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Collapsed trading house Phoenix Commodities constructed a sub-ledger of transactions that do not appear to correspond to real trades but were used to raise financing from lenders, court documents reveal. 

Liquidators of Dubai-headquartered Phoenix found that its trading system contained two separate ledgers, with some companies appearing across both but with different counterparty codes, according to documents cited in an ongoing Dubai court case. 

One of those ledgers seemingly consisted of invoices that did not correspond to any underlying stock movements, and that could not be identified in accounting records as sales, purchases or stock. 

Liquidators found examples of companies “where distinct counterparty codes have been created for each entity, and which are used in Phoenix’s accounting system in a way that strongly suggests that the transactions being recorded do not relate to a real trade”, documents show. 

Phoenix – which spanned entities in the UAE, Singapore and British Virgin Islands – appointed liquidators in April 2020, after collapsing under the weight of around US$400mn in currency hedging losses, according to reports at the time.  

The allegations are cited by Dubai Insurance Co, which is being sued by Westford Trade Services, a trader and non-bank financier, over losses following Phoenix’s collapse. 

Two Westford entities in the UK and Dubai were left out of pocket after Phoenix defaulted on several payments in April 2020, and sought to reclaim the funds from Dubai Insurance. 

However, Dubai Insurance refused to pay out, arguing there is no evidence the parties involved ever had title to the goods, prompting Westford to turn to the courts to force the insurer to honour the claim. 

A defence document filed by Dubai Insurance cites Phoenix’s liquidators’ reports, which are not publicly available, to argue that Phoenix’s purchase of goods from Westford were not legitimate transactions. 

It says Westford – as well as Genuine and Blue Shield, two traders also involved in the transactions – had each been allocated two different counterparty codes by Phoenix, one of which relates to the sub-ledger of transactions that liquidators could not verify. 

The insurer argues “there is insufficient evidence that trades between [Westford], Genuine and Blue Shield were actual trades in the sense of being actual transfers of title to goods in exchange for consideration”. 

It adds that Phoenix accounting records suggest the goods had already been purchased from, and sold to, other companies before the relevant sales contracts were agreed. 

Westford has previously argued that it was unaware Phoenix may have undertaken multiple transactions involving the same goods, and had no knowledge of its internal record keeping. 

The company has also said it obtained original bills of lading from sellers and delivered them to Phoenix, and so legitimately acquired and sold title to the goods. 

Phoenix’s liquidator and Dubai Insurance did not respond when contacted by GTR. Westford, which is not accused of any wrongdoing, did not immediately comment. 

 

Further allegations 

In another legal battle in Dubai involving losses to Phoenix, Dubai Insurance has aired similar experiences where the trader’s liquidators could not find records of trades that had been used to raise funds. 

In that case, the insurer is being sued for refusing to pay claims filed by the Commonwealth Trade Bank (CTB), a since-closed financing entity of steel tycoon Sanjeev Gupta’s GFG Alliance. 

In an updated defence filed last week, Dubai Insurance suggests Phoenix raised financing from CTB by purporting to buy goods from trader Aarna International DMCC, when in fact it had already bought and sold the goods in deals with other entities.  

The insurance company, again citing documents from Phoenix’s liquidators, says the trader purchased a cargo of Russian milling wheat from a supplier in September 2019, which was then sold to two buyers in Africa.  

But Phoenix also entered into a contract to buy the exact same goods from Aarna afterwards, citing the same bills of lading and using financing from CTB, according to the insurer’s defence.  

For the latter deal, “the liquidator has been unable to identify in Phoenix’s records any shipping or sale documents…, correspondence or the documents included with the request in relation to this alleged transaction”.  

Similarly, CTB’s claim refers to a September 2019 deal in which Phoenix purchased a US$1.2mn cargo of Thai rice from Aarna, which CTB financed by purchasing the invoice.  

But the insurer says that the same cargo had already been bought and sold by Phoenix in a completely separate transaction referencing the same bills of lading, which the liquidator could not locate any record of in Phoenix’s accounts. 

A similar arrangement is alleged in the US$2mn purchase of Brazilian rice in November 2019.  

“The transactions between Aarna…and Phoenix were not genuine transactions giving effect to the actual procurement and transfer of goods (underlying stock movements) or title between the parties but were instead ‘paper transactions’ with no such transfer between the parties,” the insurer claims.  

A spokesperson for GFG Alliance declined to comment. 

Suspicions around Phoenix’s trade activity have also featured in a court case in Australia.  

In March last year, the former managing director of a UAE trader told the court that documents purporting to evidence transactions with Phoenix appeared to have been fabricated, while the liquidator of another firm said no records could be found for some transactions Phoenix raised financing from. 

Malta’s Fimbank was also a trade finance creditor of Phoenix, reportedly alongside lenders including Emirates NBD, Wyelands Bank and Standard Chartered.  

 

Additional reporting by Jacob Atkins.