A coal company, which has been at the center of controversy since earlier this year has now found itself in the crosshairs of potential jail time for failure to comply with payment orders.

A federal bankruptcy judge said in a hearing last week he is not averse to potentially imposing jail time for company officials over the company’s failure to comply with the court’s orders.

At the same time there are allegations the company continues to fail to pay the outstanding debts, information has also come to light that the company, American Resources Corporation, was the recipient of a $2.7 million loan under the CARES Act’s Payroll Protection Program.

The discussion occurred May 14 during a telephone conference in the bankruptcy case filed last year by Cambrian Holding Company, as a part of which, assets of Cambrian were purchased by American Resources Corporation. ARC is the company which fell into controversy in January after miners at its Pike County Quest Energy unit blocked a coal train from moving to protest not receiving pay.

Later that month, the Kentucky Division of Mine Safety removed ARC’s permits for four mines in Pike County, citing violations including failure to have worker’s compensation coverage.

However, the latest issues regarding ARC may result in the most severe actions, as U.S. Bankruptcy Judge Gregory R. Schaaf led the May 14 telephone hearing regarding ARC’s failure to pay obligations it undertook as part of the Cambrian Coal deal. The discussions during the hearing led to Schaaf echoing contentions by attorneys for Cambrian Holding and the creditors’ committee that jail time for company principals may be the only way to get the company to pay its debts and obligations.

The hearing was held in response to motions filed by Cambrian Holding Company and other parties.

During the hearing, Patricia Burgess, an attorney for Cambrian, said the sale of the company’s assets to ARC closed in September, and, as part of the sale, ARC received certain assets in exchange for $1 and the assumption of certain liabilities.

“Almost immediately after the sale, (Cambrian) and the committee started working with ARC to ensure payment of the assumed liability claims,” Burgess said. “Very shortly thereafter, in October, the Labor Cabinet came in and sought an order requiring ARC to pay certain wages that had not been satisfied.”

In November, Burgess said, after ARC failed to pay those wages, the court entered an order requiring ARC to not only make those payments, but also to pay additional employee obligations.

“Approximately $28,000 of that remains outstanding today” she said.”

Burgess said there have been attempts to engage ARC in discussions over the outstanding debts, but those have been unsuccessful.

“There’s some concern that this is not an inability to pay but an unwillingness to pay because we have learned that ARC was the recipient of a $2.7 million PPP loan,” she said. “And, while we do understand there may be certain limitations on how to use that loan if they want forgiveness, there is obviously the ability to use that loan for a very low interest rate for other purposes or it would free them up other funds that could be used to satisfy these obligations.”

Both Burgess and attorney Jeff Goodman, who represents the creditor’s committee, suggested that severe sanctions, up to and including jail time, would be the only thing which would induce ARC to meet its obligations.

Schaaf addressed ARC attorney Billy Shelton, asking him why he should believe anything the company says.

“I am at the end of my ropes with your client,” he said. “I guess you need to start by telling me why I should believe anything ARC promises to the court and then tell me why I shouldn’t bring the hammer down.”

Shelton told the judge that ARC has faced numerous challenges, including at its E4-2 mine in Perry County.

“When we bought this property, we immediately got hit by a claim by Hazard Coal that we didn’t have a lease,” he said. “We then, because of the amount of the utility payments owed by the debtors, we got the power turned off at the mine. We haven’t been able to generate any income, any type of cash flow, from this property because of what we believe to be misrepresentations at the auction process.”

Shelton said the company made a $100,000 payment to Kentucky Power. However, Schaaf quickly pointed out that the company did so only under his orders.

“This is the kind of thing that I’m talking about when I say I have trouble believing anything ARC says,” Schaaf said.

Shelton said the company cannot currently find a market for any coal it could produce and the PPP funding is restricted in how the company can spend it.

“The only problem is ... at this point in time, unbeknownst to any of us, there’s no market for coal anywhere in the United States right now,” he said. “I’ve got several clients to who told me the other day that they’ve been told by utilities that they have contracts with, ‘Don’t send us any coal. We have no place to put it.’”

Schaaf, however, told Shelton that ARC does not take his orders seriously and that sanctions would be announced this week. As of presstime, Schaaf’s order had not been entered.

“I’m going to sanction your client ... your client is going to be severely sanctioned and I am not against jail time because, I understand the pandemic now, but we’re not talking about payments that should have been made today. We’re talking about payments that should have been made in October or November of 2019, so those arguments are falling on deaf ears. I wish you were here to see me because I probably am kind of red in the face.”

Schaaf said he is strongly considering allowing the case to be taken up by the U.S. District Court, which has more ability to impose greater sanctions.

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