Greensill’s use of risk mitigants, including trade credit insurance and export credit agency guarantees, was extensive. However, since the company’s collapse, doubts have been raised over its dependence on such cover, and in some cases, whether policies or guarantees were valid in the first place. John Basquill examines the controversial claims at the heart of Greensill’s offering.


Credit insurance played a significant role both in Greensill’s rapid growth and its sudden collapse. The bundles of trade receivables it sold to investors were often backed by insurance cover, adding an extra layer of protection in the event of default by one of the underlying borrowers.

When that cover expired at the end of February 2021, it prompted Credit Suisse – by far the largest investor in Greensill’s supply chain finance (SCF) portfolio – to freeze its Greensill-managed funds, placing the London-headquartered fintech at imminent risk of insolvency.

It soon emerged that Greensill was told months earlier that US$4.6bn in credit insurance cover would not be renewed. The company was unable to secure alternative policies elsewhere, and within eight days of that expiry date, the company filed for insolvency.

During a subsequent UK government inquiry into the company’s collapse, founder and chief executive Lex Greensill emphasised the role that the loss of cover played in its downfall.

“It is deeply regrettable that we were let down by our leading insurer, whose actions ensured Greensill’s collapse,” he told the cross-party Treasury Committee during a virtual evidence session in May.

“Our principal insurance provider decided not to renew their insurance, despite being in discussions around renewing their insurance up to the hours before… It was that withdrawal of insurance capacity that resulted in our failure.”

But documents seen by GTR – including court submissions from Australia and a report from the administrators of Greensill’s German banking entity, Greensill Bank AG – reveal a more complex picture.

The documents raise questions over whether that cover was valid in the first place. They reveal that insurance company lawyers told administrators Greensill entities may have made false statements and that claims were approved without proper authorisation.

They also show that Greensill was creative in its use of emergency Covid-19 loans with export credit agency (ECA) backing, using such loans to reduce its credit risks in relation to the GFG Alliance – a loose network of companies tied to metals tycoon Sanjeev Gupta.


False statements

Greensill’s credit insurance arrangements are detailed in the German administrators’ report, which was prepared by CMS partner Michael Frege, known for his work as administrator of Lehman Brothers following its collapse in 2008.

The document, filed in a Bremen court, describes five “pairs” of credit insurance policies held by Greensill entities. Each pair comprises a master policy, typically covering Greensill Capital UK, and parallel policies covering other entities such as Bremen-based Greensill Bank.

For two of the five pairs, the risk carrier was Insurance Australia Ltd (IAL), with policies underwritten by Bond and Credit Company (BCC). Tokio Marine – BCC’s parent company – was the risk carrier on two other policies. The risk carrier for the fifth policy pair was the UK branch of Zurich Insurance.

From Greensill’s perspective, problems initially arose in July 2020, when a representative of Tokio Marine wrote to the company expressing doubt that the policies would be extended, or that new limits would be granted.

The insurer said it believed a BCC employee, Greg Brereton, had acted beyond the level of his authorisation. Brereton was fired and an internal investigation was launched into the validity of the Greensill policies he had underwritten. He did not respond when previously contacted by GTR.

The German administrators’ report reveals that Brereton also approved a claim of around US$35mn related to non-payment 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 – which drew financing from Greensill’s SCF programmes.

In addition to the role of Brereton, a letter from IAL’s lawyers, cited by the report, suggests Greensill entities made “false statements” about insured receivables prior to the conclusion of contracts.

The letter claims this would amount to a breach of pre-contract disclosure duties, and could potentially be considered a deliberate or premeditated attempt at deception.

Some of the complaints relate to GFG Alliance transactions, while others are linked to Bluestone Resources – a US mining company that has launched a lawsuit against Greensill accusing it of breaches of contract.

Tokio Marine also doubts the validity of two policy pairs “on the same grounds as IAL”, the report adds. Neither company commented further when contacted by GTR.

If proven, the claims could invalidate those policies that Greensill had in place. A comprehensive trade credit insurance policy filed as part of Australian court proceedings and seen by GTR includes a clause stating a policy may be declared void “if the insured makes any statement, report or claim, knowing it to be false or fraudulent, or the insured knowingly conceals any material fact”.

That policy was underwritten by BCC as an authorised representative of IAL, and covered transactions from February 2019 to March 2020.


ECA-backed emergency loans

Greensill’s use of external risk mitigants was not limited to credit insurance cover. During the first year of the Covid-19 pandemic, when many commodity traders and producers were struggling for liquidity, the company also turned to ECA-covered emergency loans on behalf of its GFG Alliance customers.

