Insolvency Case Alert: Greensill Capital (UK) Limited (in administration)

Insolvency Case Alert: Greensill Capital (UK) Limited (in administration) v Greensill and others

Grant Thornton, the administrators for the collapsed British financial firm Greensill Capital has launched fresh legal action against several of its former directors including founder Alexander Greensill, for breach of fiduciary duties in the context of the company’s collapse in 2021.  At which time it was reported to have a financial exposure totalling $5bn.

Last year, the Insolvency Service also initiated director disqualification proceedings against Alexander Greensill, under the Company Directors Disqualification Act 1986, seeking to prevent him from running or controlling companies for up to 15 years.

This new legal action centres around three key issues:

1. Breach of fiduciary duty: It is alleged that Greensill directors failed to uphold their responsibilities, and that this failure directly led to the company’s downfall
2. Debt recovery: Administrators are seeking to recover loans in continued efforts to recoup funds for Greensill’s creditors
3. Director disqualification: As mentioned, Alexander Greensill is facing disqualification proceedings for misconduct and misrepresentation

Let’s look at each of these issues in turn…

Breach of fiduciary duty

Directors have a fiduciary duty to act in good faith, and in the best interests of the company they serve.  These duties form part of a statutory and common law framework as set out by the Companies Act 2015.

Fiduciary duties include:

• Duty to act within powers
• Duty to promote the success of the company for the benefit of its members as a whole
• Duty to exercise independent judgement
• Duty to exerciser reasonable care, skill and diligence
• Duty to avoid conflicts of interest
• Duty not to accept benefits from third parties
• Duty to declare an interest in proposed transactions or arrangements

Possible actions for breaches of fiduciary duty by directors include an interim injunction, shareholding proceedings, recovery of financial loss, setting aside of a transaction, and removal as a director (we’ll come back to this shortly).

Debt recovery

Debt recovery is a key part of the insolvency process, whereby administrators seek to recover monies owed to an insolvent company in order to maximise returns to creditors.  This can be chasing unpaid invoices, dividend clawback, asset tracing, or – as in the case of Greensill – recovering unpaid loans.

Additionally, if director wrongdoing contributed to the company’s failure, administrators can sue in order to recoup losses for creditors.

Director Disqualification

The Insolvency Service has the power to investigate the conduct of directors of insolvent companies. Misconduct or unfitness of directors remain the two most common reasons for a director to be disqualified, other reasons include financial wrongdoing, trading while insolvent, compliance failures, failure to act in public interest, etc, etc.

Where possible, the Insolvency Service will seek to agree the disqualification with the director without bringing a claim before the Court. The vast majority of disqualifications are carried out in this way.

If the director disputes the disqualification, the Insolvency Service can bring a claim of unfit behaviour before the Court, as seen with the current case of Alexander Greensill.  At which point the director can either defend the proceedings, negotiate a voluntary ban, or allow a disqualification order to be made on a contested basis.

It is also worth noting that following disqualification, administrators can issue a compensation order to recover monies from a director whose misconduct has directly caused the company financial loss in the run-up to insolvency.

So, what next for the Greensill case?

It is likely to be a complex and protracted case, however it serves to underscore the complexities surrounding corporate governance and director accountability.