do suggest is that MBL was for all practical purposes the employing entity given it paid the wages and entitlements.
Krochmalik said that if the circulating asset realisations the receivers have achieved were paid to the Commonwealth as priority unsecured creditor to satisfy the almost $22 million paid to MBL Group employees via the FEG scheme then there’ll likely be a shortfall in the amount they can recover for their appointor and senior secured creditor, HUK 137, a subsidiary of Hilco Global.
Further, even if HUK 137 is paid in full Krochmalik said there was the possibility that the junior secured creditor comprising MBL’s debenture holders will take a loss.
The judge acknowledged what was at stake, describing the dispute as “a zero sum exercise where the success of the Commonwealth would come at the expense of the secured creditors”. Not exactly music to the receivers’ ears but they are in the end creatures of statute.
While the Commonwealth was represented at the hearing by Banco Chambers’ Vanessa Whittaker SC there was no appearance on behalf of the secureds, who may be waiting to learn what Justice Black decides.
If so they it’ll be only a short wait. His honour indicated on Monday he would likely deliver judgment this week.
it is a pity that the “employer” did not have a bank account from which entitlements of “emplyees” after reconstyruction could be paid. One must also wonder about the reorganisation of employees around the group into Noni B and the express arrangements with the respective trading intities.
No doubt a liquidator will investigate the true nature of the arrangement according to accepted legal principles.