The Case
In the matter of Tahmoor Coal Pty Ltd (in liq) [2026] NSWSC 773
Court: Supreme Court of New South Wales, Equity Division (Corporations List)
Judge: Black J
Hearing date: 22 June 2026
Judgment date: 3 July 2026
Plaintiffs: Shaun Fraser and Jonathan Henry (in their capacity as joint and several liquidators of Tahmoor Coal Pty Ltd (in liq) and Bargo Collieries Pty Ltd (in liq)); Tahmoor Coal Pty Ltd (in liq); Bargo Collieries Pty Ltd (in liq)
Defendant: Glencore Coal Pty Limited
Counsel for the Plaintiffs: Mr R Scruby SC, Mr R May, Mr G Zhu (instructed by Ashurst Australia)
Counsel for the Defendant: Mr M Izzo SC, Mr J Burnett (instructed by King & Wood Mallesons)
Key Takeaways
- Royalty deeds negotiated as part of a sale transaction are enforceable contracts that survive the counterparty’s insolvency. Liquidators cannot disclaim such arrangements merely because continuation reduces the pool available to unsecured creditors.
- A contract is not ‘unprofitable’ merely because it is financially disadvantageous. The statutory test under s 568(1A) of the Corporations Act requires more than comparative financial disadvantage; the contract must be incompatible with the liquidator’s duty to realise property and pay dividends promptly.
- Counterparties can mitigate onerous contract terms to avoid disclaimer. A party that voluntarily relaxes burdensome consent requirements may successfully resist a disclaimer application by demonstrating the contract, as actually operated, does not impose unreasonable burdens on the liquidation.
- The disclaimer power is not a tool for wealth redistribution. Leave to disclaim will be refused where the practical effect would be to claw back rights obtained in a proper commercial transaction and transfer value from a counterparty to unsecured creditors.
- Liquidators’ statutory powers to deal with company property do not override negative covenants. The broad power under s 477(2)(c) does not permit a liquidator to sell assets free of contractual restrictions binding the company, and courts will grant injunctions to enforce negative stipulations.
- Negative covenants restraining dealings with mining tenements are enforceable in equity even without a proprietary interest. Where adequate consideration exists, a court will restrain breach of a negative covenant regardless of whether the beneficiary holds a caveatable interest in the relevant land or tenements.
Background
Tahmoor Coal Pty Ltd (Tahmoor) operates an underground coal mine in the Southern Highlands of New South Wales. Bargo Collieries Pty Ltd (Bargo) holds an associated coal lease. At the time of the proceedings, the mine had been suspended and placed under care and maintenance since at least May 2025.
The 2017/2018 sale and the Royalty Deed. In 2017, Glencore (through its subsidiary) and Helios Australia Pty Limited agreed to sell shares in Tahmoor’s then parent company, Austral Coal Pty Ltd, to Simec (Australia) Mining Pty Ltd (part of the GFG Alliance group). The transaction involved a reduced upfront purchase price on the basis that Tahmoor would enter into a royalty deed in favour of Glencore. The royalty was valued at approximately USD$21.6 million and was payable at a specified rate per tonne of saleable coal from the Tahmoor South Development, commencing once the mine reached full production and continued for the life of the mine (subject to Tahmoor being cashflow positive).
On 20 April 2018, Tahmoor, Bargo and Glencore entered the Royalty Deed. Its key terms included:
- Royalty Obligation (clause 3.1): Tahmoor to pay Glencore a royalty at a specified rate, excluding the first 324,000 Royalty Tonnes.
- Consent Requirement (clause 5.1): The Companies must not, without Glencore’s prior written consent, assign, novate, transfer, charge, encumber or otherwise deal with rights or interests in the Tenements or Tahmoor Land.
- Consent obligation (clause 5.1(b)): Glencore ‘will’ consent to a transfer if the transferee agrees (in a form satisfactory to Glencore, acting reasonably) to assume the Companies’ obligations, and Glencore is satisfied (acting reasonably) the transferee has the financial, technical and operational capacity to perform.
