British Steel collapses into insolvency.

22/5/2019 (updated 07/6/19).

British Steel collapses into insolvency after talks with the government over a bailout talks failing.

Just yesterday we wrote the article “Government in talks to save British Steel”.

But today British Steel has been placed in compulsory liquidation, putting 5,000 jobs in danger and endangering a further 20,000 in the supply chain.

The move follows a breakdown in rescue talks between the government and the company’s owner, Greybull.

A compulsory liquidation of the group was ordered by the High Court, after the government refused to grant British Steel a second loan of £30m just one month after the company borrowed £120m to avoid an EU fine. Whilst operations will continue at the firm’s main Scunthorpe plant, the long term fate of British Steel remains unclear.

The Government’s Official Receiver has taken control of the company as part of the liquidation process. The search for a buyer for British Steel has already begun. In the meantime, it will trade normally.The Official Receiver said British Steel Ltd had been wound up in the High Court and the immediate priority was to continue safe operation of the site.

The company was transferred to the Official Receiver because British Steel, its shareholders and the government were not able to, or would not, support the business. That meant the company did not have to funds to pay for an administration.

“I appreciate that this is a difficult time for the company’s employees and I want to thank them for their ongoing co-operation, The company in liquidation is continuing to trade and supply its customers while I consider options for the business” Receiver David Chapman said.

The High Court has appointed accountancy firm EY to the role of Special Manager, assisting the Receiver.

EY said the appointment of the Official Receiver followed “a number of weeks” of negotiations by management with the company’s various stakeholders, including lenders, shareholders and the government, to secure the necessary funding to avoid an insolvency. Regrettably, these efforts were unable to secure a solution before the company’s funding resources were exhausted”

What about the 5,000 staff?

British Steel has about 5,000 employees. There are 3,000 at Scunthorpe, with another 800 on Teesside and in north-eastern England. The rest are in France, the Netherlands and at sales offices round the world.

Their wages this week have been paid by Greybull and the government will pick up the bill from now on.

Roy Rickhuss, general secretary of the steelworkers’ trade union, Community, said: “This news will heap more worries on workers and everyone connected with British Steel, but it will also end the uncertainty under Greybull’s ownership and must be seized as an opportunity to look for an alternative future. It is vital now that cool heads prevail and all parties focus on saving the jobs.
Image caption Kevin Prior, pictured with his partner Kayleigh Manderson, said rumours about the plant had been “circulating for weeks”

As well as the plant’s workers the North Lincolnshire town’s economy relies heavily on the giant steel works, with an estimated 20,000 jobs linked to the site.

Its closure would be a body blow, with some residents claiming it would leave Scunthorpe a “ghost town”.

What happened?

The announcement of British Steel’s liquidation comes after several years of challenging conditions for the company.

In 2007, India’s Tata conglomerate entered the UK steel market after it bought the Anglo Dutch group, Corus. In 2010, the business was renamed Tata Steel Europe. After a difficult few years, during depths of the 2016 steel crisis, Tata sold the Scunthorpe long products division to private equity firm Greybull Capital for a nominal £1.

Greybull rebranded the company as British Steel. Following significant investment from Greybull, the company went on to make a profit in 2017, but then announced in 2018 that it was cutting nearly 400 jobs in a bid to streamline costs.

British Steel’s more recent troubles have been linked to a slump in orders from European customers ‎due to uncertainty over the Brexit process. It has has also struggled with the weakness of the pound since the EU referendum in June 2016 and the escalating US-China trade war.

While the steel producer has attributed its decline in large part to a drop in EU contracts caused by Brexit, it has also cited other factors including high costs combining to undermine its balance sheet.

What do the politicians say?

Business Secretary Greg Clark said the government had shown its “willingness to act”, having provided the British Steel with a £120m bridging loan in April to meet EU emission rules and avoid a steep fine.

