The latest report into past performance of collapsed fashion retailer Mosaic Brands has revealed the possibility of the company’s years-long insolvent trading and voidable transactions.

The report was prepared by FTI Consulting, Mosaic’s administrators, for creditors to help them make an informed decision about the company’s future during the second creditors’ meeting later this month.

The documents included findings of investigations into the company’s potential breaches in the past to identify whether there are any assets that may be recoverable.

The administrators’s preliminary assessment shows that the retailer had been potentially insolvent since December 31, 2020.

They cited several key indicators including persistent trading losses, working capital shortfalls, substantial overdue trade creditors, limited funding and inability to produce accurate cash flow forecasts.

The report noted that directors have the duty to prevent a company from trading while insolvent, as per the Corporations Act. Breaching this means that a director may be ordered to pay an amount equal to the loss or damage suffered by creditors.

However, directors can raise certain defences, referred to as safe harbour, to protect them from being pursued for such an action. 

“Our current estimate of a recovery from a potential insolvent trading claim is between $38 million and $77 million,” the administrators stated. “These estimates reflect our view on the inherent uncertainty involved in any litigation.”

In addition, the report also shed light on possible voidable transactions including uncommercial transactions related to Mosaic’s acquisition of Ezibuy in 2019 and 2020 as well as unfair preferences.

Founded in 1977, Mosaic owns clothing brands such as Noni B, Millers, Rivers and Katies. The company collapsed into receivership last October.

The receivers from KPMG had planned and executed the wind-down of more than 600 stores over a five month period, with thousands of staff impacted.

The administrators began pursuing a sale of the company immediately after their appointment and by January 29, all interested parties had withdrawn from the process.

The second creditors’ meeting will take place on June 20, during which creditors will decide between three options – executing of a deed of company agreement (DOCA), ending the administration process, or winding up the company.