Article republished from the Australian Restructuring Insolvency & Turnaround Association Journal, June 2018

The recent sale of the Caledon Coal Group’s underground coal mine assets in Queensland demonstrates the challenges of dealing with the security interests of ‘state-owned’ lenders, and a seldom‑used solution for insolvency practitioners to deal with assets without obtaining secured creditor releases.

The situation arose in the Caledon Coal Group’s liquidation where secured creditors (with debts of approximately US$200 million) withheld their consents to a sale of the Group’s business and assets due to their concerns regarding the recoverability of guarantees from the ultimate shareholder, a Chinese state-owned investment fund. The assets, the subject of the proposed sale, included interests in a coal mine and associated plant and equipment.

Consequently, the liquidators were faced with losing a transaction which would have resulted in a significant shortfall to employee creditors, significant job losses, a larger shortfall to secured creditors, and eventual closure and remediation of the mine site. The only alternative was to disclaim the mining assets due to the significant cost of care and maintenance of approximately $1 million per month.

The sale was progressed after an application to Court where orders were granted allowing the liquidators to sell assets free of the relevant security interests held by the secured creditors. This creative solution deviates from the commonly held view that title to secured property cannot be provided without the consent of secured creditors.

The successful sale of the Group’s assets resulted in:

  • full return to employee creditors
  • continued employment for retained employees
  • a materially better return to secured creditors
  • continued operation of the mine, including ongoing economic benefits for the local community and region.


In 2011, the assets were acquired by Guangdong Rising Assets Management Co., Ltd (GRAM), an investment fund owned by one of China’s largest provinces. The Group operated an underground mine, Cook Colliery, located in Queensland’s Bowen Basin, under a sublease arrangement with the international miner, Glencore. Under the sublease arrangement, the Group had the right to mine, process and sell coal from the mine.

From 2011 to 2017, GRAM invested and/or arranged funding of approximately $2 billion for the Group, most of which was provided either directly or indirectly by a group of Chinese banks. This included Bank of China and China Development Bank, which ultimately held security over the assets subject to the sale in addition to guarantees from GRAM. The funding was largely utilised for capital expenditure and losses associated with operational issues, and significant ‘take-or-pay’ obligations for rail and port capacity.

In March 2017, the Group’s mine experienced a water inundation event that rendered it inoperable and caused the Group to immediately cease production while it undertook a review to assess the damage and its impact on the Group’s viability.

On 12 May 2017, the Group’s directors resolved to appoint Martin Ford, Stephen Longley and Grant Sparks from PPB Advisory as administrators. The appointment of the administrators crystallised claims against the Group, totalling approximately $4 billion, with the majority of claims held by the secured creditors, GRAM, Wiggins Island Coal Export Terminal and approximately 250 employee creditors.

Sale process

Following their appointment, the administrators worked with management, staff and relevant stakeholders to implement a plan to transition the mine to care and maintenance, while they assessed options for the Group and undertook a campaign for either a recapitalisation or sale of the business.

Following a comprehensive sale campaign, the administrators received a number of proposals to either recapitalise and/or acquire the Group’s business and assets. However, none of the proposals received were capable of acceptance, and all proposals were highly conditional and required at least several months to complete. This was further complicated by the significant ‘cash burn’ and limited funding available to allow the administrators to operate the mine for an extended period while they sought to complete a transaction.

The administrators continued to liaise extensively with interested parties regarding the conditions of their offers, as well as with other key stakeholders which were required to consent to any transaction and/or would be adversely impacted if a sale or recapitalisation transaction did not proceed. These included secured creditors, GRAM, Glencore, employees and their representative unions, and representatives of the Commonwealth Fair Entitlements Guarantee scheme.

The administrators also continued to liaise extensively with GRAM regarding its interest in putting forward a deed of company arrangement (DOCA) proposal. However, the administrators did not receive any DOCA proposals that were capable of acceptance. They therefore convened a second meeting of creditors, where creditors voted to place the Group into liquidation.

Following engagement with the various interested parties and stakeholders, the liquidators determined that the only proposal with any reasonable prospect of being implemented was from Bounty Mining Ltd (Bounty) to acquire the business and operating assets of the Group. Important factors that influenced the liquidators’ assessment were:

  1. The Bounty proposal was the only transaction to which Glencore, as holder of the mining leases, would consent.
  2. The liquidators had negotiated funding assistance from Glencore that was conditional on the Bounty proposal being accepted.

Consequently, the liquidators executed a funding deed with Glencore and an asset sale agreement with Bounty, both of which were conditional on consents from the secured creditors to the Bounty sale.

Competing interests of ‘state-owned’ stakeholders

Without the proposed sale to Bounty and related funding from Glencore, the most likely position would have involved the liquidators disclaiming the mining sublease and associated assets due to the significant ongoing costs associated with operating the mine. This option would have resulted in a significant shortfall to employee creditors, job losses, a total shortfall to secured creditors, closure of the mine and an adverse impact on the local community.

