The retail sector is currently facing a perfect storm of rising costs and shifting consumer behaviour. In this episode, we pull

apart the collapse of Mosaic Brands, a retail giant that grew too fast and left a trail of 380 million dollars in debt. It is a cautionary tale about the dangers of aggressive expansion and the hidden risks for suppliers who think a big brand name equals safety.

We look at the specific tactics used to stretch cash flow, including pushing payment terms out to over 200 days and the administrative hurdles that kept suppliers from getting paid. We also examine the critical legal battle over liquidator independence and why the court had to step in to ensure a fair investigation into the directors' conduct.

What You Will Learn:

• Why retail insolvencies have jumped by 37 percent in a single quarter
• How aggressive acquisition strategies can leave a business vulnerable to external shocks like COVID-19
• What it means when a major customer starts using their suppliers as a bank
• Why retention of title clauses fail when payment terms are excessively long
• The importance of independence and avoiding conflicts of interest in insolvency proceedings
• How safe harbour advice can impact future liquidation investigations

Notable Quotes:

• Retail insolvencies have jumped 37 percent in the December 25 quarter. That is a huge impact.
• What Mosaic did was use their suppliers as their bank. They held payments back to enable cash flow within the business.
• You cannot be the liquidator if you did the safe harbour because you are not independent.

There is always a way forward when you know your options.

Key Takeaways:

• Aggressive growth without sufficient cash reserves is a recipe for disaster when market conditions change.
• Suppliers must be vigilant when payment terms stretch beyond 120 days, as this often signals deep financial distress.
• Big brand names do not guarantee financial stability; many are operating on razor-thin margins with high rental overheads.
• Professional independence is essential in insolvency to ensure that potential claims against directors are properly pursued.

Who Should Listen: Business owners, company directors, lawyers, accountants, and anyone wanting to understand financial distress warning signs.

About the Host:

Darren Vardy - Managing Director of Insolvency Options and Registered Liquidator with over 30 years of experience in business recovery and debt solutions. Darren has helped thousands of businesses and individuals navigate financial distress and find practical solutions to complex problems.

Connect With Us:

• Website: insolvencyoptions.com.au  • Phone: 1800 463 328 • LinkedIn: https://www.linkedin.com/in/darrenvardy/

Subscribe & Follow:

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Co-host: Anthony Perl

Produced by: Podcasts Done For You

#retailcollapse #mosaicbrands #businessadvice #liquidation #cashflow #australianbusiness #suppliersrights #insolvency

Retail insolvency and Mosaic Brands, when suppliers become the bank.

2

Welcome to IO Insolvency Options with

Darren Vardy, the managing director

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of Insolvency Options and a registered

liquidator with over 30 years of

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experience helping businesses and

individuals navigate financial challenges.

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In today's episode, Darren explores

the pressures facing the retail

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sector through the collapse of Mosaic

Brands and its impact on suppliers,

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creditors, employees, and consumers.

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He explains how rent aggressive

acquisitions, extended payment terms,

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COVID disruption, and supplier funding

can combine to create serious insolvency

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risk, even for well-known brands.

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You'll hear why safe harbor

advice, independence, and conflicts

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of interest matter when major

corporate failures are investigated.

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I'm your co-host, Anthony Perl.

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Let's dive into unlocking

more about insolvency options

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Darren Vardy: Darren, let's talk

a little bit of retail here.

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It's a sector which is really high

on the list of those that are seeing

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them go into administration and

some well-known brands in that mix.

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Mosaic Brands is probably the one

story that we can tell from the start.

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So fill us in a little bit about

what's going on in the sector and

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about the Mosaic Brands story.

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Yeah, sure.

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So retail insolvencies have jumped

37% in the December 25 quarter.

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So that's a huge impact.

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But when we talk retail, we

talk everything from large

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multinational organizations such

as Mosaic Brands down to, you

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know, the local fish and chip shop.

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Now, I guess the thing to remember

with any retail, quite often

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one of the largest expenses for any retail

organization is rent and where you have

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leases which provide for an increase in

rent year on year at a fixed rate greater

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than CPI, quite often you will find

that your rental cost as a percentage

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of income is starting to slowly creep up

and become uncommercial or uneconomical.

