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Mission Coal creditors ask for bankruptcy court OK to probe insiders

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Mission Coal creditors ask for bankruptcy court OK to probe insiders

Mission Coal Co. LLC's unsecured creditors want to probe the company's ownership over allegations of mismanagement and potentially fraudulent behavior.

In the midst of a bankruptcy court reorganization, Mission Coal is "saddled with excessive debt and ownership/management teams that are incapable of operating the debtors' business in good faith," wrote the official committee of unsecured creditors in a Nov. 12 document filed with the U.S. Bankruptcy Court for the Northern District of Alabama. Multiple principals of the company were targeted in filings requesting they appear before the court to produce documents and communications. The primary focus is on Thomas Clarke, described by the creditors as "a businessman of questionable character who fled the nursing home industry in the late 1990s amidst allegations of fraud and mismanagement."

The filing alleges a pattern in which Clarke acquires a legitimate company, leverages that company to take in substantial funds, pays those funds out in the form of management fees and then defaults on the acquired company's debts or otherwise delays or ignores payments to creditors. Mission Coal, with metallurgical coal mines primarily in Alabama and West Virginia, was barely nine months old when it filed for bankruptcy.

In the months and years leading up to the formation of the company, there had been numerous allegations of self-dealing, below-market coal sales to affiliates, owner distributions and other transfers to affiliates and insiders that robbed Mission Coal of cash flow and an ability to turn a profit despite strong markets for metallurgical coal, the committee of creditors said. The creditors also believe Clarke sold his stock and other interest in Mission Coal in the days leading up to the bankruptcy filing.

Creditors pointed to a "long list of malfeasance" and "questionable transactions" performed by the debtors, including several alleged instances documented in litigation between companies run by Clarke and Cleveland-Cliffs Inc. In that case, Cliffs accused Clarke's Seneca Coal Resources LLC of violating anti-racketeering laws, fraudulent conveyance, common law conspiracy and breach of contract. The case involves the alleged transfer of millions of dollars from Seneca that ended up in personal accounts or were used to pay off personal debts of the named principals.

Internal emails, the creditors said, showed Seneca funds had also been used for personal vacations, private jet travel, clothing allowances and other personal expenses of the principals. Early in 2018, Seneca was restructured to be a subsidiary of Mission Coal, which has been a "vehicle for further fraudulent activity" since it was formed in January 2018, the creditors alleged.

A message left for Clarke through a number listed for his Virginia Conservation Legacy Fund Inc., another coal entity he formed, was not immediately returned. Other principals identified for potential examination and production of documents in the case include Kenneth McCoy, Jason McCoy, Clarke's wife Ana Clarke and Charles Ebetino.