IAG faces expanded exposure to Greensill Capital collapse

IAG’s direct exposure to the collapse of Greensill Capital has widened after Credit Suisse filed a £23m ($42.6m) compensation claim over loans made to British group Catfoss Renewables.

Greensill Capital founder Lex Greensill. Picture: Annabel Moeller

IAG’s direct exposure to the collapse of Greensill Capital has widened after Credit Suisse filed a £23m ($42.6m) compensation claim over loans made to British group Catfoss Renewables.

It is the second legal action taken against the insurer in the Federal Court relating to the ­failed financier – which once counted former foreign minister Julie Bishop and former British prime minister David Cameron among its advisers – after the company’s administrators filed a $48m claim, alleging IAG was refusing to pay out on its policies.

The latest court action was filed last week by Credit Suisse Virtuoso, a vehicle the investment bank used to purchase debt security notes from Greensill. According to the filings, IAG agent Bond & Credit Co had guaranteed the debt for Credit Suisse but refused to provide compensation after Catfoss, which runs a waste water plant in Newcastle, defaulted on its loan.

In August, a claim form was submitted with £8.8m outstanding in the loan – but which noted the balance of the debt would be “sought in due course”. Despite some correspondence between IAG, Credit Suisse and parts of the Greensill business in September and October, “the insurer has neither confirmed that the insured or Credit Suisse is entitled to be indemnified or paid, nor indemnified or paid the insured or Credit Suisse”, the document reads.

“The insurer has publicly taken the position that the 2019 policy was not validly entered into,” documents filed with the court read.

In financial disclosures lodged earlier this month, IAG notes that it “maintains that it has no net insurance exposure to trade credit policies sold through BCC to Greensill entities”.

BCC, which IAG held a 50 per cent interest in, was sold to Tokio Marine in April 2019.

“The complex issues around trade credit claims are continuing to be investigated by IAG, Tokio Marine and various other stakeholders,” the February 11 disclosures read. “Claims and potential litigation by the administrators of Greensill or other claimants seeking confirmation of policy coverage and/or validity of claims was and is anticipated and IAG will defend these litigated claims.”

Credit Suisse has also named Greensill and the bank’s administrators, Michael Frege.

Dr Frege in November separately filed claims against IAG for allegedly refusing to pay out on policies related to Dubai-based Emirates Hospitals Group. Emirates Hospitals’s failure to pay an initial amount under the debt deal in February 202 triggered a default on the entire $US35m ($48.4m) loan. No money has been paid since April 2020, that claim alleges.

In the latest matter, Credit Suisse alleges BCC’s head of trade credit, Greg Brereton, had repeatedly agreed to provide insurance against Catfoss’s repayment obligations. Catfoss, which had borrowed £23m, had an annual turnover of just £15,000.

BCC dismissed Mr Brereton in July 2020, with the insurer telling Greensill chief executive Lex Greensill that he had acted outside the scope of his delegated authority. Mr Brereton was later found to have exceeded the maximum limit of guarantees by $6bn.

The expiry of Greensill’s insurance policies 12 months ago pushed the company into insolvency. The policies made the financier’s business model of buying invoices from clients and selling them to Credit Suisse and other funds viable.

In December, the investment bank said it had sacked a number of staff and imposed financial penalties on others after it concluded a long-running investigation into the collapse of its Greensill-linked supply chain finance funds.

Last month, Credit Suisse said it would begin pursuing insurers for $US1.2bn as it struggled to recover payments related to those funds. The majority of the claims related to invoices associated with Sanjeev Gupta’s GFG Alliance and a small number of other companies.

Alongside IAG and Tokio Marine, Greensill also had insurance contracts with QBE and Zurich.

Credit Suisse is being represented by Gilbert + Tobin.