Credit Suisse broke off negotiations with Sanjeev Gupta’s GFG Alliance, triggering insolvency hearings in a U.K. court.

GFG Alliance Group, headed by Sanjeev Gupta, is facing an insolvency hearing in the U.K., according to a report by the «Financial Times» (behind paywall) Monday. This comes after French criminal investigators raided the Paris offices of the umbrella organization, along with other companies owned by Gupta last month.

Credit Suisse's team which has been trying to settle with Gupta has become frustrated by the lack of progress, the «FT» report said, citing people familiar with their thinking. The bank granted Gupta additional time by postponing hearings but has now broken off talks, which will lead to the commencing of insolvency hearings.

Supply Chain Funds

GFG owes Credit Suisse investors over $1 billion after it borrowed from a group of funds linked to Greensill, which collapsed spectacularly.  Credit Suisse was forced to close its joint supply chain funds with Greensill Capital on an emergency basis in March 2021, resulting in the latter's bankruptcy, and leaving GFG facing acute financial distress.

Preliminary Hearings

The hearings which are to be held today seek to establish if the issues facing GFG are the result of the Covid pandemic or wider problems. If the judge finds that GFG's problems were beyond the scope of the pandemic, it could be wound up, according to the «FT».

According to U.K. law, if a company owns the money, the creditors can petition the court to close it down whereby the company's assets can be sold to make payments. To do so, they have to demonstrate the company is incapable of making payments. 

To be sure, GFG has made some payments. In October it paid Credit Suisse some of the money owed by its business in Australia. The deal called for GFG to pay back a third of the $274 million the Australian unit owed, with the remainder to be paid monthly, with interest, by the middle of next year. 

Clients Infuriated

While Credit Suisse declined to comment on the proceedings, GFG said «Our core international businesses continue to generate strong returns and achieve record production levels. We remain committed to repaying all creditors and continue to make positive progress toward a consensual debt restructuring that’s in the best interest of all stakeholders», according to the «FT».

In April, Credit Suisse infuriated Greensill clients by saying that it might not make up for their Greensill losses for at least another five years.