- Ancillary provisions: Mutual confidentiality obligations (clause 7.1), expert determination of disputes (clause 9) and a dispute resolution mechanism (clause 10).
The liquidation and sale process. Liquidators (Shaun Fraser and Jonathan Henry) were appointed to Tahmoor by the Court on 6 March 2026, and to Bargo on 10 April 2026. The Liquidators commenced a competitive sale process for the mine. From March 2026, they corresponded with Glencore about the Royalty Deed and caveats Glencore had lodged over the Tenements. Glencore initially asserted its rights vigorously, but progressively relaxed its position: by 20 May 2026, Glencore offered pre-emptive consent under clause 5.1(b) to any successful bidder selected by the Liquidators, conditioned only on the purchaser acceding to the Royalty Deed.
The binding sale. On 17 June 2026, binding sale documentation was executed. It included a ‘replacement royalty’ mechanism: if the Royalty Deed were terminated, disclaimed or not assumed by the buyer before completion, the buyer would pay an equivalent royalty to the Liquidators (or an entity they establish) rather than to Glencore. If the Royalty Deed remained on foot, creditors received no benefit from the replacement royalty.
The proceedings. The Liquidators applied to the Court seeking: (a) a declaration that the Royalty Deed is an unprofitable contract capable of disclaimer under s 568(1A) of the Corporations Act 2001 (Cth); (b) alternatively, leave to disclaim; (c) further alternatively, a direction under s 90-15 of the Insolvency Practice Schedule that they were justified in selling without Glencore’s consent; and (d) Glencore cross-claimed for an injunction restraining breach of the Consent Requirement.
What the Court Decided
Black J resolved each issue as follows:
Issue 1: Is the Royalty Deed an ‘unprofitable contract’?
No. While the Royalty Deed was capable of disclaimer as ‘property of the company that consists of a contract’ under s 568(1)(f), it was not an ‘unprofitable contract’ under s 568(1A). The adverse effect on sale proceeds (because a purchaser must assume the royalty) was a comparative financial disadvantage, not the kind of incompatibility with the liquidation that makes a contract ‘unprofitable’ in the statutory sense. Glencore’s progressive relaxation of the Consent Requirement meant that, in its actual operation, the Royalty Deed did not impose unreasonable burdens on the sale process.
Issue 2: Should the Liquidators have leave to disclaim?
No. Leave to disclaim under s 568(1A) was refused. The disclaimer power is not a device for the unilateral discharge of liabilities or a mechanism to increase the divisible property by clawing back rights previously granted to a counterparty in a proper commercial transaction. Granting leave would effect an impermissible wealth transfer from Glencore to unsecured creditors and undermine commercial certainty in royalty arrangements.
Issue 3: Direction under s 90-15 of the Insolvency Practice Schedule
Refused as sought. The direction that the Liquidators were justified in selling without Glencore’s consent was refused for the same reasons leave to disclaim was refused. However, Black J indicated he would direct that the Liquidators are justified in taking steps within their control to comply with the Consent Requirement.
Issue 4: Injunctive relief (Glencore’s cross-claim)
Injunction to be granted. Black J held that Glencore was entitled to an injunction restraining breach of clause 5.1 of the Royalty Deed (the negative covenant against dealing without consent), unless the Liquidators advise they will cause the Companies to comply voluntarily. The Court found that Glencore provided adequate consideration in equity, that damages were not an adequate remedy, and that the Liquidators’ statutory powers under s 477(2)(c) did not override the negative covenant.
The Court's Reasoning and Legal Framework
Disclaimable 'property': s 568(1)(f)
Section 568(1)(f) of the Corporations Act permits a liquidator to disclaim ‘property of the company that consists of a contract.’ ‘Property’ is broadly defined in s 9 of the Act. In Willmott Growers Group Inc v Willmott Forests Ltd [2013] HCA 51, the High Court held that ‘property of the company’ directs attention to the legal relationship between the company and the object, and no narrow meaning should be given to ‘property.’ Gageler J’s concurring judgment (at [76]) noted that s 568D resolves any tension between ‘property consisting of a contract’ and the s 9 definition by recognising that disclaimed property may carry liabilities as well as rights.
