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A company linked to financier Lex Greensill “failed to act in good faith” by lending £250m more than it should have to businesses owned by steel magnate Sanjeev Gupta during the pandemic, the high court has been told.
Greensill Bank AG (GBAG) is suing the Department for Business and Trade (DBT) for about £331m over claims it wrongly terminated guarantees it agreed with Greensill Capital UK (GCUK) on Covid loans given to businesses.
GBAG and GCUK were part of the Greensill Group, a collection of companies connected to the Australian financier.
Before its collapse in 2021, GCUK was the principal financial backer of Gupta’s GFG Alliance, which includes Liberty Steel. Gupta built up a collection of metals businesses around the world, and forged a close relationship with Greensill to finance them.
The Greensill collapse caused severe problems for the GFG Alliance. In 2021 the UK’s Serious Fraud Office opened an investigation into suspected fraud, fraudulent trading and money laundering in relation to its financing from GCUK. Gupta has since lost control of several of his steel and aluminium businesses in the UK, Europe and Australia after the Greensill collapse prompted a desperate scramble to secure new financing.
Lawyers for GBAG told a hearing on Thursday the government breached its contract with GCUK and acted “capriciously” by terminating the guarantees, and is seeking more than £331m in damages.
The government is defending the claim, with its barristerssaying it “lawfully determined” GCUK had failed to act in accordance with the terms of the scheme guarantees by giving money to several businesses owned by Gupta.
The hearing, presided over by Justice Robin Knowles, involved several procedural issues ahead of the trial, which is expected to begin in late 2027 and could last up to eight weeks.
In written submissions for the hearing in London, Patrick Goodall KC, representing the DBT, said the case relates to the coronavirus business interruption loan scheme (CBILS) and the coronavirus large business interruption loan scheme (CLBILS).
The schemes helped prevent businesses from going bust in the early days of the pandemic lockdown by enabling accredited lenders to lend money to companies.
While the loans were due to be repaid by the companies in full, the lending was backed by an 80% government guarantee through the British Business Bank.
Goodall said the government agreed with GCUK in the summer of 2020 that it would guarantee its CBILS and CLBILS loans, but that the DBT was “entitled to terminate a scheme guarantee in certain specified circumstances”.
He added that between September and October 2020 GCUK issued loans to three borrowers under CBILS, and eight others under CLBILS.
But in April 2022, the government terminated the CLBILS guarantees as six of the eight borrowers were “ultimately owned” by Gupta.
Goodall said this meant GCUK lent £300m to those companies when the sum “ought not to have exceeded £50m, given that the borrowers were part of the same group”.
He said the DBT “lawfully determined that GCUK failed to act in good faith” by treating the six companies separately to “avoid the restrictions imposed” by the guarantee agreement on lending to groups of firms.
Goodall also said GCUK had acted in a manner which could bring the government or the scheme “into disrepute” by “participating in arrangements for the corporate restructuring” of the six companies.
In September 2023, the government also terminated its guarantees in relation to the CBILS scheme, claiming GCUK “did not exercise a level of care, control and diligence consistent with the standard required”.
Tim Lord KC, representing GBAG, said in his written submissions that the six companies linked to Gupta were not “partner or linked enterprises”, and that GCUK “did not act in bad faith and there is no basis to suggest otherwise”.
He said: “GBAG denies the DBTwas entitled to terminate the relevant scheme guarantees.
“Alternatively, it claims the decision to terminate was a breach of a term requiring the DBT to act in a reasonable manner and/or not to act capriciously or in a way no reasonable guarantor would have done.”
Lord also said the bank alleges there was “considerable political pressure” from the DBT to allow GCUK to be accredited to lend money to Gupta’s companies.
In his response to the claim, Goodall said the bank’s pleaded case was “highly inadequate”.
The former prime minister David Cameron found himself at the centre of an inquiry after he lobbied the government on Greensill’s behalf to secure state support during the pandemic.
The inquiry later found Cameron’s actions had been within the rules and he had not been required to register as a lobbyist.
Greensill is also suing the DBT over alleged misuse of his private information.
The department has separately issued disqualification proceedings against Greensill, which could see him barred from managing a UK company for 12 years.
Additional reporting by Jasper Jolly
