Liberty Steel staff are prevented from "adequately" performing their duties by the structure of the group, with Sanjeev Gupta making "strategic decisions" through a central treasury and central committee, according to a report titled "Liberty Steel and the Future of the UK Steel Industry" that was published today by the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee.
"The corporate structure and governance of GFG Alliance companies [a loose-knit collection of entities that includes Liberty Steel] resulted in no formal oversight or accountability for the decisions taken by Sanjeev Gupta. Gupta put members of his staff in an unacceptable position by employing them with job titles associated with traditional executive functions in well-run companies, without giving them the required access to information or decision-making powers necessary for them to perform their duties," the report said, describing this as "unacceptable".
The BEIS Committee commended business secretary Kwasi Kwarteng's refusal to grant Liberty Steel £170mn and said the government should consider a "fit and proper person test" for private directors within any future steel-sector deal. Kwarteng refused the request, citing the opacity of the group's financial structure and fears the money may be deployed outside the UK. The committee also said government should reflect on the "systemic risks" posed by such unusual corporate structures and amend the Companies Act to prevent this, if deemed necessary.
It also said there was no "tangible evidence" that GFG Alliance companies were making improvements to corporate governance or improving transparency through consolidated results; Gupta has said since 2019 that the group would publish consolidated accounts but has failed to do so. Since then, it has also changed accounting periods for certain businesses more than once.
The committee said the Financial Reporting Council should refer the case of King & King, which audited many GFG Alliance companies, to the Institute of Chartered Accountants for England and Wales to be investigated under the Audit Enforcement Procedure.
The Insolvency Service should also consider whether Gupta has "acted in beach of his fiduciary duties as a company director in the UK, according to the committee. It is illegal for UK companies to keep trading when insolvent, and directors can be imprisoned for knowingly doing so.
Until Gupta restructures GFG Alliance into a "more acceptable corporate structure and publishes consolidated accounts that are adequately audited … he fails to fulfil the criteria that we believe should be applied to define a fit and proper person for the purposes of receiving any form of government support", the committee said.
In evidence submitted to the inquiry, Lex Greensill, who ran GFG's largest financial backer, Greensill Capital, said future receivables were "based on details of existing trading partners provided to Greensill by our clients" and that there was an expectation that "future receivables would convert into accounts receivables within a specific period". Some of the invoices GFG borrowed from against Greensill were based on trades with companies that said they never did business with Liberty. Many of the invoices related to sales from the group's trading arm, Liberty Commodities.
