Glencore royalty survives Tahmoor liquidators’ disclaimer bid

The NSW Supreme Court has refused to let the liquidators of Tahmoor Coal Pty Ltd and Bargo Collieries Pty Ltd disclaim a Glencore Coal Pty Ltd royalty deed that reduced the sale value of the Tahmoor mine, holding that the disclaimer power cannot be used to strip away a commercial royalty bargain simply to improve recoveries for unsecured creditors.

The decision arose in the liquidation of Tahmoor and Bargo, which own mining tenements and related land for the Tahmoor underground coal mine in the NSW Southern Highlands. The mine has been suspended and on care and maintenance since at least May 2025. The Royalty Deed was entered into in April 2018 as part of the earlier sale of the mine by a Glencore-related seller to Simec Investments 30 Pte Ltd, part of the GFG Alliance group. The transaction involved a reduced upfront purchase price and a royalty payable to Glencore on saleable coal from the Tahmoor South development once specified conditions were met.

The deed also prevented the companies from dealing with their interests in the mining tenements or Tahmoor land without Glencore’s prior written consent, unless any transferee agreed to assume the companies’ obligations under the deed and Glencore was reasonably satisfied as to the transferee’s financial, technical and operational capacity. The liquidators sought to disclaim the deed, arguing that the consent requirement was impractical and burdensome in the context of a time-sensitive sale process, and that requiring a purchaser to assume the royalty obligations would materially reduce the proceeds available for creditors.

Justice Black held that the 2018 Royalty Deed between the companies and Glencore was capable of being disclaimed as “property of the company that consists of a contract” under section 568 of the Corporations Act, because it contained reciprocal rights and obligations, including consent, confidentiality, expert determination and dispute resolution provisions. But the Court found that the deed was not an “unprofitable contract” for disclaimer purposes, despite its significant effect on the price achievable for the mine. The Court stressed that a contract is not unprofitable merely because the company could obtain a better financial outcome without it, or because its continued operation depresses sale proceeds.

Justice Black accepted that the royalty obligation had a substantial present value and that its continuation would reduce the price payable by a purchaser and the return to unsecured creditors. However, the Court said the royalties would not be paid by the companies in liquidation while the mine remained on care and maintenance, but by any purchaser that assumed the deed and recommenced operations. The adverse effect on the sale price was therefore not enough to make the deed unprofitable in the relevant statutory sense.

The Court also found that the consent requirement, if left to operate strictly according to its terms, would have made the deed unprofitable because of the practical difficulties it would impose on the liquidators’ sale process and the degree of control it would give Glencore. That conclusion did not assist the liquidators because Glencore had modified its position during the liquidation, first offering an expedited consent process and then giving pre-emptive consent to any successful bidder selected by the liquidators, provided the bidder acceded to the Royalty Deed.

Justice Black rejected the liquidators’ argument that Glencore could not avoid disclaimer by selectively relaxing its contractual rights after the issue arose. The Court held that whether a contract is unprofitable must be assessed by reference to its actual operation in the commercial circumstances, including any narrowing or mitigation of obligations by the counterparty. Allowing a counterparty to reduce the onerous effect of a contract was consistent with the statutory purpose because it could avoid the need for disclaimer.

The Court also refused leave to disclaim the Royalty Deed under section 568(1A). Justice Black held that granting leave would defeat rights Glencore obtained in a proper commercial transaction, potentially undermine commercial certainty in royalty arrangements, and in substance transfer value from Glencore to unsecured creditors. The Court said the disclaimer regime is designed to relieve a liquidation from burdensome obligations that impede the proper conduct of the winding up, not to rewrite pre-insolvency bargains or increase the asset pool by clawing back value previously given to another party.

The liquidators also failed to obtain a direction under section 90-15 of the Insolvency Practice Schedule that they would be justified in selling the tenements and land without Glencore’s consent. Justice Black said the issues overlapped with the disclaimer application and that, given the Court’s conclusions, the liquidators should instead cause the companies to comply with the consent requirement.

Glencore sought injunctive relief restraining the companies and liquidators from transferring the assets unless the buyer assumed the Royalty Deed. The Court indicated it would grant that relief unless the liquidators confirmed they would act in accordance with the judgment without an injunction. Justice Black rejected the argument that injunctive relief should be withheld because Glencore’s rights were merely unsecured claims ranking pari passu with other creditors. The liquidators’ power to sell company property was not an unconstrained power to deal with assets free of the contractual terms on which they were acquired or in breach of a binding negative covenant.

Read the decision here.

• Mallesons acted for Glencore Coal Pty Ltd, with Michael Izzo SC and Jonathan Burnett, both of of Eleven Wentworth, as counsel.

• Shaun Fraser and Jonathan Henry of McGrathNicol are the liquidators of Tahmoor Coal Pty Ltd and Bargo Collieries Pty Ltd. Ashurst acted for the liquidators and the companies, with Richard Scruby SC of Tenth Floor Chambers, Ryan May of Banco Chambers and G Zhu of Banco Chambers as counsel.