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What you also have with that is when

we look at, you know, Mosaic Brands,

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it had been around for quite a long

time and went through a rapid growth

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phase from 2015 through to 2019,

where it sought to acquire the vast

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majority of the brands that existed

at the time of the appointment of

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the voluntary administrators in 2024.

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Now, this business was adversely

impacted by COVID-19 pandemic.

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It had to temporarily close 1,379

stores and stand down 6,800 staff in

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March 2020 To then work out what are

we going to do with this business?

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So we're talking a very large concern.

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They've grown extensively with the

various brands it had purchased.

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Where COVID-19, because, you know, we

couldn't go out, we couldn't enter,

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we couldn't socialize with people.

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We're unable to go to the shops.

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The business almost

effectively stopped overnight.

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Now, what it did do was to enable it

to continue to operate in a, I guess a,

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a different and more limited capacity.

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They raised some capital to stay afloat

while the pandemic restrictions were

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on, hoping that it would ease, and

it also pivoted into online trading.

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So during the 2020, 2021, they managed to

limp along, and that wasn't without issue.

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They were fined in May of 2021 by the

ACCC for making false and misleading

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claims pertaining to their hand

sanitizers and face mask products.

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Then in September 2022, there were false

claims regarding two other products.

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So there were issues.

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And then we had March '24, where the

ACCC actually brought proceedings

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against the company for allegedly making

false and misleading representations

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to consumers about their delivery

time frames and their rights

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regarding refunds or faulty products.

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And you may recall that that was,

I guess, in the papers in respect

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to the Rivers brand mostly.

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So after the company was placed into

administration, or immediately when

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the company was placed into voluntary

administration, its financiers appointed

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receivers and managers to try and

realize the assets on behalf of the

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financiers, and the company was placed

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where the final debts are reported

to be in excess of $380 million.

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Now, there are reports out there

that the expansion strategy was quite

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convoluted and very aggressive, that

it disregarded its suppliers, that

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they were acquiring already struggling

chains or brands at bargain prices.

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But the expansion really stretched

thin the company's resources.

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And so at the time COVID came along,

it was already at its thinnest point,

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where the pandemic really was the

perfect storm that really triggered

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the total collapse of the company.

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Now, I am, and I have been, the

liquidator of two of its suppliers,

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and so I've got some inside information

in regard to how those suppliers

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were treated by Mosaic Brands.

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Now, what I can say is that

payables stretched from 120 days

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to in excess of 200 days, right?

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So by the time payment was being made,

you know, any stock that had been

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delivered had well and truly been sold.

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So even if a supplier had a valid

security interest and was protecting its

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stock by virtue of a retention of title

clause, that when the company went into

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liquidation, they had the ability to

go in and say, "Well, that's my stock.

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You haven't paid for it,

therefore, I can take it back."

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Given the excessive payment terms,

that stock certainly would not

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have been there for which any

supplier could lay their claim over.

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When invoices were being chased by

these suppliers, there were allegations

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that invoices had not been received,

so therefore not accounted for.

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You know, resulting in the suppliers

having to, to supply them again, and

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in certain circumstances, supply them

three, four, five times, resulting

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in further delays in their invoices

being dealt with and processed

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and to enable payment to be made.

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And what we also found was that towards

the end, payments would be made and

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there were arbitrary deductions.

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No explanation, no factual or contractual

basis for the deductions, which resulted

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in the suppliers having to then fight

for what they weren't paid So these were

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the things that had been encountered

by not just the two suppliers that I'd

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been appointed to, but by all suppliers.

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And when you look at the history of

conduct, in my view, view, I think it's

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clearly evident that what Mosaic did

was use their suppliers as their bank.

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Wow!

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Not the max office, not a financier, but

simply held their suppliers-- payments

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to their suppliers back to enable cash

flow within the business because the

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stock had been sold, which allowed for

that aggressive acquisition campaign.

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And all of that then comes back to,

well, at what point in time did the

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company begin to struggle financially?

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And that is something that to this

day is still being part of an ongoing

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investigation, because where you have

debts of a company in excess of three

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hundred and eighty million dollars, and

granted, there's probably think about

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seventy-five million dollars relates to

crystallized employee entitlements, so

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they may not be trading debts per se.

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Even if we say two forty, two fifty

million in trading debts, we look at

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how long have they accrued and how

long have they been outstanding for

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in circumstances where the very stock

supplied by those suppliers has been sold

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in real time, but the debt has remained

outstanding for in excess of six months.

