Mossgreen raided client money to fund its losses — administrator urged criminal charges

Mossgreen, once Australia's biggest art and antique auction house with offices in Melbourne, Sydney and Auckland, ceased trading on Christmas Eve 2017. Its administrator BDO spent four months on a 100-page report distributed in April 2018 to more than 300 creditors: the company had debts of $13.8 million against assets of $3.2 million, had potentially traded insolvently from as early as December 2013, and had breached nine separate sections of the Corporations Act, by BDO's assessment.

The core mechanism was a 'client bank account': money paid by purchasers at auction went in, and the company withdrew it 'in a haphazard manner' — generally round sums of $100,000 or $200,000 — to meet general trading expenses and fund ongoing losses, with no reconciliation to the commission Mossgreen was actually owed. A stocktake found the inventory records 'grossly insufficient for a business in this industry': the books listed 34,000 consigned items, but only 6,995 could be located, and an initial sample of the 100 highest-value items found 98 no longer in the company's possession.

BDO also flagged auction conduct it called comparable to insider trading: director Paul Sumner, acting as auctioneer, would announce items 'sold to an absentee bidder' without disclosing that the bidder was his private vehicle, Ivanhoe Trading — leaving room to exploit provenance knowledge, secret reserves or marketing control. The report recommended ASIC consider criminal charges once Mossgreen entered liquidation, citing potential reckless or dishonest breaches of directors' duties. Sumner called it a 'highly inaccurate' report with 'scurrilous and defamatory allegations'.

Mossgreen treated auction purchasers' money as a company float: round-sum withdrawals funded day-to-day losses the operating business could no longer cover.

Inventory controls rotted alongside the finances — 98 of a sampled 100 top-value consignments could not even be located — the telltale of a business living beyond its means.

The director's undisclosed self-bidding through Ivanhoe Trading created the same information asymmetry insider-trading rules exist to prevent, in what BDO described as an unregulated auction industry.

Losses were financed rather than addressed for years — insolvent trading was alleged from December 2013 — compounding into a $10.6 million shortfall by the collapse.

Client money is not working capital: an intermediary that spends consignors' proceeds to stay afloat is insolvent trading with other people's property — and inventory is where it shows first.

BDO's report, dated 24 April 2018, went to more than 300 creditors ahead of a 4 May meeting in Melbourne. Administration had already been disrupted: BDO's attempt to make consignors pay for the return of their own items failed on appeal, with the Federal Court holding that general creditors should fund returns — and with no funds, responsibility shifted to the warehouses holding the works. Sumner rejected the allegations as 'scurrilous and defamatory', saying he did everything he could to avoid knowingly trading insolvent. The source article does not report whether charges were laid.