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Lex Greensill has denied suggestions that Greensill Capital knowingly provided funding where there was no underlying business activity, telling a UK parliament inquiry that the company’s controversial future receivables model did not constitute high-risk or unsecured lending.

Greensill, which filed for insolvency in March, has faced widespread criticism for allegedly lending against hypothetical invoices – in some cases from companies that had never done business with the borrower.

However, giving evidence to the UK parliament’s Treasury Committee on May 11, founder and chief executive Lex Greensill was asked by Labour MP Siobhain McDonagh about lending in situations where there “was no inventory and there was no invoice, there was no evidence of any activity or business whatsoever”.

Greensill replied: “A condition of our facilities… is that they must do business with the customer. They must have a history to support that, and the data to support that.”

The company would use such data “to see what was going to happen in the future and allow businesses to be able to access credit”, he added.

The claims appear to contradict remarks by Sanjeev Gupta  – whose GFG Alliance group of companies had relied on Greensill as a major source of funding – in a letter to the Financial Times last month.

The metals tycoon was responding to Financial Times reports that Greensill’s administrators, Grant Thornton, had approached companies with outstanding invoices from Gupta’s trading firm Liberty Commodities only to be told that no trading relationship had ever existed between them.

Gupta told the newspaper that one such firm, German scrap metals trader RPS Siegen, was only ever accounted for as a “potential customer” of Liberty Commodities, rather than a current client. GFG Alliance declined to comment further when contacted by GTR.

Similar claims have also been made by Bluestone Resources, a US-based mining company that had also made use of Greensill’s future receivables programmes.

In a lawsuit against the lender filed in March, the West Virginia firm says funding was “based predominantly on prospective receivables” rather than real invoices. A register of possible debtors “was created by [Greensill] by providing Bluestone with a list of potential buyers”, it argues.

Bluestone adds that future and current receivables were subject to the same definition in documentation supporting those transactions.

Speaking to the Treasury Committee last week, former HM Treasury city minister Lord Myners said that his “eyebrows shot up” when Lex Greensill first explained the company’s future receivables model to him during a meeting.

The Australian entrepreneur described the product as “his edge: that he can anticipate transactions that will occur between parties who are not even aware of each other’s existence”, Myners claimed. “I left the building thinking this is a Ponzi scheme.”

At Tuesday’s hearing, Greensill said he was “very surprised” by those comments, reading out a previously unpublished statement from Myers following that meeting in which the former minister said he was “comfortable” with Greensill’s business model.

Greensill added that he believes future receivables made up a maximum of 20% of the London-headquartered fintech’s total lending.

It is not yet known the extent to which GFG Alliance companies made use of such programmes. A report by Grant Thornton filed with Companies House says that at the end of April, Greensill held around US$230mn of GFG Alliance-related receivables on its own balance sheet, but does not distinguish between current and future invoices.

Greensill also told the hearing that future receivables should not be considered unsecured lending. Whenever funds were advanced against hypothetical invoices, assets of some kind were always taken as security, he said.

Such assets have included real estate, inventory, receivables, cash and in some cases personal guarantees or shares in the company itself, he said.

 

Insurance woes

In an opening statement and apology to the committee, Lex Greensill said that while he “bear[s] complete responsibility for the collapse of Greensill Capital”, it is “deeply regrettable that we were let down by our leading insurer whose actions assured Greensill’s collapse”.

Tokio Marine had informed the company in September it did not intend to renew US$4.6bn in credit insurance cover for Greensill transactions, explaining that a sole employee was believed to have approved cover in excess of his authority.

That prompted Credit Suisse to freeze funds worth around US$10bn to Greensill – placing it at immediate risk of insolvency. The Grant Thornton report says a further US$9bn of cover was set to expire later this year.

Greensill told the committee that insurance cover played a vital role in the provision of future receivables finance, as it would have applied even where a company turned out to be borrowing based on fraudulent invoices.

“To protect our investors we purchased insurance to ensure that in the event that there was an issue of any description, including fraud, the insurance would be effective,” he said.

Because Tokio Marine had given Greensill six months’ notice that it did not intend to renew those policies, committee members asked why the lender was unable to secure alternative cover from another provider before policies expired at the start of March.

Lex Greensill said the company did seek options through its broker Marsh, but had also worked “every week… to actually finalise a renewal with Tokio Marine”. “Indeed, one [renewal] was drafted between us and in an agreed form before the end of the year,” he claimed.

Tokio Marine did not immediately respond when contacted by GTR.

Other insurers used by Greensill had also indicated they would not renew before ultimately changing their minds, he added, and suggested Tokio Marine’s decision was motivated more by “regulatory shortcomings” than by concerns over Greensill in particular.

Greensill argued that the counter-cyclical nature of credit insurance rules means that in times of stress, where default risks are higher, insurers may have to reduce the amount of cover they provide.

“That is what happened during Covid,” he said. “So what happened was many insurers needed either more capital to provide the same amount of cover, or they needed to cut cover to fit within the limited amount of capital that they had.”

The Treasury Committee inquiry into Greensill will continue this week, with former prime minister and Greensill advisor David Cameron due to give evidence on Thursday, May 13.

The inquiry has also prompted the UK’s Financial Conduct Authority to announce it is formally investigating Greensill, noting that some allegations “are potentially criminal in nature” – though the regulator says it is not able to disclose full details of its interactions with the company.