Demands have now been made for economy secretary Fiona Hyslop to appear in Parliament to explain the the impact of Greensill Capital entering administration on the Liberty Steel businesses in Scotland.
It is understood that billionaire steel tycoon Sanjeev Gupta who owns Liberty Steel, owes Greensill more than £3 billion.
However, he has moved to quell concerns, telling workers’ unions that his parent firm GFG Alliance was in the process of securing alternative funding and would survive the collapse of its major backer.
Mr Gupta, who was hailed as the “saviour of steel”, said some of Liberty Steel's UK operations were loss-making and this needed to be addressed.
Speaking after crisis talks with unions following specialist bank Greensill Capital going into administration, Mr Gupta said his group was taking "prudent steps" to manage cash and was seeking new funding.
The failure of Greensill has left many fearing that thousands of jobs at Liberty Steel’s assets in the UK could be at risk. These include those who work at the Lochaber aluminium smelting plant, to which the Scottish Government has provided more than £500 million of guarantees, and the steel plant in Motherwell.
It is believed Mr Gupta persuaded the Scottish Government to give a 25-year guarantee tied to the hydro-electric power station and aluminium smelter.
Using the guarantee, which committed the Scottish Government to buying the plant's electricity if the smelter shut down, finance firm Greensill issued about £575m of top-rated bonds in 2017 to Swiss fund manager GAM.
In return, Mr Gupta pledged to save 170 jobs at the smelter and create 2,000 more at a separate aluminium-wheel factory, which would make two million aluminium wheels a year by 2020.
The factory has not been built and it is understood Mr Gupta is considering opening a water bottle factory instead.
However, after administrators were appointed on Monday, Greensill said in a court filing that Mr Gupta's operations were in "financial difficulty" and defaulting on debt.
Scottish Liberal Democrat leader Willie Rennie said it was now vital that Ms Hyslop make a statement to Parliament on the future of Liberty Steel’s Scottish sites.
"The Scottish Government once again find themselves mired in murky business,” he said.
"When the Government provided guarantees in December 2016, they made big promises about a shining future for the Lochaber smelter. Now it seems that the smelter's parent firm are in trouble and Scottish taxpayers could be on the hook.
"Just as with the BiFab yards in Fife, the Scottish Government are good at handing out money to financiers and hopeless at providing high wage, highly-skilled jobs for Scottish workers.
"The economy secretary needs to come to Parliament and explain what's next for workers and taxpayers."
Scottish Conservative Highlands and Islands MSP Jamie Halcro Johnston said the news of the collapse of Greensill had come as a “complete shock” as just "a matter of weeks ago came the positive news of an expansion at Lochaber”.
"It is a vital local industry which employs almost 200 workers and it's incumbent on the SNP to explore all options to ensure the survival of this site and those in Motherwell and elsewhere in the UK,” he said. “We need to do everything possible to preserve jobs."
His colleague, Scottish Conservative finance spokesperson Murdo Fraser, said the government’s finance minister Kate Forbes needed to “provide urgent clarity, specifically in relation to how much taxpayers' money may be at risk and what is being done to address that”.
"As seen with BiFab, the ferries fiasco and other scandals, this SNP Government has a reverse Midas touch when it comes to business,” he said.
"They must explain what is going on, the terms of these agreements and do everything possible to insulate public funds from unnecessary loss."
Greensill Capital, which has funded Mt Gupta's businesses expansion, was tipped into administration last week when one of its main backers, Credit Suisse, suspended £7.2bn of investment funds.
Greensill had used that investment to fund its supply chain finance deals, which provided huge sums to Mr Gupta's business.
In a statement after a meeting with union representatives, a spokesperson for GFG said: “Sanjeev had a productive meeting with the unions to discuss the plan to make the parts of the UK businesses facing weak market conditions more financially sustainable and address the disruption caused by the situation at Greensill.
“Liberty Steel Group has provided significant support to the UK speciality steel business, which has seen the demand for some products fall by 60 per cent following the downturn in the aerospace sector due to Covid-19.
“As part of the prudent steps we are taking to manage cash, we are discussing new opportunities with customers and suppliers to improve cash flow and looking to secure additional working capital facilities to support the business.”
In a joint statement, unions Community, GMB and Unite said: “The meeting was positive and constructive and it is clear Mr Gupta intends to secure a refinancing of the debt to provide the business with the necessary liquidity going forward.”
A Scottish Government spokesperson said: “Funding sources available to the GFG Alliance are commercial matters for the business.
“The Scottish Government has a comprehensive security package relating to the guarantee Scottish ministers provided to the Lochaber aluminium smelter in 2016.
“We maintain regular dialogue with the GFG Alliance covering a range of its industrial interests in Scotland across steel, aluminium and renewable energy production.”