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Murray Energy executives saw ailing coal company as own 'piggy bank' – Creditors

A complaint prepared against two executives of Murray Energy Corp., the nation's largest underground coal mining company, alleged fraudulent transfers and breaches of fiduciary duty before the company filed for bankruptcy.

A committee of unsecured creditors asked the U.S. Bankruptcy Court for the Southern District of Ohio for the authority to prosecute claims against Murray Energy founder Robert Murray and CEO Robert Moore. The complaint alleges gross overcompensation, the use of corporate assets and funds for personal benefit, and donations to personally connected charities while the company was allegedly insolvent for years.

According to the committee's filing, Murray Energy's shareholder equity was negative with liabilities exceeding the book value of its total assets as early as 2014. The company's shareholder equity hit a low point of negative $2.1 billion in the third quarter of 2016, according to the filing, and was about negative $1.9 billion just before the company filed for bankruptcy. Since at least 2017, the company's free cash flow has been less than the amount needed to pay its debt.

"In sum, under applicable law, the debtors became insolvent, inadequately capitalized, and/or unable to pay their debts as they came due at a point no later than the end of fourth-quarter 2016, and remained so at all times thereafter through the petition date," the creditors alleged.

Those findings appear to contradict Robert Murray's public statements about the health of the company. In a 2016 interview, he decried other coal producers for dragging the industry down into the "bankruptcy sewer" and insisted he had a "four-point plan" that would keep the company away from the restructuring process.

In 2017, Murray Energy warned that it would follow a customer into bankruptcy if it did not receive federal support, but it did not pursue that option when its client did so the following year. Instead, Murray Energy refinanced through a distressed debt exchange in the summer of 2018 and insisted its creditors were now "well-protected."

Analysts warned at the time that Murray Energy's debt exchange could be a financial stretch for the producer.

The latest filing includes a proposed adversary complaint against Murray and Moore detailing allegations the unsecured creditors have mentioned in previous filings. Moore is Murray's nephew. The complaint also includes as defendants Robert Murray's wife, Brenda Murray, and his sons Robert E. Murray, Patrick Murray and Jonathan Murray, who are also employed by the company.

The creditors alleged that between 2016 and 2019, Robert Murray and Moore were paid at least $70 million and potentially as much as $100 million in excessive compensation based on an analysis of their peers. On the day Murray Energy filed for a Chapter 11 bankruptcy restructuring, Robert Murray's base cash salary for his role as the chairman of the board was $12 million, an amount 33 times higher than the average of chairpersons at comparable coal companies, the creditors said.

Murray has argued that a compensation board set those amounts, which he said are fair based on his contributions to the company. However, creditors said the compensation committee was entirely perfunctory and not independent. For example, Moore was one of the three members of a committee that creditors said set compensation without conducting meaningful due diligence.

"Compensation at the level paid to defendant Robert Murray as Murray Energy was filing for bankruptcy, was more in line with compensation paid to the CEOs of Fortune 100 companies with revenues 15 to 250 times greater than the debtors' revenues," the creditors wrote.

The creditors also said that in a "highly unusual" move, Moore obligated the company to pay up to $1.25 million to fund potential legal fees and expenses incurred by Robert Murray personally as part of a restructuring agreement, even though he lost his officer roles with the company once the reorganization began.

Creditors wrote that for reasons unclear, detailed records of financial transactions between Murray Energy, Robert Murray and his wife Brenda, who is employed by the company as an assistant to her husband, were all maintained in a separate accounting system with limited access by accounting personnel.

Despite being under financial stress, Murray Energy used company resources to fund the "lavish lifestyles" of his family, the unsecured creditors alleged. That included allegations of personal use of the company's fleet of luxury aircraft — composed of two jet airplanes and a helicopter — worth up to at least $1.2 million during the analyzed period.

"The high volume of transactions for which the defendants regularly and without any justification sought reimbursement demonstrates that the defendants treated the debtors' coffers like a family 'piggy bank' available to them for personal use, no matter how small the expense," the creditors said.

Robert Murray also redirected substantial cash to organizations affiliated with the company or in which the Murray family held prominent roles. The creditors documented over $9.8 million in such donations between 2016 and 2019, a time when Murray Energy and affiliates were allegedly "insolvent or spiraling towards bankruptcy."

The committee asked the judge to allow them to prosecute the claims due to Murray Energy being intrinsically conflicted to evaluate and pursue claims against Moore and Robert Murray. From the outset, the company has sought broad liability releases for both individuals, the creditors alleged.

So far, the committee has refrained from engaging in formal discovery, the filing said. Future discovery may uncover further claims against the defendants, they said.

In a separate order filed May 1, the bankruptcy judge in Murray Energy's case approved a settlement between the company and its retirees that could transfer significant liabilities off of Murray Energy's balance sheet. Consol Energy Inc., facing potential liabilities associated with the retiree transfer, recently requested the conversion of Murray Energy's case to a Chapter 7 liquidation.

Murray Energy did not respond to a request for comment.