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Judge denied Greensill's last-ditch attempt to renew trade credit insurance


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Judge denied Greensill's last-ditch attempt to renew trade credit insurance

A judge at the Supreme Court of New South Wales in Australia denied troubled supply chain finance provider Greensill Capital Pty. Ltd.'s attempts to force an insurer to renew trade credit cover that it said supported $4.6 billion of working capital hours before it was due to expire at midnight on March 1.

Justice James Stevenson said in his March 1 judgment that he was notified of Greensill's application for an injunction ordering Insurance Australia Group Ltd. subsidiary Insurance Australia Ltd. to renew the two expiring trade credit policies at 4:15 p.m. on March 1. "I found Greensill's delay in bringing the matter to Court, when it has known of the underwriters' position since the middle of last year, and by [Sept. 1, 2020] at the very latest, to be a factor weighing against granting interlocutory relief," Stevenson said.

The expiry of the trade credit cover is thought to have had a hand in the difficulties to hit Greensill since. German financial regulator BaFin has ordered Greensill Bank to stop payments and Greensill Capital (UK) Ltd., the group's main trading entity, is expected to file for bankruptcy. Credit Suisse Asset Management (Switzerland) Ltd. is closing funds linked to Greensill, and GAM Holding AG's asset management arm has stopped subscriptions and redemptions of its GAM Greensill Supply Chain Finance fund.

According to the Supreme Court judgment, Greensill's counsel argued that the two trade credit policies Greensill was seeking to renew underpinned $4.6 billion of working capital for 40 different clients. They said without the cover, Germany-based Greensill Bank AG would be unable to provide further funding for clients' working capital, without which "some of Greensill's clients are likely to become insolvent, defaulting on their existing facilities."

Greensill's counsel further argued that this "may trigger further adverse consequences on third parties, including the employees of Greensill's clients," and Greensill estimated "over 50,000 jobs including over 7,000 in Australia may be at risk." They also said the lack of the cover "may cause Greensill Bank to fall below its regulatory capital requirements."

Insurance Australia Ltd. had written Greensill's cover through an underwriting agency, BCC Trade Credit Pty. Ltd., which was acquired by Tokio Marine Holdings Inc. subsidiary Tokio Marine Management (Australasia) Pty. Ltd. in 2019. Both BCC and Tokio Marine Management were named as defendants in Greensill's action.

Greensill had sought to argue that it had not been given enough notice about the policies' non-renewal. The judgment said a Tokio Marine Management representative had written to Greensill's insurance broker, Marsh Ltd.— not a party to the case — on July 29, 2020, saying it was not able to extend or renew any Greensill policy beyond what had already been agreed, as it was investigating an individual's authority to underwrite risk on behalf of Insurance Australia Ltd. Tokio then wrote to Greensill on Aug. 4, 2020, saying investigations were ongoing and again on Sept. 1, 2020, giving notice that the policies would not be renewed.

Greensill's solicitor said the letter giving notice of nonrenewal should have been sent Aug. 31, 2020, or before to comply with the 180-day notice period outlined in the policy. However, the judge noted that Greensill had not sought legal advice until Feb. 25 in London and the following day in Sydney, and had written to the defendants on Feb. 27, 2021, saying it did not accept the Sept. 1, 2020 letter as notice. Greensill's solicitor had also submitted that the "invalidity of the notices" from the defendants had only become apparent to Greensill on or around Feb. 25, which the judge said showed the company had understood since Sept. 1, 2020, that the policies would expire the following March.

The judgment also noted that there was evidence that Greensill had, through Marsh, tried to find alternative cover without success.

Marsh Ltd. is a subsidiary of Marsh & McLennan Cos. Inc.