MPs question Sanjeev Gupta’s stewardship of Liberty Steel
An influential group of MPs has called into question Sanjeev Gupta’s stewardship of Liberty Steel, Britain’s third-largest steelmaker, after identifying a “series of audit and corporate governance red flags” at the tycoon’s conglomerate.
The MPs on Friday warned Gupta needed to “urgently fix” the problems at GFG Alliance if he was to be seen as a fit and proper owner of steel companies in the UK, and called for an urgent investigation of the group’s accounting firm.
The conclusions are part of a highly critical report by the House of Commons business, energy and industrial strategy select committee. The committee launched its inquiry into Liberty Steel and the future of the UK industry in April following the collapse of GFG’s largest lender, Greensill Capital.
Gupta, once feted as the “saviour of steel” for his rescue of unloved steelworks from Wales to Australia, has since been racing to refinance his industrial empire which is also the subject of an investigation by Britain’s Serious Fraud Office.
“The systemic issues at the heart of GFG Alliance have highlighted the vulnerabilities of Liberty Steel and its place in the wider steel sector in the UK,” said Darren Jones, chair of the committee.
The evidence heard by MPs, he added, had “highlighted serious problems with high-risk financial practices, weaknesses in audit, and about inadequate accountability and corporate governance arrangements” within GFG.
Gupta “must urgently fix these problems if he is to be seen as a fit and proper owner of steel companies in the UK”.
In their report, the MPs said the structure and governance of GFG had resulted in “no formal oversight or accountability” of the decisions taken by the industrialist, and urged ministers to reflect on the “systemic risks to UK industry” posed by such unusual corporate structures.
The report called on regulators to investigate King & King, the small London-based accounting firm that audits dozens of businesses owned by GFG as a “matter of urgent public interest”.
It said it found it “utterly unconvincing” that the firm, which has only six partners, had the “capacity, expertise, or resources” to audit the accounts of multiple large GFG Alliance and Liberty Steel UK companies representing over £2.5bn of revenue”.
The Financial Reporting Council declined to comment. The Institute for Chartered Accountants in England and Wales said its bylaws prevented it from commenting on whether it was investigating. King & King did not respond to a request for comment.
The politicians also criticised GFG’s failure to publish consolidated accounts showing the full financial position of the collection of businesses in the group.
They warned of the risks to the sector of the use of “high-risk financial funding practices, such as future receivables lending” that Greensill and GFG engaged in, and recommended the Financial Conduct Authority and the Treasury investigate their use.
The MPs said they would welcome the government’s Insolvency Service considering whether Gupta had acted in breach of his fiduciary duties as a company director. However, the service’s powers to investigate are generally limited to situations where a company has entered a formal insolvency process.
The industrialist last month said he would inject £50m in fresh funding into his plants in Yorkshire through a new separate entity, Liberty Capital.
The MPs said they were aware of the recent refinancing efforts but said they disagreed with Gupta’s decision to “set up another corporate entity in order to fund these companies”.
The MPs said they commended the government’s decision in March to reject Gupta’s request for a £170m grant because of the opacity around corporate governance at the group. They urged ministers to consider formalising a fit-and-proper-person test for private company directors within any future steel sector deal.
Separately, the MPs said the government lacked a long-term road map for the sector and called for assistance on longstanding issues such as electricity costs.
GFG said it would “review and reflect” upon the report’s conclusions. Gupta, it added, had “consistently met his obligations as a director of a private company”. The group had been on a “journey to improve governance and transparency” and, while the pandemic and Greensill’s collapse had “delayed progress”, it was now in a position to “accelerate these changes”.
The government said it was “determined to secure a competitive future for the UK steel industry” and that in recent years it had provided it with “extensive support, including more than £600m to help with the costs of energy and to protect jobs”.
It would “carefully consider the report’s recommendations”, a spokesperson added.