But the 1800 Iron Triangle workers are unlikely to learn their fate for months or years as the parties begin a drawn-out court process that could be headed off at any moment if GFG is able to refinance its operations.
Citibank is acting on behalf of Credit Suisse and is seeking to wind up the operations of Gupta’s OneSteel Manufacturing and Tahmoor Coal Pty Ltd.
OneSteel Manufacturing runs the Whyalla steelworks, while Tahmoor Coal Pty Ltd operates a coal mine in NSW.
Successful legal action could force the Whyalla steelworks – the town’s biggest employer with around 1200 workers and a further 600 in the associated mines nearby – into liquidation.
Gupta’s GFG Alliance has been under pressure since early March when its major lender, Greensill Capital collapsed.
The Swiss creditors are looking to recover billions of supply-chain finance funds globally following after Greensill was placed into administration.
Citibank is also acting for Credit Suisse in court action in London and is seeking to wind up GFG’s Australian companies so that the proceeds of their sale can be used to repay funds lost by Credit Suisse investors.
For the past month, GFG has insisted it is closing in on a refinancing deal.
A GFG Alliance spokesperson said in a statement to InDaily this week that no final orders would be made at the May 6 directions hearing “so the completion of the refinancing process and directions hearing date do not have a direct bearing on each other”.
“We remain in productive and advanced discussions regarding the refinancing process, which we hope to have finalised very soon,” the spokesperson said.
“As stated previously, we will defend our position in court if required to do so.”
UniSA expert Dr Will Mackay said the court process will likely be drawn out over “months to years” and has a number of possible outcomes.
He said Citibank initiated the legal action to preserve Credit Suisse’s financial position in the GFG assets in Australia and across the globe.
“Citibank would be seeking to limit GFG’s ability to shift assets and debts among the various entities that form the GFG group and to third parties outside of GFG, as this may reduce any recoverable amount returned to creditors in the event of a liquidation of GFG,” the accounting lecturer said.
“To understand the intent, details of the loan contract are needed so that any breach can be understood along with any remediations clauses embedded within the contract.”
Buoyed by booming steel prices, GFG has said its Australian operations are profitable.
The state and federal governments have been in talks about a possible bailout to keep the steelworks afloat should it be placed into liquidation.
A $50 million funding state government support package announced by the former Labor government is still on the table but Treasurer Rob Lucas says the money is only to be used for “tangible infrastructure” in Whyalla and not to keep the business afloat.
Mackay said actions by creditors to recover funds from breaches of contract were very common in the corporate world.
He said the refinancing of loans by GFG would likely bring an end to the NSW court proceedings to an end.
“However there may be covenant breaches that, if unresolved, could trigger other filings against GFG by creditors.”
The British Government last month ruled out a $300 million rescue package for Gupta’s UK operations, citing GFG’s “opaque” financial systems.
Mackay said the lack of transparency as a result of this “opacity” made the outcome of the court proceedings difficult to predict.
“The relative size of the action and the implications for the steel industry in South Australia including the potential for job losses increases the stakes for all involved,” he said.
“This case raises some worrying questions regarding the opacity of accounting for supply chain finance and the lack of transparency inherent to related-party transactions.
“It is still too early to predict the outcome given so much is yet to be revealed.”
UK-based Sanjeev Gupta was hailed a saviour of the business and town after former Whyalla steelworks owner Arrium went into administration and he took it over in 2017, vowing to improve and expand the operation.
GFG had planned a $1 billion upgrade at Whyalla but that was delayed by up to seven years last year as the global alliance flagged huge cuts amid sluggish steel sales amid the coronavirus pandemic.
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