RED ALERT. Factoring failure - a factor in the threatened collapse of Liberty Steel

ICSM RED ALERT: factoring failure - a factor in the threatened collapse of Liberty Steel


Thousands of jobs are threatened, millions of pounds of suppliers invoices are in doubt along with a fifth of Britain’s steel manufacturing base as Liberty Steel is in danger of collapse.

Sanjeev Gupta Pic This Is Money

Sanjeev Gupta

Factoring outfit Greensill Capital is the main financial backer of Liberty owned largely by the so-called saviour of the steel industry Sanjeev Gupta. 

Last week Ian Carrotte of ICSM railed against the dangers of factoring, that although it can be a short term fix it leaves those who use it reliant on the factoring company who then can call the tune.  However the factoring company can also get into trouble and that’s what has happened with Liberty.

Opaque accounting

Greenshill Capital specialise in short-term supply chain financing but have been accused by critics of opaque accounting leaving a suspicion they cannot cover their own debts. It’s a two way process as Liberty has also been accused of not being open with how its finances operate with a complex network of interconnected firms that employ more the 5,000 people at 11 sites in the UK.

Red alert

Alarms began to ring last week when Swiss investment bank Credit Suisse froze withdrawals from Greensill from up to £10bn in funds it holds in securities against lending. ICSM understands Greensill provides more than half of Liberty’s £62m daily operating costs pushing the firm to the brink. Emergency talks took place on Sunday, March 7, with the Government who have ruled out nationalising the steel company.

A once great industry

Due to cheaper imports the British steel industry has seen a huge drop in production and the numbers of workers employed since the heyday of the 1970s when nearly a third of a million people were directly or indirectly employed at places like Corby.

“If Liberty goes then about a fifth of our steel industry goes with it,” said Ian Carrotte, “in these post Brexit days we need to maintain and if necessary invest in our core industries. Not only does Liberty owe huge amounts of cash to suppliers but if those jobs go then other small businesses that rely on their spending power will also be hit.”

He reiterated the importance of clear accounting practices so companies could have confidence in a large outfit like Liberty. “There are exceptions to the rule but I generally advise against factoring,” he said. “Yes it can improve cash flow in the short term and it takes away one of the headaches of business – that of chasing payment. But factoring is essentially a form of borrowing and that means you will have to pay a fee which is another overhead. And in this case the factoring firm itself is in trouble – and is on the brink.”

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