However, he added: “The government can only act within the law, which requires any financial support to a steel company to be on a commercial basis. I have been advised that it would be unlawful to provide a guarantee or loan on the terms of any proposals that the company or any other party has made.”

Labour’s shadow business secretary, Rebecca Long Bailey, called for the company to be nationalised.

She said: “The government must act quickly to save this strategically important industry and the livelihoods and communities of those who work in it, by bringing British Steel into public ownership.”

23rd May 2019 Update

Business Secretary Greg Clark has drafted a rescue plan for British Steel after the firm collapsed into liquidation, threatening thousands of jobs.

Pleas for a state bailout were originally rebuffed due to EU state aid rules, but Mr Clark has sought legal advice on whether his new proposal might be acceptable. The plan would see the Government act as a cornerstone investor alongside a collection of private companies. EY has been lined up to assist with the liquidation.

Freddy Khalastchi, a partner at Menzies, said British Steel’s liquidation risked a “tsunami-like effect” on jobs both upstream and downstream of its steelworks.

Insolvency partner at Shakespeare Martineau, Michael Mulligan, adds: “Customers and suppliers of British Steel must act quickly to mitigate against a Carillion-style domino-effect.”

24/5/19 – Collapse highlights plight of steel sector

The company’s collapse also points to a wider trend across the international steel industry, with many firms struggling to make a profit.

Shares in EU steel companies have been trading at their lowest values in nearly three years, as a decrease in demand, competition from cheap imports, and the rising cost of materials all affect business.

Firms in Britain may be particularly vulnerable, due to the added burden of high environmental taxes, business rates, energy costs, and wage costs. In May, ratings agency Moody’s announced a negative outlook on the European steel sector for the first time since April 2017, projecting that trading conditions will worsen over the next 12 months.

Ripple effect set to cost businesses millions

As well as highlighting the plight facing the steel sector, the collapse of Britain’s second-largest steel production company also poses a significant threat in itself to other businesses in the industry.

British Steel employs around 5,000 people directly, with a further 20,000 workers dependent on its supply chain. Following the firm’s collapse, several companies have voiced their concern over the impact of the liquidation on their own business, with Durham materials firm Hargreaves Services projecting that the liquidation could reduce its profit in the next year by as much as £1.3m.

24/5/2019 – MPs to grill Greybull over British Steel collapse

MPs are to call Greybull Capital to give evidence on the collapse of British Steel as the Government races to find a buyer for the company.

Since the private equity firm bought British Steel for £1 in 2016 and pledged to revive its fortunes it has collected £9m in management fees and accrued £51m of interest on a £154m loan.

In a letter to the FT, Phillip Oppenheim asks whether the mechanism by which PE firms raise cash, i.e. through pension-funded institutions, is a form of free-market capitalism or a cause of market distortions, asset bubbles and inequality, and whether therefore people’s savings should not be locked into pension funds at all.

28/5/19 – British Steel faces break-up

British Steel, which collapsed into liquidation after owner Greybull Capital failed to convince the Government to inject further cash, is likely to be broken up and sold off bit by bit if a buyer for the whole business is not found.

Ministers have given a two-week deadline for securing a new owner, saying the Government will remove the indemnity it is offering if the steelmaker is not rescued in that time.

29/5/19 British Steel attracting interest

The Official Receiver, who took control of British Steel after Government bailout talks failed, has revealed that more than 80 potential buyers had been in contact in the last seven days.

A spokesperson said: “Good progress is being made in identifying potential buyers for British Steel. Multiple parties have signed non-disclosure agreements giving them access to a detailed information memorandum and virtual data-room that my team has developed to inform their bids.”

EY, which is assisting, has sent non-disclosure agreements to 60 prospective buyers.

07/06/19 Deadline for British Steel bids extended

The FT reported yesterdat that the official receiver has pushed back the deadline for bids for British Steel from June 12 to June 30, giving prospective buyers more time to prepare offers.

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