Steel tycoon Sanjeev Gupta reportedly used now-collapsed bank Greensill Capital to borrow £400m in government-backed loans during the pandemic.
Under the Coronavirus Large Business Interruption Loan Scheme (CLBILS ), firms are allowed to borrow up to £50m, with 80 per cent of the loan guaranteed by the government.
But, the Sunday Times reported, Gupta and Greensill used a loophole in the scheme to borrow eight times the allotted amount.
The British Business Bank, which administers the scheme, is reported to have removed its guarantees for the loans three weeks ago.
Under the bank’s rules, some firms can borrow up to £200m, but only if such a move has been preapproved.
“Lenders and borrowers must not conspire to circumvent the spirit of the [scheme] by seeking to structure around these requirements”, it says in the rules for the scheme.
The revelation comes as Gupta seeks new financing for his metals empire, which employs 35,000 people around the world, after the collapse of Greensill last week.
The boutique bank was among GFG Alliance’s biggest lenders, and its insolvency has left the company scrabbling to find new financing.
On Friday in an internal email to colleagues Gupta said that he was seeking a standstill deal with Grant Thornton, Greensill’s administrators, over the money that GFG owed the bank.
Unions have called for ministers to prepare themselves to step in to prop up the firm in order to preserve jobs in case funding cannot be found.
The CLBILs scheme is not the first time the steel magnate has used government guarantees to fund his business.
In 2016, he got a 25-year, £575m guarantee from the Scottish government for a Highlands aluminium smelter and hydro-electric plant. The same administration also lent him £7m to buy two Scottish steelworks.
City A.M. has contacted GFG Alliance for comment.