Consol Energy Inc. asked the bankruptcy court to convert the Chapter 11 reorganization of Murray Energy Corp. to a Chapter 7 liquidation the same day that further details of creditor allegations of "a disturbing pattern of self-dealing and abuse of corporate resources" were disclosed to the court.
The conversion request, filed with the U.S. Bankruptcy Court for the Southern District of Ohio on April 22, follows previous filings expressing concerns about the ability of the country's largest privately held coal company to restructure successfully. The same day, Murray Energy filed a revised disclosure form that, at the urging of a committee of unsecured creditors, included a summary of the group's investigation into CEO and CFO Robert Moore, company founder Robert Murray and Murray's immediate family.
Liquidity concerns raise the specter of liquidation
Murray Energy and stakeholders have flagged concerns about the company's rapidly deteriorating liquidity, a function of weakened coal markets eroded further by the impacts of the COVID-19 pandemic, a situation Murray Energy expects "may very well get worse."
Consol Energy, identified as a "major creditor" to Murray Energy in past filings, said Murray Energy does not have a reasonable likelihood of rehabilitation given current liquidity projections. Consol also claimed that Murray Energy "suffered gross mismanagement."
If liquidation is not approved, Consol requested the court appointment of an examiner to investigate Murray Energy. As a third alternative, Consol requested a Chapter 11 Trustee to assume the responsibility of managing Murray Energy.
Consol pointed to financial concerns such as Murray Energy nearly exhausting $350 million intended to last the company through its restructuring. Consol said Murray Energy's financial performance eroded to the point of creating an alleged default on its debtor-in-possession term loan, and now the lender refuses to allow Murray Energy to draw funds from the loan.
Self-dealing, abuse of corporate resources claims
Murray Energy's latest disclosure statement includes details of an investigation into potential claims and causes of action previously alluded to by unsecured creditors. The creditors reviewed and analyzed board materials, financial information, emails, flight logs, compensation materials and reimbursements records dating between 2016 and 2019.
"This investigation revealed what the unsecured creditors' committee believes is a disturbing pattern of self-dealing and abuse of corporate resources by the Murray insiders, which was known to and sanctioned by Mr. Murray, Mr. Moore, and the other members of the debtors' board of directors," the creditors wrote.
In a response, Murray said creditors did not interview him and he "vehemently rejects the baseless and concocted allegations." Murray is "very disappointed that the unsecured creditors' committee is advocating for litigation to pursue what he knows are flagrant and wholly-unsubstantiated claims," the statement said.
The creditors claimed they identified evidence that Murray Energy was insolvent during all or a portion of the investigation period. At the same time, they said the company paid cash compensation to Murray and Moore above market value based on a peer analysis of the company's coal mining peers. The two executives received over $100.4 million more than the average senior officer across a set of U.S. coal mining peers from 2016 to 2019, the creditors wrote.
Murray and Moore collected cash bonuses totaling $24 million and $13 million, respectively, during 2017 and 2018. During those periods, the company's earnings were declining and flat, respectively.
However, Murray wrote that other companies had many times the number of executives to handle the workload Moore and himself handled effectively. He found it "troubling" that the committee had a "blatant disregard" for his "second to none" work ethic and contribution to the company and the entire coal industry.
Murray also pointed to two unsecured notes totaling $45 million he provided to support the company's South American and metallurgical coal subsidiaries through a trust in which Murray serves as trustee.
"Suffice it to say, it is unfair and misguided for the unsecured creditors' committee to criticize Mr. Murray for his salary when the evidence is indisputable that Mr. Murray invested $45 million of his own capital into the business as market conditions worsened during the investigation period, in addition to $15.3 million Mr. Murray had invested in Murray prior to 2016," the statement said, adding that Murray did not accept bonuses for 2018 and 2019.
The creditors also alleged that Murray Energy insiders used company aircraft for personal purposes, incurring at least 350 hours of flight time valued at $1.2 million or more. They also claim the company paid for personal matters including numerous vacations and sporting events attended by Murray and insiders. Murray's statement pushed back against those allegations. He said he kept detailed logs of travel and is prepared to explain the business justification of each.
Creditors also pointed to more than $10 million in donations made to charities with personal connections to the Murray family at a time when the business was struggling.
Murray's statement acknowledged that Murray and the debtors have been vocal supporters of the Boy Scouts for years. Many of the donations Murray made to a West Virginia Boy Scouts location were donations in-kind in the form of the use of underutilized equipment and employments, the statement said. He also noted the support of an Ohio church where Murray is a member.
"Given that Murray is one of, if not, the largest employer in the St. Clairsville, [Ohio,] Mr. Murray strongly believes it was an appropriate exercise of business judgment to donate to local causes within Murray's community," Murray's statement said.