Strawbridge’s Mosaic conflict requires SPL cure

It’s taken almost five months but a Federal Court judge has finally prised open Vaughan Strawbridge’s vacuum sealed eyelids, in the process unveiling byzantine concepts of conflict and independence with which the FTI Holdings restructuring guru was apparently not sufficiently familiar.

“Again, during cross-examination, Mr Strawbridge, while not accepting he had misled creditors, acknowledged that the statements that he did not attend the Board meetings pursuant to any engagement or in a formal capacity were incorrect.” Justice Cameron Moore.

The decision of Justice Cameron Moore Shaoxing Newtex Imp & Exp Co Ltd, in the matter of Mosaic Brands Limited (in liq) v Strawbridge [2025] FCA 1479 will see the concerns Mosaic creditor Shaoxing Newtex Imp & Exp Co Ltd (Shaoxing) had with Strawbridge’s lead role on Mosaic assuaged through the appointment of Wexted Advisors’ Joe Hayes, Jessie Wang and Andrew McCabe as special purpose liquidators (SPLs), though the court has yet to make orders confirming such.

Shaoxing, which is claiming a debt of $23 million, commenced the proceedings on July 7, six days after a meeting of Mosaic creditors over which Strawbridge presided as chairman of the company in administration.

At the July 1 meeting a resolution to appoint the Wexted trio as replacement administrators did not succeed and Strawbridge, along with FTI colleagues Kate Warwick, Kathryn Evans and David McGrath were appointed as liquidators.

Shaoxing had wanted Hayes and his Wexted colleagues appointed because it regarded Strawbridge as hopelessly conflicted.

This belief was based on advice Deloitte provided to Mosaic’s board and executive in 2020, when Strawbridge was still a senior partner at the big four accounting and professional services firm.

Strawbridge had attended three Mosaic board meetings in late March and early April 2020, just as the COVID lockdowns and moratorium on insolvent trading were coming into effect.

Given he and his FTI colleagues have, since being appointed liquidators, identified potential insolvent trading and other claims against Mosaic’s directors it’s patently obvious that Strawbridge has a conflict, particularly given those claims extend to Mosaic’s legal advisors at Hamilton Locke, Deloitte and potentially to Strawbridge personally. Nevertheless Strawbridge sounded wounded in the statement he sent in response to iNO’s inquiries.

“Whilst we are disappointed and are reviewing the judgement in more detail, his Honour did not find the Liquidators should be removed and replaced with alternative liquidators,” the FTI foursome said.

This was true, though the judge must have been influenced in deciding against removal by the almost $10 million in committed litigation funding Strawbridge and his colleagues have ready to deploy in pursuit of the aforementioned claims, a sum that dwarfs the $300,000 the Wexted trio have told the court will be provided by Neil Cussen’s Clover Risk Funding.

Obviously though, Strawbridge can’t be involved in investigations of potential claims against his former firm Deloitte, his engagers Hamilton Locke or himself, leaving plenty of the best cuts in this mixed grill for Hayes, Wang and McCabe, as the judge made clear.

“Having regard to the nature of the conflict issue in the present case, and notwithstanding the practical considerations against removal, I do not consider it to be appropriate for Mr Strawbridge to continue to have the conduct of the potential claims against the directors.

“I also do not consider it to be appropriate for Mr Strawbridge to have the conduct of potential claims against Hamilton Locke or Deloitte, unless there is some clear disconnection between the claim and the period prior to Mr Strawbridge’s retirement from Deloitte – for example, some claim for a preferential payment to Deloitte or Hamilton Locke after Mr Strawbridge had left,” the judge said.

As the judge explained, if nothing else Strawbridge’s recollection of events in 2020 is sketchy, which may explain why he’s had such a hard time accepting that his circumstances enliven a genuine apprehension of potential bias.

” ….. during cross-examination, Mr Strawbridge, while not accepting he had misled creditors, acknowledged that the statements that he did not attend the Board meetings pursuant to any engagement or in a formal capacity were incorrect.” Justice Cameron Moore.

That said the judge emphasised that his conclusion in the judgment did not amount to any finding of wrongdoing or constitute criticism.

“I emphasise that nothing I have said in these reasons should be taken to suggest that Mr Strawbridge has been acting with anything other than integrity, or to suggest that Mr Strawbridge suffers from any actual bias,” he said.

“The Court is instead concerned with whether a fair-minded observer might consider that Mr Strawbridge might not be able to bring an impartial and unprejudiced mind to the task at hand.”

And not only the court. Shaoxing was also clearly concerned when it realised that an officer of the court was either blind to the bleeding obvious or convinced any apprehension of bias allegations were ill founded or manageable. None are more confident than the utterly compromised.

In conclusion the judge ordered the parties to submit draft orders to give effect to the judgment. Given Shaoxing didn’t get an outright win there’s sure to be disagreement over costs and we’ll know more after the matter returns to court next week.