According to the German administrators’ report, GFG firms took out four ECA-covered loans – mainly from Greensill – as part of pandemic relief lending schemes during the second half of 2020.

The report explains that rather than directly supporting operations at those entities, those funds were immediately deposited as cash collateral at Greensill Bank.

The deposits would then be used as cash collateral supporting further lending by Greensill to GFG. As of June, the loans – which together totalled around €190mn – had not been repaid.

In July 2020 Greensill told BaFin, Germany’s financial services regulator, that this arrangement would reduce its credit risk in respect of the GFG Alliance, with an extra layer of safety coming from the foreign government guarantees.

Two of the transactions were backed by a 90% guarantee from French ECA Bpifrance. The loans were both disbursed in December 2020, totalled €18mn and €10mn, and were subject to guarantee commissions payable by April 2021. That payment deadline was not met, the report says.

Luxembourg publication Delano reported in May that the first of the two loans was paid to Liberty Aluminium Poitou, a smelter taken over by Gupta the previous year. Delano said the loan was later subject to a preliminary investigation by the public prosecutor’s office in Poitiers, France.

The Financial Times has since revealed that case has been folded into a wider probe by Paris prosecutors, which targets Gupta’s French operations in relation to alleged misuse of corporate assets and money laundering.

The two other ECA-backed loans were provided in Italy and the Czech Republic, backed by Sace and Egap respectively.

The Sace-backed loan totalled €146mn, around a third of which was provided by an unnamed Italian lender, and was disbursed in August 2020. Greensill’s portion totalled €85mn, with an ECA guarantee applied to 80% of that value.

Reuters reported in March 2021 that the loan was granted to GFG Alliance company Liberty Magona, with a tenor of three years.

The Egap-backed facility, also provided in August, totalled €76mn and was backed by a 90% guarantee.

In this case, Greensill Bank says the deposited amount was later paid out to GFG companies and so was no longer used as cash collateral.

The report says law firms in all three countries have been drafted in to assess whether the ECA guarantees were indeed valid, and whether “incorrect use of the loan funds as cash collateral for other financing could render the guarantee cover null and void”.

Sace, Greensill and GFG Alliance declined to comment when contacted by GTR. Representatives from Bpifrance and Egap did not respond.


A robust credit insurance market

Lex Greensill has argued that the company’s downfall stemmed from a fatal flaw in the trade credit insurance market, ultimately driven by regulatory pressures.

He told the Treasury Committee that a market downturn typically toughens capital requirements faced by insurers at a time when businesses’ profitability is under threat.

As a result, he said, many insurers “either needed more capital to provide the same amount of cover or needed to cut cover in order to fit within the limited amount of capital that they had… This is what happened during Covid.”

However, after reviewing this theory, the committee concluded that Greensill’s collapse does not provide strong evidence of weaknesses in insurance market regulation.

When contacted, BCC told the committee that general market conditions “were not a significant factor in taking the decision” not to renew coverage.

Sam Woods, deputy governor for prudential regulation at the Bank of England and chief executive of the Prudential Regulation Authority, acknowledged that capital requirements can increase in line with growing risks but added: “The reason that insurance is withdrawn is very rarely that; indeed, it never is, in my experience. It is the fear of loss. I think that was the case here.”

Greensill’s use of insurance had already been identified by German ratings agency Scope months before its collapse. It downgraded the company from A- to BBB+ in September 2020, warning that “rising insurance cost… will have a negative impact on profitability” and that any loss of cover would drive further negative change.

Moreover, industry insiders have emphasised that the wider market appears to have avoided any potential contagion risks from Greensill’s failure.

A statement by the International Trade & Forfaiting Association (ITFA) issued in March 2021 insisted access to credit insurance was expected to remain stable for other firms involved in trade finance.

“Payables finance will continue to be a sustainable form of financing trade supporting corporates across their supply chains, and insurance will continue to be a critical tool in supporting such transactions,” it said.

An industry source told GTR at the time that cover “is still available, [is] widely used, and it has been for a long time”.

“The insurers are not withdrawing from this product area, and you could even say that what happened with Greensill shows the insurers are in good control of their risks,” they said.

Sources argued at the time that ultimately, Greensill’s growth was driven by selling lower-quality but higher-yield debts as investment products, with the underlying risk covered by trade credit insurance.

“This is where the subprime mortgage crisis analogy comes in,” one source said. “By adding credit risk insurance, they were trying to give a better yield on a sub-investment grade product.”