Liquidation funding gets first claim on Tahmoor Coal sale proceeds

The Supreme Court of New South Wales has authorised the liquidators of Tahmoor Coal, to repay approximately $30.5 million in funding costs from the proceeds of the company's coal mine sale in priority to secured creditors, confirming that both asset preservation expenses and the financing costs incurred to fund them fall within the scope of the Universal Distributing equitable lien..

Tahmoor Coal, which operated a coal mine south-west of Sydney, had ceased active mining operations around February 2025 and was placed into liquidation on 6 March 2026, with Shaun Fraser and Jonathan Henry of McGrathNicol appointed as liquidators. The liquidators obtained funding from Keyview Investment Management, through a facility initially comprising $17.5 million for approved liquidation expenses and a further $22.5 million for contingencies. The facility carried interest at 18% per annum and was secured by a general security deed, with the loan agreement recognising the priority of the liquidators' equitable lien over assets preserved or realised through their efforts.

The funding was used to maintain the mine, retain essential employees and conduct a sale process. Approximately 90 employees were identified as necessary to support critical functions, while a further 80 elected to take unpaid leave. As the original funding allocation became insufficient, the liquidators negotiated amendments in May and September 2026, including a $2 million fee to reallocate funds between facilities and an extension of the repayment deadline. Both amendments were approved by the committee of inspection. The liquidators subsequently entered into an asset sale agreement with M BIDCO 1 Pty Ltd on 17 June 2026, with completion occurring on 7 October 2026.

Following completion, the liquidators sought directions under section 90-15 of the Insolvency Practice Schedule (Corporations) confirming that they were justified in repaying $30,482,200.29 to the lender from the sale proceeds. The amount comprised approximately $22.36 million in expenses incurred preserving and realising the mine, together with approximately $8.12 million in financing costs, including establishment, repurposing and exit fees, interest and other charges. The liquidators excluded approximately $1.3 million in legal disbursements from the priority claim because allocating those expenses between qualifying and non-qualifying activities was not considered cost-effective.

Justice Black accepted that the underlying expenditures, including employee wages, contract labour, asset maintenance, environmental compliance, equipment hire, utilities and sale-related expenses, were properly incurred to preserve the mine's value and facilitate its sale. Applying the principle established in Re Universal Distributing Co Ltd (in liq), the Court confirmed that liquidators have an equitable lien over assets realised through their efforts to secure payment of reasonable costs incurred in their preservation and realisation, ahead of secured creditors who would otherwise benefit from that work without bearing its costs.

The more significant issue concerned whether the substantial financing costs themselves qualified for the same priority. Justice Black noted that counsel had identified no previous authority directly addressing funding expenses of this character. He nevertheless found that the costs fell within the Universal Distributing lien because the liquidators could not have maintained the mine, retained essential employees or completed the sale process without borrowing, and could not have obtained that borrowing without incurring the associated fees and interest. The Court also drew an analogy with authorities recognising that litigation funding costs incurred to recover assets for a liquidation can qualify for an equitable lien.

Justice Black rejected the need to apportion the lender's facility fees between qualifying and non-qualifying expenditure, noting that the fees related to the facilities as a whole and that a substantial proportion of the borrowing had funded eligible preservation and realisation costs. The liquidators nevertheless undertook to deduct interest attributable to excluded legal disbursements from the amount receiving priority.

The Court also considered it appropriate to grant protective directions given the substantial sums involved, the competing interests of secured creditors and ongoing litigation concerning the security claimed by Clydesdale Engineering. Secured and unsecured creditors had received notice of the application, and none appeared to oppose it. Justice Black concluded that leaving the liquidators exposed to potential claims after repaying the lender would be unfair where the funding had facilitated a sale expected to generate a return for unsecured creditors.

Read the decision here.

Vanessa Whittaker SC of Banco Chambers and Alistair Oakes of 8 Wentworth Chambers (instructed by Ashurst Perkins Coie) acted for the liquidators, Shaun Fraser and Jonathan Henry of McGrathNicol.