British Steel insolvency endangers 5,000 jobs

British Steel Scunthorpe plant wide shot

British Steel has been placed in compulsory liquidation, putting 5,000 jobs at risk and endangering 20,000 in the supply chain.

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

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.

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 various sales offices round the world.

‘Heartbreaking’

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.

“While the coke ovens keep burning and the steel assets remain, there continues to be hope both for steelmaking at Scunthorpe and for its downstream operations. What is needed is the right ownership.”

Staff in Scunthorpe have also been reacting to the news.

“Everyone is terrified,” said steelworker Kevin Prior. The 32-year-old scrap metal cutter has been at the plant since 2015 and his sister and brother-in-law also work at there.

He said rumours about the company’s future had been circulating for a number of weeks.

“It’s just heartbreaking,” he said.

“It’s horrible to hear that my sister is crying herself to sleep because she doesn’t know what’s going to happen with her husband’s job and what that means for them.”

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The Official Receiver said British Steel Ltd had been wound up in the High Court. It said 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 Receiver said.

“The company in liquidation is continuing to trade and supply its customers while I consider options for the business.

“Staff have been paid and will continue to be employed.”

The court 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.”

The other companies within the British Steel group are continuing to trade as normal and are not in insolvency.

Image copyright Getty Images

Struggling

British Steel’s troubles have been linked to a slump in orders from European customers ‎due to uncertainty over the Brexit process.

The firm has also been struggling with the weakness of the pound since the EU referendum in June 2016 and the escalating US-China trade war.

Private equity firm Greybull Capital bought the company for a nominal £1 during the depths of the steel crisis in 2016.

It then rebranded the company as British Steel and recently returned it to profit.

One of its biggest customers is Network Rail, 95% – about 100,000, tonnes – of whose rails are supplied by British Steel’s Scunthorpe plant.

In a statement, the rail infrastructure operator said it had been working closely with British Steel and government for “many weeks”.

“We have done what we can to help ease the company’s financial difficulties. We have improved our order book with the company – increasing rail production volumes, bringing orders forward and committing to a long term schedule – as well as offering immediate payment to ease the pressure on cash flow.”

It is understood the company has enough stockpiles to keep it going until other suppliers can ramp up production to take up the slack if Scunthorpe stops output.

‘Deeply worrying’

Business Secretary Greg Clark said the government had “worked tirelessly” with British Steel, Greybull and lenders to “explore all potential options to secure a solution for British Steel”.

He said the government had shown its “willingness to act”, having provided the British Steel with a £120m bridging facility in April to meet EU emission rules.

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, also 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.”

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