Mosaic Brands - Case Update

The Supreme Court of New South Wales has issued a key decision in the administration of Mosaic Brands, determining who was the “true employer” of the group’s employees for the purposes of the Corporations Act 2001 (Cth) priority regime. This was crucial to establishing whether employee entitlements of about $21.3 million were payable in priority from circulating asset realisations of $205 million, before distributions to secured creditors.

The Mosaic Group, the retail giant behind nine brands including Rivers, Katies, Noni B and Millers, and operating 663 stores, collapsed in late October. The decision was made to put the company into voluntary administration after a small number of stakeholders held out their support for a proposed restructuring which was backed by a significant majority of creditors.

Although employment contracts were formally held with Noni B following a 2022 restructuring, the evidence showed that Mosaic Brands—the listed parent—made all employment-related payments (wages, superannuation, workers’ compensation premiums) directly, managed payroll, oversaw remuneration decisions, and controlled employee communications and policies. Noni B had no bank account, no revenue, and no means to meet obligations to staff, operating only as a nominal employer of record.

The receivers argued that Mosaic Brands was the true employer, notwithstanding the contractual references to Noni B. The Commonwealth, as FEG scheme payor and subrogee of employee claims, supported this position. Secured creditors HUK 137 Limited, Melbourne Securities Corporation Ltd (as trustee of the Mosaic Brands Limited Note Trust) and certain noteholders received notice of the application but took no position.

The Court granted the application, citing case law (including Pitcher v Langford (1991) 23 NSWLR 142 at 161; Golden Plains Fodder Australia Pty Ltd v Millard (2007) 99 SASR 461; [2007] SASC 391; Sturesteps v McGrath [2010] NSWSC 169) which establishes that the question of the real employer is to be determined as a matter of substance, having regard to the totality of the relationship between the parties. A person may be an employee of a company even where he or she has an employment contract with a different company in the same corporate group. Courts have also accepted that the true employer is not necessarily the company named as the employer in the formal contract. Where the supposed employer is a hollow shell with no capacity to meet obligations, the entity that actually paid and controlled staff will be treated as the real employer.

The Court therefore declared that Mosaic Brands, not Noni B, was the true employer, meaning that the circulating asset recoveries of Mosaic Brands must be applied first to meet priority employee entitlements (or reimburse the Commonwealth under FEG) before secured creditors can be paid.

The decision can be found HERE.

Professionals involved:

• Daniel Krochmalik of 3 St James’ Hall (instructed by Gilbert + Tobin) for David Hardy, Gayle Dickerson, Ryan Eagle and Amanda Coneyworth of KPMG as the receivers of Mosaic Brands

• Vanessa Whittaker SC of Banco Chambers and John Heard of the Victorian Bar (instructed by Mills Oakley) for the Minister for Employment and Workplace Relations (interested party)