By Jessica Yun and Anne Hyland
The parent company of budget clothing brands Millers, Katies, Noni B and more is seeking advice on options to refinance and restructure the company as it struggles to recover from a pullback in consumer spending, a botched technology rollout and poor sales.
The share price of ASX-listed clothing company initially nosedived 24 per cent after emerging from a trading halt shortly before midday on Wednesday, following confirmation it had engaged Deloitte to advise on “refinancing considerations”, including safe harbour provisions, as first reported by The Australian Financial Review. Its shares ended down 13 per cent to 4¢.
The parent company behind budget clothing labels Noni B, Rivers, Katies, and Millers is seeking advice on navigating financial difficulty.Credit: AAP/Dave Hunt
The group, known as Mosaic Brands, is also facing a slew of complaints from clothing suppliers in Australia and China who claim they have outstanding payments, some as long as two years. The claims are outlined in liquidator reports and also on social media posts.
“[Mosaic] wishes to confirm that its directors have and continue to take advice from advisers on their ongoing duties. These fiduciary obligations are matters the board has always taken seriously, and we confirm that the advice provided has extended, from time to time, to considering the applicability of, and compliance with, the safe harbour provisions,” the company said in a statement.
“The group confirms that during this time, Deloitte has been advising the company on refinancing considerations that have previously been announced to the market.”
Safe harbour provisions protect company directors, who are responsible if a company trades while insolvent, from personal liability for debts incurred by an insolvent company, if they take action that will lead to a better outcome for company and creditors than if it were to appoint external administrators.
Mosaic Brands, which employs 4000 staff and has about 700 stores, has struggled in recent years and was caught on the back foot during the COVID-19 pandemic when it had to shut its stores and rapidly improve its online shopfront. In 2020, the company recorded a $170.5 million loss despite $736.8 million in revenue.
The company’s revenue has since fallen and has cycled in and out of profitability, recording an $11.5 million loss in 2022 and a small profit of $1.2 million in 2023 despite notching over half a billion in revenue both years.
It is expecting to report a deeper loss for the 2024 financial year in the range of between $15 million and $20 million, partially driven by disruptions from a botched technology migration project involving a new logistical supply chain platform.
This impacted Mother’s Day trading to a degree that was “greater than expected”, delaying the delivery of stock to stores in the lead-up to Mother’s Day. “This, combined with softness in consumer spending, severely impacted revenue and earnings in the fourth quarter,” Mosaic said in a statement from June 21.
Mosaic has close to 100 suppliers. A handful of them in Australia and China have complained about not being paid by the clothing group.
One of those suppliers was Faith Fashion, which went into liquidation in 2022. Darren Vardy, of Insolvency Options, which prepared the liquidator’s report, found that Mosaic owed Faith Fashion almost $197,000. In May 2022, he asked that the bill be paid but so far, it hasn’t.
Vardy’s report noted that Mosaic became Faith Fashion’s sole customer after 2019. Mosaic would place orders with Faith Fashion to have clothing manufactured in India, China and Bangladesh.
Vardy said after some investigation into Faith Fashion’s trading history with Mosaic, he found Mosaic had “continually failed to recognise all invoices outstanding”, “short-paid invoices without providing documentation in support of any deductions made”, “paid invoices outside the terms and conditions set out in the supply agreement”, “delayed the delivery of orders”, and cancelled orders where goods had already been manufactured, resulting in the inability of Faith Fashion or manufacturers being able to recoup their costs.
He also found that: “In or around July 2021 it was discovered that Mosaic had approached [Faith Fashion’s] suppliers directly to have goods manufactured. This has led to a significant decrease in the company’s revenue given that Mosaic was no longer purchasing products through the company. Creditors should note that the company and Mosaic entered into a confidentiality agreement which, inter alia, prohibits this conduct.”
Vardy was of the preliminary view that “Mosaic may have directly contributed” to Faith Fashion’s failure, and lawyers were engaged to consider action against Mosaic.
Another Australian supplier, On Trend Fashion Services, was owed a small sum by Mosaic when it went into liquidation in 2021. A liquidator’s report of that company, also done by Vardy, found Mosaic’s delay in payments and cancellation of orders to On Trend, partly caused by the pandemic, had contributed to its decline. On Trend and Mosaic had also come to a financial agreement after the former had failed to deliver certain products.
In China, a supplier, Jane Cheng, who is based in Ningbo, took to LinkedIn to make posts about late payment and having to delay the delivery of goods to Mosaic. She said this had caused her business hardship and that she had faced difficulty paying her workers.
Another Chinese supplier took to LinkedIn and claimed to be owed $1.26 million from two years ago by Mosaic. A supplier in Bangladesh was last week chasing $50,000 owed to it by Mosaic in correspondence seen by this masthead.
A Mosaic spokesperson said the company at times had disputes with suppliers. “We work with over 100 suppliers globally, many of who have been with us for over a decade, worked with us through the challenges of COVID, and continue to work with us.”
Mosaic is fighting a lawsuit brought by the consumer watchdog for allegedly failing to meet advertised delivery timeframes for several hundred thousand products, which saw some customers pay for items that never arrived.
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