Background
Tahmoor Coal Pty Ltd and Bargo Collieries Pty Ltd, both in liquidation, were parties to a Royalty Deed executed 20 April 2018 with Glencore Coal Pty Limited. The deed required the companies to pay royalties on coal mined and contained a “Consent Requirement” in clause 5.1 prohibiting transfer of mining leases without Glencore’s prior written consent. Glencore would consent only if the transferee agreed to assume the royalty obligations and demonstrated financial and technical capacity.
Liquidators Fraser and Henry were appointed in March and April 2026. As they conducted a mine sale process, they identified the Royalty Deed and its Consent Requirement as obstacles to completing a sale at optimal price. The liquidators sought declarations that the deed was an “unprofitable contract” under s 568(1A) of the Corporations Act 2001 (Cth) and leave to disclaim it. Glencore, by cross-claim, sought injunctive relief to prevent the liquidators from breaching the deed’s terms.
Though Glencore ultimately offered pre-emptive consent to any purchaser selected by the liquidators, the parties remained at odds over whether the deed was capable of disclaimer. The liquidators contended the financial burden on the sale price (reflecting the net present value of continuing royalties) rendered the deed unprofitable and incompatible with expedient liquidation.
The Court’s Holding
Black J held that the Royalty Deed constitutes “property of the company that consists of a contract” under s 568(1)(f) and is therefore capable of disclaimer. The companies had contractual rights under the deed, including the right to compel Glencore’s consent to transfers in circumstances satisfying clause 5.1(b) and to invoke confidentiality, expert determination, and dispute resolution mechanisms. The deed is not merely a prohibition but a reciprocal contract conferring substantive rights alongside obligations.
However, the court declined to find the deed “unprofitable” within the meaning of s 568(1A). Drawing on established case law, Black J held that a contract is unprofitable only if it imposes continuing obligations incompatible with proper and expedient conduct of the liquidation—not merely because the contract is financially disadvantageous or the company could make a better bargain. The distinction is critical: preventing *administrative* delay and burden differs from relieving *financial* loss. Here, the royalty obligation itself is not performed by the liquidators but by any purchasing successor; the Consent Requirement was addressed by Glencore’s pre-emptive consent; and the financial reduction in sale proceeds, while substantial, does not render the underlying contract unprofitable for disclaimer purposes.
The court refused the liquidators’ application for a declaration that the Royalty Deed is unprofitable and declined to grant leave to disclaim. It ordered that parties be heard on whether the liquidators will comply with the judgment without need for injunctive relief.
Key Takeaways
- A contract is not “unprofitable” under s 568(1A) merely because it reduces financial returns to creditors; the test focuses on whether ongoing obligations prevent expedient administration of the liquidation.
- Reciprocal contractual rights—including consent provisions and dispute resolution mechanisms—establish that a deed is “property” capable of disclaimer, even if those rights have limited economic value to the company.
- A liquidator cannot disclaim a contract simply because a better bargain is available or because performance by a successor will reduce the sale price; comparative financial disadvantage is not the applicable test.
- Pre-emptive consent to fulfillment of key conditions (here, purchaser assumption of obligations) undermines arguments that procedural requirements render a contract unprofitable for liquidation purposes.
Why It Matters
This decision clarifies the boundary between financial and administrative grounds for disclaiming executory contracts in liquidation. Liquidators and creditors seeking to escape contractual burdens must demonstrate that ongoing performance is incompatible with the core goal of winding up a company’s affairs promptly—not that a contract reduces financial recovery. The ruling protects counterparties’ legitimate interests in continuing contractual relationships (here, Glencore’s royalty stream) while acknowledging that liquidators may still pursue disclaimer on proper grounds.
For mining and resource sector deals, the decision reinforces that royalty obligations and consent-to-transfer provisions are enforceable against successor purchasers and cannot be easily shed through liquidation. It also signals that while Australian courts will not mechanically treat all executory contracts as unprofitable merely because they burden a sale process, they remain alert to contexts (unlike this one) where genuine administrative paralysis or perpetual performance demands justify disclaimer.