Glencore submitted the Royalty Deed conferred no material or valuable rights on the Companies, relying on Re Blue Sennar Air Pty Ltd (in liq) [2016] NSWSC 772. Black J rejected this. Blue Sennar was distinguishable because the company in that case was not even a party to the contract. Clause 5.1(b) (requiring Glencore to act reasonably), the confidentiality provisions, expert determination and dispute resolution clauses each conferred substantive rights on the Companies.
'Unprofitable contract': s 568(1A)
Black J noted that no prior authority had considered whether a negative covenant or restraint on dealing with property is generally treated as an unprofitable contract.
Application to the Royalty Obligation. The royalty payment would not be made by the Companies (the mine was under care and maintenance) but by a future purchaser who assumes the obligation on resuming mining. The adverse effect on sale price was a commercial reality confirmed by the actual sale, but was held insufficient to render the contract ‘unprofitable’ in the statutory sense.
Application to the Consent Requirement. Black J found that clause 5.1(b), as originally drafted, would have made the Royalty Deed unprofitable: it required the Liquidators, during a competitive, time-pressured and poorly-funded sale process, to satisfy Glencore as to each bidder’s financial and technical capacity, and to submit to caveats lodged by Glencore despite Glencore having no caveatable interest. However, Glencore’s progressive concessions (five-business-day turnaround, limited diligence categories, and ultimately pre-emptive consent to any successful bidder) transformed the position. Relying on Brereton J’s statement in Blue Sennar at [12] that whether a contract is unprofitable is ‘a question of fact assessed by reference to the actual operation of the contract and the results its operation in fact produces,’ Black J held that the Consent Requirement, in its actual operation, was not burdensome.
Can a counterparty ‘transform’ an unprofitable contract? The Liquidators argued Glencore should not be permitted to selectively abandon rights to avoid disclaimer. While initially attracted to this submission, Black J ultimately held that the statutory purpose is promoted, not undermined, by allowing a counterparty to mitigate onerous consequences; such a counterparty should not be discouraged from doing so.
Leave to disclaim: discretionary refusal
The purpose of Division 7A disclaimer is to relieve the company of burdensome financial obligations that would otherwise continue to the detriment of those interested in the administration, and to advance prompt, orderly and beneficial winding up. The means chosen are ‘not at large.’
Black J ultimately refused leave, relying on Keane J’s dissenting analysis in Willmott Growers at [115], [125]: the disclaimer power is concerned with the renunciation of the company’s own rights, not the repudiation of liabilities, and has never been a device to enable a unilateral discharge of the insolvent estate’s liabilities. Its purpose is to expedite realisation of assets, not to expand the pool by clawing back property or rights previously disposed of, or divesting third parties of vested rights. Brereton J made a similar observation in Blue Sennar at [11].
Granting leave would: (a) defeat rights Glencore obtained in a proper commercial transaction (the Royalty Deed was an intrinsic part of the price paid for the mine); (b) potentially undermine commercial certainty in royalty arrangements generally; and (c) in substance, amount to an impermissible wealth transfer from Glencore to unsecured creditors.
Direction under s 90-15 of the Insolvency Practice Schedule
The Liquidators sought a direction that they were justified in exercising powers under ss 477(2)(c) and (m) to sell the Tenements and Tahmoor Land without complying with the Consent Requirement. Black J refused this direction for the same reasons leave to disclaim was refused. However, he indicated that, to the extent necessary, he would direct that the Liquidators are justified in taking steps within their control to comply with the Consent Requirement, addressing the Liquidators’ concern about personal liability.
Injunctive relief: enforcement of negative covenant
The Liquidators raised three grounds to resist the injunction:
(1) No proprietary interest. Glencore held no legal or equitable (caveatable) interest in the Mining Leases. Black J accepted this was likely correct (consistent with SCL AUS Ltd v Kirkalocka Gold SPV Pty Ltd [2026] FCAFC 60) but found it unnecessary to decide, given his conclusions on other grounds.
