Australia's biggest company collapses cost taxpayers millions

News.com.au

a day ago

Australian taxpayers were forced to fork out $258.5 million last financial year thanks to the collapse of several high profile companies.
News.com.au can exclusively reveal how much a government scheme paid out for employee entitlements owed by failed companies, with some of the country's most recognisable brands topping the list.
Retail giant Mosaic Brands – owner of Millers, Rivers, Crossroads, Katies, Noni B and Autograph – spectacularly collapsed last year owing a whopping $318 million, with more than 4000 staff members impacted.
It topped the list for the biggest payout to employees from a government scheme called the Fair Entitlements Guarantee (FEG) last financial year.
Almost 1150 former employees from Noni B made a claim, with the scheme shelling out an extraordinary $11.2 million.
Two airlines that dramatically collapsed last year took out the spots for second and third biggest payouts from FEG.
More than 310 former employees from Rex received $7.3 million worth of entitlements after it went into voluntary administration, but the airline continues to operate as a buyer is sought.
Meanwhile, Bonza's collapse also saw 300 claims with $6.9 million paid out to employees.
Another Australian company Montoro Roofing took out the fourth spot with 105 claimants that received $6.7 million.
The high profile collapse of Booktopia, which was later bought out and resurrected, rounded out the top five with the scheme laying out just over $4 million to 150 former employees.
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University of Sydney corporate law professor Jason Harris said Australia is seeing an increasing number of companies go bust every year. He attributed this to higher interest rates, Covid assistance schemes no longer propping up failing firms and tax collections being enforced with small business tax debts sitting at more than $30 billion.
Yet it wasn't just Australian employees impacted by Mosaic Brands - overseas suppliers in developing countries were left with a serious amount of unpaid debt, Mr Harris noted.
A liquidator's report showed that 23 factory owners in Bangladesh were owed a total of $30 million by Mosaic.
'The company had an (alleged) pattern of behaviour over years of underpaying their suppliers and not paying them,' Mr Harris said.
'Mosaic Brands also got fined by the Fair Work Ombudsman's Office for underpaying their employees. So the company had problems for years. It's not at all surprising that they were one of the top claimants.'
In 2023, NSW Employee Relations Inspectorate uncovered systemic underpayments of long service leave to 223 workers arising from payroll system errors at Mosaic Brands and its subsidiaries. The company pleaded guilty to 324 offences and led to a $29,000 fine, which was a NSW record at the time.
Meanwhile airline businesses don't have many assets, Mr Harris explained, given there were two operators with some of the biggest FEG claims.
'It sounds weird but most of the planes are leased. Often the assets, are the landing spots that you have at the major airports and not a lot else,' he said.
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But there was one crucial entitlement missing from FEG's payout – superannuation – a huge issue generally when it comes to company collapses, Mr Harris added.
'There may well be employees whose retirement futures have been destroyed because their employer hasn't been paying or they're not keeping up with their super. Insolvency practitioners – I think it's in excess of 60 per cent of the reports that they file with ASIC say that there's underpaid super and that's been the case for years,' he said.
'Most people don't keep turning up to work if you stop paying them wages, but a lot of people don't understand their super. So they don't know how to check whether or not the payments that are going in are correct or whether there's an underpayment and then that accumulates.
'In some cases, it ends up pushing some companies under because the penalties for getting the super wrong can be very high. But that's cold comfort to the employees who then don't get paid their super and it's not covered by FEG.'
Critically, Mr Harris said early intervention is desperately needed before things go terribly wrong with companies, adding generally the system currently lets corporate issues slide a lot of the time.
'A lot of businesses have warning signs over years. They end up in disputes with the tax office or they have multiple broken payment arrangements. There's red flags. Why do we keep waiting until the whole thing goes off the cliff and then wonder why there's nothing left?' he asked.
'The taxpayers are left to pick up the tab for the employees. Maybe we should be doing a bit more upfront. Maybe we should have more inspectors at the Department of Employment and Workplace Relations. Maybe ASIC should be bringing more enforcement cases. Maybe we could properly fund the Assetless Administration Fund. There's things that we can do that would reduce the concerns in this area.
'But every year we complain about it. Every year there's a new example of … workers losing out on entitlements. At what point do we say we actually want to fix this?'
An ASIC spokesperson said the corporate regulator is not resourced to do more than around 150 to 200 investigations a year.
Insolvency firm Jirsch Sutherland partner Chris Baskerville said construction is still the leading industry for corporate failure in Australia at the moment, followed closely by hospitality and retail, although professional services were starting to creep up.
He said data from last financial year saw 15,000 companies go bust – more than the 11,000 that collapsed during the GFC.
Little known was that FEG became one of the highest priority creditors after paying out entitlements, he added.
'Often we will go to FEG asking for funding, say if we're chasing a million dollar recovery where employees stand to gain, and we ask would you please fund our litigation so that I'm not going into this without any protection,' he said.
'Otherwise, I'm at full risk. We tend to find that FEG tends to fund either larger matters where there's obviously a greater exposure to FEG or larger firms.'
Meanwhile in the 2024-25 financial year, the Fair Entitlements Guarantee paid $258.5 million in unpaid entitlements to eligible former employees.
A Department of Employment and Workplace Relations spokesperson said FEG is a legislative safety net scheme of last resort.
'(It) funds certain outstanding employee entitlements of eligible employees whose former employer has entered liquidation or bankruptcy and where these entitlements cannot be funded from other sources,' they said.
Other employees who received payouts after companies failed including national food manufacturer HS Fresh Food whose almost 200 staff had $3.7 million paid and A. S. I Electrics saw 180 staff members given $3.3 million.
Another Australian manufacturer Camatic, which collapsed with $29 million in debt, saw 65 employees receive $3.2 million, while a company called Tuftex Carpets had 61 claims amounting to $3.1 million.
Rounding out the top 10 payments from FEG last financial year was construction company Allroads Pty Ltd with 102 employees receiving just over $3 million.
Mr Harris called for the Assetless Administration Fund to be given more government funding so liquidators can prosecute cases.
'They only tip in a couple of million a year. If we've got 15,000 companies going under each year, the vast majority of them have very little or no assets,' he said.
'If they increase that fund so that liquidators could then do their job properly, I think we would see better outcomes and that would actually provide more of a deterrence.
'Running these cases can cost hundreds of thousands, in some cases, unfortunately, millions of dollars. And the Assetless Administration Fund is just insufficient and the resources that ASIC has to go after some of these practices are also insufficient.'
A spokesperson for ASIC said the corporate regulator is in court nearly every day.
'Our investigation numbers have jumped 25 per cent and our new civil proceeding filings are up 23 per cent,' they said.
'ASIC must make difficult decisions about where to dedicate its focus to maximise regulatory impact and reduce harm to consumers and the reality is ASIC is not resourced to do more than around 150 to 200 investigations a year.'
A Department of Employment and Workplace Relations spokesperson said it regularly refers matters to ASIC to investigate whether company directors or other officers should be disqualified from managing corporations where FEG may have been inappropriately relied on.