Global financier Greensill Capital has moved closer to a collapse that could cost tens of thousands of jobs in businesses in Europe, the US and Australia, after a court released papers that cast doubt on its insurance of A$10bn (£5.55bn) of loans issued to its customers.
The loans were underwritten by an insurance company, Tokio Marine, which was in a legal battle with Greensill, where former UK prime minister David Cameron is an adviser.
Court filings show the insurer told Greensill it would withdraw cover for around half of the loans, some A$4.6bn, after claiming these contracts were issued by an employee who “exceeded his authority”.
According to Greensill’s court filings, the insurers alleged that the policies that underpin the loans were written by an employee of a Tokio Marine subsidiary, but lacked the documents required to evaluate the risk being insured.
Greensill is on the verge of collapse after key backers, including Tokio Marine, Credit Suisse and the Swiss finance house GAM Holding, withdrew support amidst concerns about the management of the business, and the magnitude of loans Greensill issued to one key client, the steel magnate Sanjeev Gupta.
Greensill employs 1000 staff in London but is controlled through a holding company in Bundaberg, Australia. Its collapse could put at risk the financing of Gupta’s international steel business, which employs 45,000 people around the world, including some 3000 in the UK and 7000 in Australia – most at the Whyalla steel mill.
Talks are ongoing with private equity group Apollo over a rescue package, while liquidators are expected to be appointed for those parts of Greensill that cannot be saved.
Greensill provides a service known as supply chain financing. In return for a fee, it allows suppliers to big companies that are clients of Greensill to cash in invoices for goods and services they have already supplied, but not yet been paid for. The amounts that are to be collected from the corporate clients are then packaged up as loans and marketed to investors. These arrangements are underpinned by insurance policies.
The bank was in a legal battle with Tokio Marine to stop the insurer withdrawing its support. The case was being heard by the supreme court of New South Wales, because while most of Greensill’s staff are in London, its parent company is in Bundaberg, the hometown of its founder, Lex Greensill.
Greensill told the NSW Supreme Court the insurance should be extended past its expiry date of midnight on Monday. But in a ruling on Monday afternoon the court refused to force Tokio Marine to temporarily extend the policies and on Thursday Greensill dropped the lawsuit.
Court filings suggest Tokio Marine began investigating the employee’s work for Greensill last summer. The employee was employed by one of the insurance company’s subsidiaries, the Bond & Credit Company (BCC). It informed Greensill of its concerns in a letter sent to Lex Greensill and Markus Nunnerich, a director of a Greensill’s German-licensed bank, dated 4 August last year.
The letter was signed by BCC employee Toby Guy. Under the heading “no knowledge of policies”, Guy said the insurance company became aware on 2 July 2020 that the employee had written insurance for Greensill totalling more than A$10bn between June 2019 and July last year.
Some of the policies were supposed to include documents detailing the transactions that were being insured, so that the company could “undertake any evaluation of the risk sought to be underwritten”. But the insurer did not have those documents, Guy claimed in the letter.
He said that under all the policies Greensill was also supposed to provide monthly reports, but that it had failed to do so.
Greensill and the employee have been approached for comment.
Subsequent letters reveal that the contracts being investigated underpinned Greensill clients including fintech Fair Financial Corp, French trucking group CMA CGM, Swiss-Italian shipping company Mediterranean Shipping Company, finance group General Atlantic, ecommerce group Tradeshift and equipment rental group EquipmentShare. There is no suggestion of wrongdoing by these clients.
Greensill’s insurance agent, Marsh, responded that it was “surprised” by the 4 August letter and regarded the Tokio Marine subsidiary as being “on risk” – providing coverage – under the policies.
In a letter sent on 1 September last year, Guy said BCC would not renew two policies, which the court heard provided $4.6bn (£2.55bn) in insurance coverage, when they expired at midnight on Monday.
On Monday afternoon, Greensill asked the court to force BCC, Tokio Marine and another insurance company involved in the transactions, Insurance Australia Group, to extend the policies for a short period of time pending a full hearing.
In an affidavit, one of Greensill’s solicitors, Guy Narburgh of Herbert Smith Freehills, said that failing to renew the policies meant that “Greensill’s economic viability would immediately and seriously be impaired as its primary sources of funding, and revenue, would immediately cease” and would also cause clients to “become insolvent”.
Greensill’s bank would also “be forced into run-down and the likelihood of significant regulatory intervention”, he said.
He complained that “to date, Greensill has not received any explanation as to why the activities of [the employee] should affect the enforceability of any of the insurance contracts”.
However, judge James Stevenson refused the company’s application to force the insurers to extend the policies.
An IAG spokeswoman said the company sold its stake in BCC to Tokio Marine in 2019.