When is a Guarantee Not a Guarantee?

On 18 July 2022, the British Business Bank (“BBB”), a state-owned development bank that administers the Coronavirus Large Business Interruption Loan Scheme (“CLBILS”) on behalf of the government, published a letter recommending that the U.K. government terminate each guarantee provided to Greensill Capital (UK) Limited (“GCUK”) under the CLBILS with regards to the facilities advanced by GCUK. This decision comes after the guarantees were suspended on 2 March 2021, due to an investigation into GCUK’s lending practices during the scheme and following the entry of GCUK into administration on 8 March 2021.

The CLBILS was introduced on 20 April 2020 to support the providing of finance to U.K. mid-sized and larger business with turnovers in excess of £45m that had been impacted by Covid-19. Under the CLBILS, loans were delivered through accredited lenders and were backed by a government guarantee issued by the Secretary of State for Business, Energy and Industrial Strategy for 80% of the value of the loan. Overall, 753 loans were approved under the CLBILS with an aggregate value of £5.56bn

In 2020, GCUK made a total of £400m available to borrowers under the CLBILS. Of this, £350m was advanced to seven companies within the GFG Alliance, described in a recent judgement as an informal group owned and operated by Sanjeev Gupta, in apparent contravention of the CLBILS’s lending cap of £50m per group.  Once these irregularities came to light, the government began investigations to understand GCUK’s involvement in the CLBILS and the circumstances leading to GCUK’s significant exposure to the GFG Alliance. During the investigations, the government guarantees were suspended. The BBB has now solidified its stance and published a letter recommending that the government guarantees backing GCUK loans are to be withdrawn. A copy of the BBB letter can be found below.

The rationale behind the BBB’s recommendation will clearly be fact-specific and unique to GCUK, however their approach in this case may nonetheless concern some lenders, particularly in scenarios where there are any claims of irregularity. Such concerns may be particularly acute as the BBB has indicated in interviews with the press that GCUK providing over £50m to a single corporate group in direct breach of the CLBILS rules was “not the sole” reason for terminating the guarantees, noting that there were “a number of breaches” which prompted their decision. This leaves lenders to wonder what particular breaches the BBB considered and how much importance was placed on each factor in deciding to withdraw the guarantees. Given the value of the government guarantees, and the limited ability of many borrowers to make their scheduled repayments, there is potentially a great deal at stake for accredited lenders. Whether the BBB’s decision will be challenged remains to be seen, but if a challenge does go ahead it will no doubt be followed with interest by the accredited lender community and their stakeholders.