Citibank has been granted permission to pursue a winding-up order against three GFG Alliance companies, including trading arm Liberty Commodities, after a UK judge ruled that pandemic-related insolvency protection measures do not apply.
The ruling follows demands for payment issued by Citi in March 2021, in the wake of the collapse of Greensill. At the time, the bank argued it was due around US$132mn from Liberty Commodities, as well as £46.9mn from Speciality Steel UK and €23.3mn from Liberty MDR Treasury Company.
The three companies are all considered part of the GFG Alliance, a loose network of companies linked to businessman Sanjeev Gupta. Rotherham-headquartered Speciality Steel operates across five locations and supplies products primarily to the aerospace, automotive and engineering industries.
The ruling, issued this week, means Citi is free to proceed with a winding-up order against the three GFG Alliance companies, providing it is able to gain sufficient creditor support. Citi did not comment when contacted by GTR.
A spokesperson for GFG Alliance says: “This judgement on Covid protection qualification does not mean that the UK companies in question will be wound up.
“There will now be a further hearing likely to be in autumn or winter this year at which the merits of the winding up proceedings will be heard in their own right.”
The companies will defend their position “vigorously” and have shown their commitment to the alliance’s UK businesses through injections of shareholder capital since October 2021, the spokesperson tells GTR.
Prior to Greensill’s collapse, the alliance was heavily reliant on financing facilities it provided and was unable to repay debts once the London-headquartered financier fell into insolvency.
Citi’s claims cover both trade receivables and future receivables – a controversial method of raising working capital against invoices considered likely to arise at a later date – financed by Greensill.
Citi – which acted as note trustee for receivables securitised by Greensill and sold to investors, notably Credit Suisse – was initially prevented from proceeding with winding-up orders against the three companies.
Insolvency protection measures introduced by the UK government in 2020 protect a company from being wound up by creditors if its financial difficulties were caused by Covid-19.
The legislation stipulates that creditors must have reasonable grounds to believe problems “would have arisen even if coronavirus had not had a financial effect on the company”.
Gupta had argued in a witness statement that the pandemic had “a significant adverse financial effect on each of the companies”, which were involved in the metals market, particularly steel.
“It was inevitable that some of our sectors would be the ones most impacted by the crisis,” he said. “The automotive, air travel industries ceased almost completely during the lockdown and the construction industry was severely impacted. Each of these industries are significant consumers of steel.”
However, the ruling says the supposed fall in revenue caused by that disruption was not reflected in any reduction in the volume of notes issued, citing an inspection of information held by Credit Suisse.
The ruling also addresses whether Greensill’s collapse – which deprived GFG Alliance of vital liquidity and left its companies being unable to repay debts – was caused by the pandemic.
In evidence given last year to a UK parliamentary committee, the lender’s founder and chief executive Lex Greensill argued that in times of stress, where default risks are higher, insurers may have to increase capital held or reduce the amount of cover they provide.
However, the ruling says that Greensill’s loss of insurance cover – which occurred when Australian underwriter Bond & Credit Company (BCC) declined to renew policies worth US$4.6bn – was not prompted by Covid-19.
It cites a letter from BCC to the committee saying terms of cover could not be agreed, and that “general market conditions were not significant factors that BCC considered in taking the decision regarding coverage of Greensill”.
BCC’s parent company, Tokio Marine, has since accused Greensill of fraud, saying it made “material misrepresentations and non-disclosures” prior to policies being finalised. It is understood those claims will be fought vigorously.
The accusations follow a report by the administrators of Greensill’s German entity, seen by GTR, which also cites claims that Greensill entities made false statements about insured receivables before contracts had been concluded.
GFG Alliance, meanwhile, intends to continue refinancing efforts in a bid to repay creditors and avoid any winding-up action.
“We continue to negotiate a consensual debt restructuring in the best interest of all stakeholders, not least the thousands of employees that rely on our businesses in the UK and around the world,” the spokesperson says.
“We are making very good progress towards this goal as evidenced by our refinancing in Australia and the US. Despite some market headwinds, our core businesses remain profitable and are operationally strong.”
The spokesperson adds that securing a long-term future for the business is “in the best interest of all parties”.
The court ruling adds there is also a “substantial dispute in respect of the sums said to be due” by the three companies to Citi. It invites the parties to exchange evidence and address that disagreement.