(2) No consideration in equity. The Liquidators argued the Companies’ promises under the Royalty Deed were wholly gratuitous and unidirectional, with the deed binding only because executed under seal. Black J rejected this: Glencore’s own obligations under the Consent Requirement (to act reasonably), the confidentiality, expert determination and dispute resolution provisions constituted sufficient consideration in equity for Glencore’s rights.
(3) Discretionary refusal. The Liquidators submitted that Glencore’s claim ranked merely as an unsecured claim under s 553 pari passu with other creditors, that an injunction would improperly fetter the liquidators’ broad power under s 477(2)(c), and that damages were adequate. Black J rejected each submission, holding that the liquidators’ s 477 power to deal with company assets is not unconstrained and does not permit dealing free of contractual restrictions binding the company.
Black J found the restraint would not prevent the sale of the mine; it would only affect proceeds (the purchaser pays the royalty to Glencore rather than to the Liquidators). There was no relevant hardship or prejudice to creditors: neither the Liquidators nor the Companies would pay any royalty. If anything, creditors would obtain an unwarranted windfall if the Companies could depart from obligations assumed as part of the original acquisition.
Outcome
In substance, Glencore was successful. The Court:
- Refused the declaration that the Royalty Deed is an unprofitable contract under s 568(1A).
- Refused leave to disclaim the Royalty Deed.
- Refused the direction sought under s 90-15 of the Insolvency Practice Schedule (that the Liquidators were justified in selling without Glencore’s consent), but indicated it would direct that the Liquidators are justified in taking steps within their control to comply with the Consent Requirement.
- Held that Glencore was entitled to an injunction restraining breach of clause 5.1, unless the Liquidators advise they will cause the Companies to comply voluntarily.
The practical result is that the Royalty Deed remains binding and enforceable. The sale of the mine must proceed on the basis that a purchaser assumes the Royalty Obligation. The binding sale documentation executed on 17 June 2026 already contemplated this outcome (via the replacement royalty mechanism), meaning the sale can proceed in accordance with the Consent Requirement without further impediment.
Black J stated he would hear the parties as to final orders and costs.
Practical Implications
For insolvency practitioners and liquidators
- Disclaimer is not a general-purpose tool for maximising creditor returns. Practitioners should not assume that a contract which reduces the realisable value of assets is, without more, ‘unprofitable’ in the statutory sense. The test requires incompatibility with the duty to realise property and pay dividends promptly, not merely comparative financial disadvantage.
- Counterparty concessions matter. The Court will assess whether a contract is unprofitable by reference to its actual operation, not merely its terms as drafted. A counterparty that voluntarily relaxes onerous requirements may successfully resist disclaimer. Liquidators should engage early with counterparties to identify and, if possible, negotiate the removal of burdensome obligations before resorting to disclaimer applications.
- Leave to disclaim is a high threshold. Where disclaimer would in substance divest a counterparty of rights obtained in a proper commercial transaction, and the practical effect is to redistribute value from that counterparty to unsecured creditors, leave is unlikely to be granted.
- Section 90-15 directions will not circumvent contractual restrictions. The Court will not direct that a liquidator is justified in breaching a binding negative covenant to improve realisations for creditors.
For directors, secured and unsecured creditors
- Unsecured creditors bear the cost of pre-existing obligations. Royalty obligations and similar contractual encumbrances negotiated before insolvency will reduce the pool available for distribution. Creditors cannot look to disclaimer as a means of improving their dividend at the expense of a counterparty who holds legitimate contractual rights.
Due diligence on existing encumbrances is critical. Secured and unsecured creditors extending credit should investigate any royalty deeds, consent requirements or negative covenants affecting the borrower’s key assets. These arrangements will likely survive insolvency and affect realisations.
Frequently Asked Question
Further Information
For further information about the disclaimer of royalty deeds in liquidation, the meaning of an “unprofitable contract” under section 568 of the Corporations Act 2001 (Cth), the enforcement of negative covenants, or contractual restrictions affecting insolvency sale processes, please contact the author of this article:
