A former trade finance lender owned by steel tycoon Sanjeev Gupta has turned to the courts in Dubai to force an insurer to pay out a claim stemming from the collapse of Phoenix Commodities.
Court filings show the since-shuttered Commonwealth Trade Bank (CTB), part of Gupta’s GFG Alliance of companies, purchased US$4.25mn of invoices owed by Phoenix from another Dubai trader in late 2019 and early 2020, but the funds were never repaid after Phoenix entered liquidation in April 2020.
UK-headquartered CTB was covered by a trade credit insurance policy with Dubai Insurance Co., according to the bank’s claim in the Dubai International Financial Centre Courts, but the insurer has so far “failed to make payment under the policy”.
The claim is the latest in a handful of suits by trade finance providers against their insurers over payouts resulting from defaults by commodities traders during 2020, when the sector was buffeted by see-sawing commodities prices and a liquidity crunch during the first months of the Covid-19 pandemic.
Dubai Insurance is yet to file a defence and did not respond to requests for comment from GTR. CTB’s filing, signed by Gupta, says it submitted a claim to the insurer in July 2020 but does not say why it was not accepted.
In the Dubai court filing, which was submitted in August this year but only made public last week, CTB says it signed a US$5mn uncommitted receivables purchase facility with Dubai trader Aarna International DMCC in February 2019.
Under the agreement, Aarna invoiced Phoenix for three separate shipments of bulk commodities in September and October 2019. CTB purchased the receivables and was to be repaid by Phoenix in early April 2020.
The deals were for US$1.7mn of Russian milling wheat, US$1.2mn of Thai rice and US$2.1mn of Brazilian-origin rice.
The claim says Phoenix defaulted on the three invoices and that joint liquidators from Deloitte were appointed to Phoenix on June 9, 2020.
CTB paid US$4.2mn for the receivables, but it is only claiming US$3.18mn from Dubai Insurance because under the facility 15% of each invoice would be retained by Aarna, the policy only insured 85% of any loss, and a US$500,000 deductible applies.
The bank’s claim says it was protected from the possibility of default by a multi-buyer credit insurance policy purchased from Dubai Insurance in February 2019.
The policy covered Aarna, Avon and was later amended to add CTB as an additional insured concerning the three invoices owed by Phoenix.
Alongside Aarna, the CTB facility was also signed with Avon International Pte, a Singapore trader that is currently being wound up, although the claim against Dubai Insurance does not include any receivables purchased from Avon.
Avon and Phoenix were also the subject of a separate case heard in a Sydney court in March this year.
Phoenix partly used documents purporting to show trades with Avon to raise A$7.3mn in financing from an Australian trade finance lender in 2020, but Avon’s liquidator told the court that no evidence of the transactions could be located among the company’s records.
In that case, the judge ruled in the financier’s favour, ordering the Bond & Credit Company, the insurer, to cover the losses.
The judge also found that documents purporting to evidence some of the trades between Phoenix and another trader were forgeries and there were likely no actual trades between Phoenix and the two counterparties involved. No such suggestions have been made by CTB in the current case.
Phoenix, a group of companies in the United Arab Emirates, Singapore and British Virgin Islands, reportedly owed more than US$1bn to creditors when it collapsed. The Financial Times and Argus Media have reported that Wyelands Bank, another member of the GFG Alliance, was a significant lender to the group.
GFG Alliance announced in May 2020 that it would close CTB – which had commenced operations just one year earlier through the purchase of Nigerian lender Diamond Bank’s UK subsidiary – through a solvent wind-down, citing the “considerable economic and financial uncertainty” of the pandemic.
The bank’s accounts for the year ended April 2020 show that £4.6mn of its loans and advances to customers were overdue and impaired, almost a third of the £15.2mn of lending on its balance sheet.
A spokesperson for the GFG Alliance declined to comment further on the claim or disclose whether the bank faces additional losses stemming from Phoenix’s insolvency.
CTB’s ultimate parent company is a Channel Islands trust established for the benefit of Sanjeev Gupta’s family and dependents, according to the accounts.
GFG Alliance, a network of affiliated businesses rather than an official group structure, said at the time that CTB’s assets will be transferred to Wyelands Bank, another entity in the conglomerate.
The alliance has since been engulfed in the collapse of one of its primary lenders, Greensill, and had difficulty raising finance for its vast trading and manufacturing business.
The UK’s Serious Fraud Office announced an investigation into suspected “fraud, fraudulent trading and money laundering” at GFG Alliance in May 2021.
Aarna International could not be reached for comment. UAE corporate records show its licence has since expired.
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