Will Thorp and Zareen Qayyum unpack the Federal Court’s decision to grant leave for the ACCC to proceed to trial against Mosaic Brands Limited.
On 30 January 2025, Wigney J of the Federal Court of Australia granted leave for the Australian Competition and Consumer Commission (ACCC) to proceed to trial against Mosaic Brands Limited (Mosaic), which entered voluntary administration on 28 October 2024 and is now entering liquidation.
This decision follows a range of recent proceedings by the ACCC where it obtained significant penalties against insolvent companies for breaches of the Australian Consumer Law (ACL)[1]. These proceedings demonstrate that the ACCC will continue to pursue contraventions even where a company no longer operates or is unable to pay a penalty, highlighting deterrence as a major aim of the ACCC’s enforcement strategy. In this post, we explore ACCC’s motivation to continue to pursue insolvent companies like Mosaic.
Background to ACCC v Mosaic
On 4 March 2024, the ACCC commenced proceedings against Mosaic under the CCA. The ACCC alleges that Mosaic contravened the Australian Consumer Law (ACL) by:
- making false or misleading representations to customers by representing that it would deliver goods within the delivery timeframes on its website, when in fact customers faced excessive delays in deliveries;
- wrongly accepted payment for goods when it failed to deliver orders within the advertised timeframes, or within a reasonable timeframe, or at all; and
- misrepresented consumer guarantee rights in the terms and conditions on its websites.
On 28 October 2024, Mosaic entered voluntary administration. Early this year, it entered liquidation. On 30 January 2025, Wigney J in the Federal Court of Australia granted an application by the ACCC for leave to continue its proceedings against Mosaic.
What are the considerations for the Court granting leave to proceed against an insolvent company?
The ACCC submitted an application for leave to proceed against Mosaic in accordance with section 440D(1) of the Corporations Act, which provides that:
During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:
a. With the administrator’s written consent; or
b. With the leave of the Court and in accordance with such terms (if any) as the Court imposes.
Prior to the hearing of the application on 30 January 2025, Mosaic’s administrator provided the ACCC with consent under s 440D(1)(a). Prior to granting leave, during the hearing Wigney J still referred to the list of considerations to grant leave, laid out in Clean Energy Regulator v E Connect Solar & Electrical Pty Ltd [2023] FCA 1082 (‘E Connect’) at [17] (a)-(h), as follows (emphasis added):
| Considerations for granting leave (per E Connect) | Summary of Wigney J’s Findings |
| Whether the applicant has established that there is a serious question to be tried. | There is a serious question to be tried. |
| Whether the relief sought is not otherwise available in the liquidation process. | The relief sought by the ACCC (including pecuniary penalties) is not available in the administration process. |
| Whether there is a public interest in enforcing compliance with, and preventing conduct that is in contravention of, a statutory scheme. | There is a ‘clear public interest’ in the ACCC enforcing the ACL. |
| Whether there is a public interest in allowing the applicant to fulfil a statutory duty, particularly for the purpose of obtaining orders that give effect to the objective of general deterrence. | There is a ‘clear public interest’ in permitting the ACCC to fulfil its statutory duty to deter others who may be in a position to engage in such conduct. |
| The stage to which the proceedings have progressed, and the extent to which the applicant has expended time, effort and money in prosecuting its claim. | The proceeding has been on foot for 9 months to the point where the ACCC can file its evidence, and that the ACCC must have invested considerable time and money. |
| Whether the claims in the proceedings raise complex questions of fact that are more appropriate for determination by the Court rather than under a proof of debt procedure. | The proceeding raised complex questions of fact that are most appropriately dealt with by the Court. |
| The potential for creditors of the company to suffer prejudice. | The grant of leave will not cause material prejudice, as the administrators had consented to the grant of leave and have indicated that they will not defend the proceeding. |
| Finally, the fact that the company has no ability to pay a penalty sought in the proceedings does not weigh against the grant of leave. | The fact that Mosaic will be unable to pay does not weigh against the grant of leave. |
The importance of general deterrence
The two ‘public interest’ considerations underlined above were emphasised by Wigney J in granting leave to proceed. These offer insight into why the ACCC chooses to take action against companies that are unlikely to continue to operate or to comply with the remedies sought, including by paying any penalty. His Honour commented that there was ‘clear public interest’ in the ACCC enforcing the ACL, and in permitting the ACCC to fulfil its statutory duty to deter others from engaging in such conduct. He granted leave on the condition that the ACCC will not enforce any relief without further leave of the Court.
As part of its role to administer and enforce the Competition and Consumer Act 2010 (CCA) and other legislation, the ACCC may seek pecuniary penalties under s76 of the CCA and s224 of the ACL. The ACCC’s guidelines on its approach to penalties emphasise the role of deterrence in determining the penalty the ACCC will seek, and even note that:
In some cases, an overall penalty that may result in the contravenor becoming insolvent, but is no greater than is necessary to achieve the objective of general deterrence, may be sought by the ACCC.
This is consistent with recent guidance from the High Court in Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 that the primary, if not sole object of civil pecuniary penalties is deterrence of contraventions ‘of a like kind’ to the contraventions found by the court.[2]
The ACCC’s focus on deterrence was reflected in the penalties it sought against insolvent companies in the past for breaches of the ACL. In 2023, the Federal Court imposed record penalties of $438m against insolvent vocational college Phoenix Institute of Australia Pty Ltd and its marketing arm Community Training Initiatives. Perry J, in handing down the record penalty, stated that ‘such egregious contraventions emphasise the need to impose a substantial penalty in order to send the strongest possible message of deterrence to others’.[3] The previous record penalty was handed down in 2021, when the Federal Court ordered $153m in penalties against Australian Institute of Professional Education Pty Ltd (in liquidation) (AIPE).
Commenting on the penalty against AIPE, then-ACCC chair Rod Sims said in the ACCC’s media release that:
The magnitude of these penalties should serve as a significant warning to all Australian businesses that there can be very serious consequences for those who choose to engage in misleading and unconscionable conduct.
These cases also demonstrate the willingness of the Courts to impose significant penalties for breaches of the ACL for the purpose of general deterrence, despite the insolvent state of the companies.
Key takeaways
The history of proceedings against insolvent companies sends a clear warning that insolvency or potential insolvency will not spare a company from action by the ACCC.
Whether Mosaic receives a penalty on the scale of past proceedings remains to be seen, but we will keep an eye on the case as it develops piece by piece.
[1] Schedule 2, Competition and Consumer Act 2010 (Cth) (CCA)
[2] Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 [9], [10] and 15.
[3] Australian Competition and Consumer Commission (ACCC) v Phoenix Institute of Australia Pty Ltd (Subject to Deed of Co Arrangement) (No 3) [2023] FCA 859 [87]
