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Efforts to recover lost funds following Greensill’s insolvency are being held up by a dispute over insurance cover, following accusations of fraudulent conduct and warnings that litigation could last years. 

Insurance giant Tokio Marine reiterated accusations of fraud against Greensill this week, issuing a statement saying the collapsed finance company made “material misrepresentations and non-disclosures” prior to policies being finalised. 

Those policies were underwritten by Bond & Credit Company (BCC), an Australian company now part of Tokio Marine, as an agent of Insurance Australia Ltd (IAL). The policies provided cover for trade receivables that were securitised by Greensill and sold to investors. 

The expiry of that cover at the end of February 2021 prompted Credit Suisse to freeze funds investing in Greensill-originated notes, sending the London-headquartered company into insolvency. 

Some companies were then unable to repay funds when due, resulting in insurance claims to recover losses. In a note to investors published on April 4, Credit Suisse says: “Some of the debtors had assumed that they could always renew the short-term financing in a roll-over with Greensill and therefore had not made provisions for repayment.” 

However, Tokio Marine has raised doubts over whether those insurance policies were valid in the first place, following internal investigations that are still ongoing. 

Its statement this week alleges that from at least September 2018, Greensill “fraudulently misrepresented” matters to BCC across “numerous policies, renewals and endorsement”, meaning the insurer does not have to pay out on any subsequent claims. 

“In light of those fraudulent misrepresentations and fraudulent breaches of an insured’s duty of disclosure, Tokio Marine has today advised counterparties that these policies and related obligations are void from inception,” it says. 

Tokio Marine declined to provide more details on its allegations when contacted by GTR, but a report from the administrators of Greensill’s German banking entity, filed in a Bremen court last year, shines more light on the case. 

That report, seen by GTR, cites a letter from IAL’s lawyers alleging Greensill entities made false statements about insured receivables before contracts had been concluded. The lawyers argue this would amount to a breach of pre-contract disclosure duties, and could potentially be considered a deliberate or premeditated attempt at deception. 

It singles out receivables associated with GFG Alliance companies – a network of firms linked to metals tycoon Sanjeev Gupta – and with Bluestone Resources, a US mining company that has launched a lawsuit against Greensill accusing it of breaches of contract. 

GFG and Bluestone have each claimed Greensill financed receivables that had not yet been generated, in some cases from businesses with which they had no existing relationship – suggestions repeatedly denied by Greensill. The report does not state whether future receivables are relevant to the dispute over the validity of insurance cover. 

Tokio Marine also doubts the validity of two other policy pairs for the same reasons, the report adds. The matter forms part of wider litigation in Australia, with four cases involving IAL parent company Insurance Australia Group now set to be managed together. 

GTR understands that Tokio Marine’s claims will be “fought vigorously”. Sources close to the litigation say Greensill provided extensive documentation detailing all relevant matters and paid over £100mn in premiums for the policies, arguing that the dispute amounts to “dirty tricks” from an insurer looking to avoid paying claims. 

Tokio Marine and BCC have also been caught up in other litigation in Australia, with trade finance platform Marketlend planning to file multiple lawsuits over their alleged failure to honour claims arising out of insolvencies in the Asian commodities trading sector during 2020. 

 

Years of litigation 

Tokio Marine’s most recent statement does not mention the involvement of Greg Brereton, a former BCC employee who was previously accused of underwriting policies beyond the level of his authorisation. 

The German administrators’ report reveals Brereton had approved a claim of just under US$35mn related to default by Emirates Hospitals Group, which has since been challenged. The group is owned by Khalifa al-Muhairi, a major shareholder at NMC Health – a hospital operator that fell into administration in 2020 amid allegations of hidden debts and potentially fraudulent transactions. 

Insurance Australia Group has since told an Australian court that the policy covering Emirates Hospitals Groups was for a term of 24 months, but that as an underwriting agent BCC was only authorised to underwrite cover for a maximum of one year, suggesting the policy should not be considered valid. 

However, administrators for Greensill argue it was reliant on those representations of authority from BCC, that it now believes the insurer was in breach of Australian law, and that payment should still be made. 

A spokesperson for Credit Suisse adds: “It is our firm position that the relevant insurance policies are valid and that the insurers’ claims are unfounded. We will take every step to preserve the rights of the supply chain finance funds and their investors and we will vigorously defend our position.”

The case between Greensill Bank and Insurance Australia Group is to be heard alongside two cases being brought by Credit Suisse investment funds, and another brought by US financier White Oak. 

In its note to investors this week, Credit Suisse says it “has been taking all necessary steps to collect the outstanding amounts” following Greensill’s collapse, but that in some cases refinancing or asset sales have not been possible. 

The Swiss lender says it has already reported defaults to its credit insurer and confirms corresponding claims have already been filed, but warns lengthy court proceedings could be ahead. 

“It is expected that litigation will be necessary to enforce claims against individual debtors and the insurance companies, which may take around five years,” it says. 

A progress report filed by Greensill’s UK administrators and made public today confirms that the company submitted claims under three policies in February this year, relating to trade assets that are in default. 

The report says that of US$17.7bn in trade assets identified at the point of insolvency last year, around US$8.4bn has been recovered.