Background
Tahmoor Coal Pty Ltd operated the Tahmoor Mine, a coking-coal mine in New South Wales, and Bargo Collieries Pty Ltd held one of the associated mining tenements. As part of Glencore Coal Pty Ltd’s 2018 sale of its indirect interest in the mine, Tahmoor and Bargo entered into a Royalty Deed requiring royalties on coal produced in perpetuity. Clause 5.1 also restricted dealings with the mining tenements and Tahmoor land without Glencore’s consent, subject to consent requirements for a qualified transferee that assumed the deed’s obligations.
After Tahmoor and Bargo entered liquidation in 2026, their liquidators arranged an asset sale for AUD $175 million. The purchaser was to assume the Royalty Deed, and Glencore had consented in advance to a transfer to the successful bidder on that basis. Although neither the companies nor the liquidators was expected to pay future royalties, the deed materially reduced the sale price. Black J refused the liquidators’ application to treat the deed as an “unprofitable contract” or grant leave to disclaim it under s 568(1A) of the Corporations Act 2001 (Cth), and the liquidators and companies appealed.
The Court’s Holding
The Court of Appeal dismissed the appeal. It held that an “unprofitable contract” is not merely one whose removal would leave the company financially better off. The concept covers a contract that cannot satisfactorily be performed because it imposes continuing financial or otherwise onerous obligations without reciprocal benefits, or because it impedes the efficient conduct of the liquidation. Commercial realities could not be ignored. Here, the companies and liquidators faced no prospective royalty payments, and the deed’s effect on the asset price did not make it an unprofitable contract.
The Court also found no error in Black J’s refusal to grant discretionary leave to disclaim the deed. Division 7A primarily relieves liquidators from onerous obligations associated with an insolvent estate’s property; its purpose is not simply to increase returns to unsecured creditors. The primary judge was entitled to consider the deed’s commercial origin, its longstanding effect on the companies’ assets, commercial certainty, Glencore’s loss of bargained-for rights, and the comparative prejudice to creditors. The Court separately dismissed the liquidators’ last-minute motion for interim authority to disclaim pending any further appeal because exceptional circumstances were not shown and the balance of convenience did not support relief.
Key Takeaways
- A contract is not “unprofitable” under s 568(1A) merely because disclaiming it would increase an insolvent company’s asset-sale proceeds.
- Courts may consider commercial certainty, the transaction that created the relevant obligations, and prejudice to the contractual counterparty when deciding whether to permit disclaimer.
- A liquidator’s statutory power to sell assets does not itself permit a sale free from contractual restraints or negative covenants binding the company.
Why It Matters
The decision limits the use of statutory disclaimer as a means of stripping commercially negotiated burdens from assets to enhance their liquidation value. A royalty deed forming part of the consideration for an earlier acquisition will not become disclaimable simply because it depresses the price obtainable in a later insolvency sale.
For transaction parties and insolvency practitioners, the judgment emphasizes that the inquiry focuses on whether the contract imposes genuinely onerous continuing obligations or obstructs the liquidation—not on whether creditors would receive more if the contract disappeared.