This allowed the liquidators to present a compelling case to support their recommendation for the secured creditors to consent to the Bounty sale as quickly as possible. As a result, the secured creditors indicated their support towards the sale to Bounty but advised that formal consents were subject to their respective internal processes. Importantly, during the course of the external administrations, the secured creditors had been provided with significant information from the administrators and liquidators, which assisted their decision.

Over the next two months, the liquidators further engaged extensively with the secured creditors as they worked through their internal processes to provide formal consents to the Bounty sale, and also for GRAM as guarantor.

This included responding to queries regarding detailed reports and analysis the liquidators had previously provided on the proposed transaction and alternatives. The liquidators also engaged a peer firm to undertake a review of the sale process to confirm it met the widely accepted practices for administrators and liquidators in Australia. Throughout this process, the liquidators received regular feedback from the secured creditors’ advisors indicating that their approval processes were progressing positively.

GRAM had also written to the liquidators to advise that it did not agree with the proposed sale to Bounty; GRAM believed the sale did not represent value for its investment (approximately $2 billion). However, GRAM also disagreed with the liquidators’ proposal to disclaim the mine sublease in the event a sale to Bounty could not be pursued.

Despite the benefits to all stakeholders from the Bounty sale, the secured creditors advised that they were not prepared to consent to the sale and provide a release of their security as GRAM had now indicated it would challenge the secured creditors’ ability to call on any guarantees for US$200 million if they consented to the sale.

The court application

When the secured creditors confirmed they could not consent to the sale, the liquidators and their legal advisors commenced an application to court, which sought to achieve a sale of the assets to Bounty without the consent of the secured creditors. Alternatively, if orders were not provided allowing the sale to proceed without the secured creditors’ consent, then the liquidators were justified in disclaiming the mining sublease arrangements.

The liquidators sought orders on three alternative positions:

  1. Pursuant to s 99(2) of the Property Law Act 1974 (Qld) (PLA), which allows the court to exercise its discretion to direct the sale of mortgaged property on the request of the mortgagee or any person with an interest in the mortgage money (the PLA Orders)
  2. Alternatively, pursuant to ss 436B(2), 442C(2)(c) and 447A and Schedule 2 of the Corporations Act 2001 (Cth) (the Corporations Act Orders), which would:
    1. grant the liquidators leave (pursuant to s 436B(2)) to appoint themselves as administrators of the relevant entities of the Caledon Group
    2. grant the liquidators (as administrators) leave (pursuant to s 442C(s)) to sell the assets, notwithstanding the secured creditors have not provided their consent to the sale
    3. amend (pursuant to s 447A) the operation of Part 5.3A of the Corporations Act to facilitate an efficient administration and prevent duplication of matters already attended to as part of the previous administration and conduct of the liquidation to date.
  3. Alternatively, if the court declined to grant orders for the sale of the assets then the liquidators would be justified in disclaiming certain assets and, to the extent necessary, an order pursuant to s 568(1) of the Corporations Act that they have leave to disclaim the property.

The application that the assets be sold without consent and release of the secured creditors was supported by the following key issues:

  • The liquidators had conducted a comprehensive sale campaign that had resulted in the proposed sale to Bounty, and had been reviewed by a peer firm that found the sale process to have been conducted in accordance with generally accepted practices.
  • The sale to Bounty represented the highest-possible return to creditors of the Caledon Coal Group, which included secured creditors and employees.
  • The liquidators had obtained the support of Glencore for the proposed transaction, including the assistance of funding for site costs from the time the secured creditors consented until completion of the sale to Bounty.
  • The secured creditors had indicated they supported the sale and had only declined to provide their formal consents due to the risk that providing such consents may prejudice their rights under the guarantee from GRAM (under Chinese law).
  • The liquidators had limited funding available to meet costs. The significant costs associated with the care and maintenance of the mine were depleting the funds available to pay the entitlements of employees.
  • Importantly and no doubt critically, no stakeholders opposed the application.
  • The matter was heard in the Supreme Court of Queensland where Justice Burns granted orders pursuant to ss 99(2) and 99(7) of the PLA (respectively) that the assets be sold to Bounty and free of any security interests held by the secured creditors. The liquidators completed the sale to Bounty in December 2017 with employees receiving their full entitlements prior to Christmas.

Novel solution

The liquidators’ successful application to court pursuant to ss 99(2) and 99(7) of the PLA, which allowed the sale of the Group’s mining assets to proceed, highlights a novel solution for insolvency practitioners to deal with assets without obtaining the usual, formal secured creditor consents.

It is worth noting that property law in Australia is the domain of individual states and territories. Legislation dealing with the sale of property will not be identical in each state and territory.

Therefore, the application of this approach outside of Queensland will depend on the relevant legislation in other jurisdictions. However, insolvency practitioners, their advisers, and secured lenders should be aware that there may be circumstances where secured property can be sold without the consent of secured creditors in order to support an outcome for the benefit of stakeholders generally.