Adrian Millane inherited the piece of the flag from his grandmother Gertrude Hanlon. It was allegedly given to Mr Millane’s great-grandfather Francis Hanlon by his ‘bosom friend’ Peter Lalor.

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Mr Millane put the fragment up for sale with Mossgreen Auctions in December 2017 to raise funds to assist an orphanage in Bengal, India, the subject of allegations of abuse which Mr Millane had determined he would put to right.

It was purchased by the Victorian Trades Hall Council for $32,000.

Mr Millane has not been paid, and says he is owed around $26,000.

He says he has called the administrators, BDO Australia, to speak about his plight, but doesn’t hold out much hope of being paid.

He has also spoken to a former employee of Mossgreen, who said he was personally devastated for Mr Millane as he knew the funds were going to a good cause.

“I need time to process what my next moves are,” said Mr Millane.

“This collapse has left me with no money and of course no flag.”

Earlier The Age’s Carolyn Webb reported on the collapse of the auction house. 

The art world is reeling with the news that high-profile auction house Mossgreen has collapsed under $12 million of debt.

The company's administrators, BDO, said Mossgreen director and co-owner Paul Sumner was “not in a position to proceed with his proposed restructure of Mossgreen''. Therefore an “orderly wind down of the business'' will begin, according to a BDO statement.

In an interview with The Age on December 26, Mr Sumner vowed all creditors would be paid.

"Not one vendor or one buyer will lose $1 in this process," he said.

But the BDO statement made no reference to whether the company's 400 creditors will get any of their money back, and what has happened to proceeds due to vendors from past auctions.

The statement said all vendors who had consigned goods to Mossgreen for sale would be contacted and arrangements made for return of the goods.

However, BDO said it would conduct a stocktake before returning goods. A timeline was not given.

Toorak businessman Jack Gringlas' family company Jadig Investments is the biggest creditor, being owed $6 million.

It is believed that one major vendor is owed $1.75 million and another is owed about $1 million.

A Sydney family is owed more than $450,000 from art sold at Mossgreen in December.

Many other “mum and dad'' and collector vendors are owed a few thousand or tens of thousands of dollars.

Staff were told at a meeting at Mossgreen's headquarters in Melbourne's Armadale on Wednesday that 25 Victorian employees had lost their jobs. Across Mossgreen outlets, more than 50 staff will go.

One employee said staff were angry and upset that previous assurances by Mr Sumner - that the company would be saved and no staff would lose their jobs - had not proved correct. “They're all upset. They've been promised, so many times, by Paul [Sumner] so many things.

He said there was disbelief. In recent weeks, “the people who were getting worried, he'd say, 'No mate, you've got no need to worry,' and that he had plans to save the company''.

Mr Sumner told Fairfax Media he was ''personally and professionally distressed by what's happened, for our staff and for our vendors, clients and creditors".

He said he had had a rescue deal, with investors, lined up, but it fell apart.

''I had no option but to tell the administrators that I couldn't get a successful deed of company arrangement [restructure proposal] in place within the time frame that I had.''

Asked if creditors would now get the money owed to them, he said: “I will do everything in my power to help creditors, to maximise what they receive.''

Earlier this week, Mossgreen's Auckland saleroom, Mossgreen-Webb's, shut down, and earlier this month its Woollahra, Sydney, premises closed.

Peter Rowland and Mossgreen have closed the tearooms they jointly ran in Armadale. Mossgreen was founded in 2004 by Mr Sumner and wife Amanda Swanson, and in recent years it enjoyed swift expansion - including acquiring other auction houses - bankrolled by Mr Gringlas.

But Mr Gringlas sold his part of the business back to Mr Sumner and Ms Swanson six months ago. Mr Sumner has attributed the company's financial woes to its rapid expansion and to issues associated with Mr Gringlas' withdrawal.

Mr Gringlas denied his actions were related to the collapse.

The statement from BDO said, “BDO recognises that the closure of the business is extremely disappointing to all parties affected by it.

“BDO will be working with staff, vendors, creditors and other stakeholders to ensure that the impacts of closure are minimised.''

It said offers to buy the business would be considered, with expressions of interest sought.