Optimum trouble ends up in court as the RBCT stands its ground

One of the biggest business rescue cases over the past five years has been Optimum Coal. The mines links to the infamous Gupta family and other financial difficulties saw the company file for business rescue in 2018. Now the RBCT is planning to throw another spanner into the works.

The company has travelled a long route since then. Because of the nature of the business, there was reasonable prospect that the mine would successfully exit business rescue as it had a few key contracts. However, this never materialized and the company has been engaged in a five year long fight for survival.

The company was dealt a significant blow at the end of November 2022 when the Richards Bay Coal Terminal issued a warning that there was a possibility that the company’s contractual entitlement to export coal from the terminal would be suspended. What has followed is further drama in the company’s fight for survival with the BRP’s now ready for a legal battle.

The RBCT is an important role player in the South African economy.

Early troubles

A City Press article points out that the RBCT, which is owned by several mining companies including Glencore, Thungela Operations, Seriti and Exxaro, gave Optimum until end of November to cease using the export terminal facility.

RBCT served the mine with the termination letter alleging that Optimum Coal Mine (OCM) had failed to meet the coal exporter’s requirements, which could see the mine ceasing to export coal through the facility, citing reputational risks.

The article adds that, in a letter dated December 28, 2022, business rescue practitioners Kurt Robert Knoop and Kgashane Christopher Monyela gave RBCT CEO Alan Waller until January 6 2023 to reconsider its position or meet in court.

“We refer to your letter of December 20, 2022. As you will appreciate, we will not in this letter deal with all the issues raised therein, as we have not had sufficient time to consider them all. Our rights, both in this regard as well as in all other issues pertaining to Optimum Coal Terminal’s export entitlement, remain reserved. From your letter it is clear that you, your team and your advisers have still to consider a substantial amount of information which may affect the conclusions contained in your letter of November 30, 2022, and that you will supply us with the RBCT board’s response following its consideration of the information by January 20, 2023,” the letter read.

Knoop and Monyela added: “In the event that RBCT’s position remains unchanged from the one set out in your letter of November 30 2022 notwithstanding its consideration of the information and submissions made by us subsequent thereto, it will leave the parties with a mere seven working days to finalise an urgent court application that will by necessity have to deal with substantial and possibly complex issues of fact and law.”

The business rescue practitioners said should the RBCT fail to reconsider its position, they would launch the urgent court application.

Urgent interdict

A News24 article points out that in an urgent application filed in the Durban High Court (on 25 January), the mine’s BRPs asked the court to temporarily interdict RBCT from suspending Optimum Coal Terminal’s contractual entitlement to export coal from the terminal with effect from 31 January 2023.

They have argued that the decision has infringed their right to move coal through the terminal and is based on “alleged defaults that Optimum Coal Terminal (OCT) was not given notice of or an opportunity to remedy.” They further say RBCT’s conduct “is oppressive and unfairly prejudicial towards” Optimum.

The article adds that the RBCT board, in its final meeting last year, resolved to terminate a temporary agreement to allow Optimum to use its export entitlement. RBCT said the allocation is being used to transport coal which is mined by contractors from Optimum Coal Mine’s (OCM) mini-pits and has proved disproportionately lucrative for these contractors. This, the terminal said, is in contravention of the shareholders agreement.

The formerly Gupta-owned OCM and OCT were both placed into business rescue in 2018. The operations are fundamentally linked, with the shareholding in RBCT – and a proportionate export allocation – held within OCT.

“OCT and OCM dispute the validity of the decision and seek relief pending the outcome of an arbitration to resolve such dispute, which has already been declared,” the affidavit said.

The News24 article points out that the shareholders’ agreement provides for several “events of default”. If the event of default is remedied, suspension is not permitted. Where a default is not remedied, RBCT may transfer the allocation to other shareholders.

OCT has paid all fees owed to RBCT, it is therefore not a defaulting shareholder “and RBCT cannot lawfully suspend its export entitlement”, the BRPs say.

They argue that RBCT’s reasons also changed between 30 November and 20 December, with the terminal now sharing the view of Optimum’s court-appointed curator that “certain mini-pit mining contracts between OCM and its contractors must be restructured so that OCM earns a higher royalty from the contracts.”

The article adds that the curator was appointed in March year as part of a preservation order over the Optimum assets which was obtained by the National Prosecuting Authority. The authority has since applied for the assets to be forfeited to the state.

In his latest report, the curator red-flagged the ongoing mini-pit mining at the operation noting that contractors had earned billions from extracting and selling Optimum’s coal while the mine and terminal have gained relatively little financial benefit and remains in business rescue with creditors not yet paid. 

Valid and binding

The News24 article points out that the BRPs have argued that the contracts are valid and binding and cannot simply be restructured.

In any case, they say RBCT has not followed the contractually-required procedure for placing OCT in default.

The article adds that this is because the notices the terminal issued to Optimum remedy a default relate exclusively to failure to pay the fees that OCT was liable to pay. This was subsequently done. No notices related to the contract mining, the BRPs said in their court papers.

If RBCT’s decision is not interdicted, the BRPs say various parties will suffer irreparable harm as it will “likely result in the termination of both OCT and OCM’s business rescue proceedings …which will have disastrous effects on thousands of creditors who have been waiting at least four years for their claims to be paid”.