Tahmoor liquidators fail to disclaim Glencore royalty

It would have topped off a very successful winding up if Shaun Fraser and Jonathan Henry could’ve binned an inconveniently airtight royalty agreement attaching to the operations of the Tahmoor Coal mine. But it wasn’t to be.

Last Friday a judge of the NSW Supreme Court refused the Tahmoor Coal Pty Ltd (Tahmoor) liquidators’ application for a declaration that they would be justified in disclaiming the royalty agreement on the basis that it is an unprofitable contract.

“It seems to me that the Court should not grant leave to the Liquidators to disclaim the Royalty Deed under s 568(1A) of the Act, where that would defeat the rights which Glencore obtained in a proper commercial transaction; potentially undermine commercial certainty in royalty arrangements generally; and, in substance, amount to a wealth transfer from Glencore to unsecured creditors. ” Justice Ashley Black.

Unless Fraser and Henry succeed on any appeal they may choose to commence, the court’s decision means the mine’s purchasers – Golden Energy and Resources Pte Ltd and M Resources Pty Ltd – will assume the obligations under the royalty.

That in turn means a reduced purchase price for the mine and a reduced return to unsecured creditors. And when you’ve estimated your remuneration will total at least $7.5 million every extra cent extracted for unsecureds helps quell the inevitable grumblings about fees.

The royalty at the heart of the dispute came into existence in 2017/18 when Glencore sold the tenements and leases held by Tahmoor and sister entity Bargo Collieries Pty Ltd (Bargo) to Simec Investments 30 Pte Ltd (Simec), a subsidiary of Sanjeev Gupta’s GFG Alliance.

That sale process saw Glencore accept a lower upfront price in exchange for the royalty, and as is explained In the matter of Tahmoor Coal Pty Ltd (in liq) [2026] NSWSC 773 a clause in the royalty deed gave Glencore a very significant say in any subsequent sale of the Tahmoor and Bargo assets by way of a “consent requirement”.

This stipulated that the vendor entities must not, “without the prior written consent of Glencore, assign, novate, transfer, charge, encumber, create an interest in or over, or otherwise deal with their rights, title or interest in, or obligations with respect to, the Tenements or the Tahmoor Land (as defined). Clause 5.1(b) of the Royalty Deed provides that Glencore “will” give its consent in accordance with the Consent Requirement if:

“(i) The transferee from [either of the Companies] first agrees, in a form satisfactory to [Glencore] (acting reasonably), to assume, be bound by and perform all of the obligations of [Tahmoor or Bargo] (as applicable) under this deed; and

(ii) [Glencore] is satisfied (acting reasonably) that the transferee has the financial, technical and operational capacity to do so.”

Withing days of being appointed Fraser and Henry entered into negotiations through their lawyers with Glencore’s representatives with a view to determining whether the companies would be required to comply with the terms of the royalty deed.

Time was of the essence with Fraser and Henry having limited funding to maintain the mine on an adequate care and maintenance basis while they ran a sale process.

But unsurprisingly, those negotiations commenced with Glencore having already placed caveats on the relevant tenements.

On April 2, just in case the McGrathNicol pair weren’t certain about Glencore’s position, its lawyers sent them an email confirming that their client “asserted its rights in respect of any breach of the Royalty Deed not only against the Companies but also against the Liquidators”.

Presumably Fraser and Henry took further advice before responding on May 1 in a letter demonstrating a clear hardening of the liquidators’ position.

Glencore was informed that the liquidators doubted its rights under the royalty deed entitled it to lodge the caveats and that the liquidators were considering disclaiming the royalty deed pursuant to s 568 of the [Act] on the basis that it’s an unprofitable contract or, alternatively, that it would be just and equitable to do so.

Fighting words maybe but Glencore had as much to gain as anyone from a sale, assuming the purchasers had the technical and financial capabilities required to restart production and profitably operate the mine so the royalties would continue to flow Glencore’s way.

Glencore therefore made certain concessions in respect of the consent requirement including providing pre-emptive consent for the acquisition of the mine by a purchaser approved by the liquidators, but these were deemed insufficient.

In affidavit evidence read in support of the liquidators’ application Fraser said of the consent requirement: “It requires a liquidator to deal with prospective purchasers on the basis that they themselves will need to satisfy Glencore as to their financial and technical capacities to operate the mine. To do this during a bidding process with multiple interested parties with tight time frame and limited funding is “onerous” or “burdensome” in the relevant sense.”

Burdensome or not, Fraser and Henry’s lawyers couldn’t make a case the NSW Supreme Court’s Corporations judge could accept.

In declining the application Justice Black said: ” … the Court should not grant leave to the Liquidators to disclaim the Royalty Deed under s 568(1A) of the Act, where that would defeat the rights which Glencore obtained in a proper commercial transaction; potentially undermine commercial certainty in royalty arrangements generally; and, in substance, amount to a wealth transfer from Glencore to unsecured creditors.”

We asked Fraser and Henry whether they were contemplating an appeal but given the funding constraints suspect it’s unlikely.