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It's a really interesting

scenario, isn't it?

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That…

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And we're just looking at this at a

high level at the moment, but that kind

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of situation is also begs the question

that when did they realize that this

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was a problem and who was accountable

for not realizing that it was a problem

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much sooner, or what were they doing?

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Sure.

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So in this particular instance, it has

been identified that in or around the

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time of COVID, the board of directors

and the executive sought to engage some

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professional advisors in respect to

Safe Harbour, which is an insolvency

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mechanism to avoid any personal exposure

liability for insolvent trading and

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to prepare and enact a plan for-- to

attempt to turn the business around.

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Now, given the nature of this business

and given the impact of COVID-19, I

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wouldn't expect anyone else in their

position to do anything otherwise.

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I think it was a smart move to seek

some advice from a Safe Harbour point of

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view to determine how they can proceed

forward and turn the business around

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to ensure that they minimize any loss

to its creditors at that point in time.

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A couple of issues come out of that,

and they've been in the courts of late

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in respect to the actual insolvency

practitioners appointed, and the issues

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that are playing out in the courts are

in respect to, you know, insolvency

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practitioners' conflicts of interest.

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Because it was discovered that

the administrator, uh, one of the

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administrators at his former firm,

Deloitte's, had actually been engaged

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by the company's external lawyers to

provide advice on the safe harbor, only

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then three years later to be appointed as

voluntary administrator of the company.

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Now, the issue that arises with that,

and as has been, is that firstly, there's

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an independence issue, and I believe the

rules are pretty straightforward as they

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are for small business restructures, that

if you do a small business restructure or

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you do a safe harbor, you cannot be the

liquidator because you're not independent.

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So in this instance, one of the overseas

creditors, one of the suppliers from

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China who was owed a significant amount

of money, after attempting to remove

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and replace the administrators as

liquidators through a creditors meeting,

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made an application of the court.

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And the court proceedings went on for some

time, and during the course of the course

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proceedings, the particular administrator,

liquidator was cross-examined, and

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the judge having regard to the nature

of the conflict issue in the case

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and notwithstanding the practical

consideration against his removal, did

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not consider that that liquidator could

continue to have conduct given the

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potential claims against the directors.

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Now, we've got to remember, it's

the directors that you're advising

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on a safe harbor engagement.

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It's the directors that appointed

this particular practitioner

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as the voluntary administrator.

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So even if there wasn't an actual

conflict, there is certainly a perceived

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conflict, particularly where given

the extent of monies outstanding to

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creditors, over three hundred and eighty

million dollars, one would suggest that

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claims would exist against the directors

for insolvent trading, and that would

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need to be properly and appropriately

investigated and, if necessary, pursued.

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Interesting enough, the judge also did

not consider it appropriate for this

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particular practitioner to have conduct in

potential claims against Hamilton Locke,

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which was Mosaic's legal advisors, or

Deloitte's, because it's arguable that

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some claims may actually exist as a result

of their safe harbor advice, all of which

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needs to be properly, appropriately,

and independently investigated.

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So in this case, what the judge did

was order that some practitioners

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from Weckstead Advisors be appointed

as special purpose liquidator to

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actually pursue those claims that

he thought was inappropriate for

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the incumbent liquidators to pursue.

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And that's all playing out in the

courts as we speak, and will probably

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will continue to do so in the-- over

the next eighteen months to two years.

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Anthony Perl: Well, that's all we

have time for in this episode, but

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next time on IO and Solvency Options,

we'll continue the Mosaic Brand

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story and look more closely at the

lessons for retailers and suppliers.

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Darren will explain why familiar

brands are not automatically safe, how

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suppliers can protect themselves through

contracts, retention of title, and PPSR

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registrations, and why income is not

the same thing as profit when payment

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terms and margins are under pressure.

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We've created a workbook for the episode

you've just listened to with some

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questions for you to answer, some key

quotes, and action steps to follow.

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Check out the show notes for

the link to download your copy.

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For details on how to get in touch

with Darren and his team on insolvency

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challenges, please consult the show notes.

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This podcast is produced by my

team at podcastdoneforyou.com.au,

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helping professionals share

their expertise through

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powerful podcast content.

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If you found value in today's episode,

please like, comment, share, and

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subscribe wherever you're tuning

in to IO and Solvency Options.

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Until next time, remember, there's always

a way forward when you know your options