“Rescue me now” is not only a panic button app on your mobile phone which responds to you immediately during a crisis but possibly the plea for help from Australian born businessman, Lex Greensill. Mr. Greensill faces the prospect of being disqualified under the Company Directors Disqualification Act 1986 (“CDDA”) for his conduct in relation to the collapse of Greensill Capital.
Growing up as the son of a sugar and melon cane farmer in Australia, Mr. Greensill was frustrated at the way in which banks were willing to lend money to large corporations but not to small or medium sized business. He recalled growing up “frustrated to the extremes” watching his family business struggle waiting for supplies to be paid for. In 2011 Mr. Greensill formed Greensill Capital as a solution to this problem.
Supply chain finance
Greensill Capital operated by way of acting as a middleman to suppliers. It would pay the suppliers faster which allowed suppliers more time to pay back the middleman plus a small percentage for the cost of getting their money back quicker. In order to make this “supply chain finance” a more lucrative operation Greensill Capital turned the supplier invoices into short term assets and put them into funds that investors could buy. These funds were then sold through the likes of Credit Suisse and Global Asset Management. To manage risk, Greensill Capital entered into a contract with insurance company, Tokio Marine Management.
Whilst supply chain finance looks like an effective way to alleviate businesses with being paid for their supplies, it has a number of inherent risks including the lack of transparency. It can often have the effect of blurring a companies statement of financial position.
Following a major investment of 1.5 billion dollars in 2019, red flags soon became to emerge. Concerns were raised in respect to the opaque nature of Greensill financing to Indian born British businessman, Sanjeev Gupta’s Liberty Steel Group and unusual investments from SoftBank a lender and shareholder in Greensill. BaFin (Germany’s bank regulator) investigated Greensill’s exposure to Mr. Gupta’s companies following Greensill’s acquisition of a retail bank. Evidence emerged that assets linked to Mr. Gupta and listed on the company’s balance sheet did not exist.
“Riding to the rescue”
In 2020 and at the height of the pandemic, ex-prime minister, David Cameron (an adviser and shareholder in Greensill) sent 62 messages to former colleagues in government pleading them to help Greensill Capital by allowing the company access to the coronavirus loan support scheme. Messages often signed off “love DC” were sent to Rishi Sunak (then Chancellor), other ministers including Michael Gove and Matt Hancock and Sir Tim Scholar (the then permanent secretary to the Treasury). In one message to Sir Scholar, Mr Cameron texted “I am riding to the rescue with supply chain finance with my new friend Lex Greensill”.
Despite Mr. Cameron’s attempt, Greensill did not receive approval for the coronavirus loan support scheme and in July 2020, insurers Tokio Marine Management stated that it would no longer extend policies protecting investors in the Greensill linked funds further exacerbating the financial woes of Greensill. In March 2021 Greensill were placed into Administration, not the type of rescue Mr. Cameron envisaged.
What now for Mr Greensill and Mr Gupta?
Mr. Gupta having recently returned to the UK (he now lives in Dubai) is also under the microscope and faces a potential investigation by the Serious Fraud Office. Whilst he has managed to fend off several winding up petitions against his company is it only a matter of time before the Insolvency Service considers disqualification proceedings against Mr. Gupta?
As the deadline (March 2024) for pursuing directors of Greensill under the CDDA looms, the Insolvency Service have now written to Mr. Greensill’s solicitors advising them of their intention to proceed with disqualification proceedings against him. Insurance Australia Group have also recently issued court proceedings against Greensill Capital for actively deceiving German regulators.
In much the same way David Cameron denied allegations of wrongdoing in respect of his lobbying of Greensill and knowledge of their financial woes, it is likely Mr. Greensill will similarly deny acts of wrongdoing under the CDDA.
Whilst the Treasury committee absolved Mr Cameron of breaching lobbying rules, they found hiss lobbying of Greensill to have demonstrated “a significant lack of judgement”. Will the courts find Mr Greensill to have acted with a lack of judgement in his business operations and order disqualification or will recently appointed foreign secretary “Lord” Cameron ride in on the back of a pig and come to the rescue. Time for Lex to hit the “rescue me now” panic button.