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• 14 Apr

  Why Did Greensill Fail

  

  Greensill was one of over a hundred invoice finance companies that were involved in the UK receivables financing market. Their recent failure has provoked a scandal over government lobbying and the far-reaching impact of the financial failure. Below we have drawn together material about the group, and the reasons behind the failure.

  If you were a customer of the group, and you require replacement funding, there are likely to be alternative financiers that will be able to help you, providing you have a debtor book of valid sales invoices.

  Why Did Greensill Fail?

  The group's reach went far beyond the UK and we are now learning that their practices may have extended well beyond traditional forms of funding against receivables. A recent article by TransFin alleges that they had gone as far as to finance receivables that had not yet come into existence, which any industry specialist will tell you is a very risky practice. The TransFin article gives a much more detailed explanation of the circumstances and the factors that led to the failure.

  The Greensill Scandal

  The collapse has also sparked a political scandal over lobbying. The BBC reported (14/04/21) that a review has been ordered by Boris Jonson. The review will look into alleged links between Greensill, a former Prime Minister and top civil servants in his administration. The article explicitly states that the former Prime Minister didn't appear to do anthing wrong under the current rules.

  Administration And The Financial Accounts

  The FT reported that Greensill filed for Administration on the 8th April 2021.

  Administration is an insolvency process whereby a company is placed under the control of an Insolvency Practitioner, the Administrator, who takes over the running of an insolvent business (one that cannot pay its creditors as they fall due), in order to maximise the returns for creditors of the business. An Administrator may choose to move the company into Liquidation, or they may trade some aspect of it forward, to maximise returns for the creditors. Seeking the sale of the business may also be within the remit of the insolvency practitioner.

  Insolvency Practitioners

  A quick look on Companies House confirms that Greensill Capital Management Company (UK) Limited (company number 08037769) appointed Administrators on the 08/03/21. The Administrators are Grant Thornton (Insolvency Practitioners: Christine Laverty, Trevor O'Sullivan and William Stagg) of 30 Finsbury Square, London EC2P 2YU. The telephone number for the Administrators is: 0161 953 6900. It is important for any creditors with a claim against the company to file their claims as quickly as possible.

  Latest Accounts

  The last finacial accounts were for the year to 31st December 2019. They showed that the company provided management support to group companies.

  The latest years accounts showed revenue of $85,740,000, an increase from the previous period where the revenue achieved was $41,143,000. This resulted in a loss of $114,000 in 2019, against the previous years profit of $1,937,000. Employee numbers increased from 108 in 2018 up to 210 in the 2019 figures, with Director's renumeration rising from $901,000 (2018) to $4,404,000 in 2019. The highest paid director received $4.4M in 2019 ($488K in 2018).

  Subsidiaries In The Financial Accounts

  The financial accounts show that the details of the company’s subsidiaries, as at 31st December 2019, were as follows:

  • Greensill Capital Inc (USA - Financing)
  • Fanacity Corporation (USA – Financing – Indirect holding via Greensill Capital Inc)
  • Greensill Capital Trading Ltd (England & Wales - Financing)
  • Earnd (UK) Limited (England & Wales - Financing)
  • Greensill Capital (IOM) Limited (Isle of Man – Operating Aircraft)
  • Greensill Capital II (IOM) Limited (Isle of Man – Operating Aircraft)
  • Greensill Asia Pte Limited (Singapore – Financing)

  Financing Receivables

  One of the sad consequences of this scandal is the impact on the receivables financing sector. It remains one of the safest means of funding businesses - providing (of course) that the underlying debts are valid. If, as the TransFin article alleges, the group was financing receivables that were not even in existence, it is no surprise that they have run into problems (putting aside the other factors that the article puts forward).

  The real shame is if the whole of the receivables financing sector is judged by the alleged actions of one company, that may have made some very bad decisions. Most funders would never adopt these types of practices, which results in most funders being able to collect out their position in the event that their customer fails. The funder's expertise lies in their ability to value the receivables, and those receivables that are not even in existence have no value if the supply chain fails.

  By Glenn Blackman