British Steel in liquidation after failing to secure loan
About 25,000 jobs at risk after Brexit-linked woes hammer its order book
London — British Steel, the country’s second-largest steel producer, has collapsed after failing to secure emergency government funding, jeopardising some 25,000 jobs, Britain’s official receiver said on Wednesday.
The high court ordered the compulsory liquidation of the company, adding its staff will continue to be employed as the liquidator oversees the continuing operation of the main site in Scunthorpe, northern England.
Owned by investment firm Greybull Capital, British Steel employs about 5,000 people, mostly in Scunthorpe, while 20,000 more depend on its supply chain.
Greybull Capital, which specialises in trying to turn around distressed businesses, said it had tried to keep British Steel alive but the challenges of Britain’s looming exit from the EU proved insurmountable.
Business minister Greg Clark said British Steel was open to new buyers, while the opposition Labour Party called on the government to bring British Steel into public ownership.
Greybull paid Tata Steel a nominal £1 for the business three years ago. After making a profit in 2017, British Steel cut about 400 jobs in 2018, blaming factors such as the weak pound and uncertainties surrounding Brexit, which it said hammered its order book.
EU steel company shares are trading at their lowest in nearly three years, driven down by weak demand, high raw materials costs and cheap imports that can no longer reach the US due to trade tariffs.
Turning a profit in steel is especially difficult in Britain, where steelmakers pay some of the highest green taxes and energy costs in the world and are saddled with high labour costs and business rates.
Jeff Kabel, chair emeritus of the International Steel Trade Association, said the government was paralysed by Brexit and unable to address the steel sector’s challenges.
The collapse of British Steel comes after Germany’s Thyssenkrupp and India’s Tata Steel ditched a plan earlier in May to merge their European steel assets to create the EU’s second-largest steelmaker after ArcelorMittal. That failed merger left the wider EU steel sector fragmented and vulnerable to economic downturns. It also called into question the fate of Britain’s largest steelworks in Port Talbot, Wales, owned by Tata Steel.
British Steel also operates a business in France producing rail, and a wire and processing unit in the Netherlands.
Signs of the ripple effect of British Steel’s collapse are already beginning to emerge. Hargreaves Services, a company based in Durham, northern England, which supplies materials handling and other services, said earlier if the steelmaker ceases to trade, this could reduce its profit before tax in the next full year by about £1.3m.
British Steel had asked the government for a £75m loan, later reducing its demand to £30m after Greybull agreed to put up more money, according to a source close to the negotiations. It had already secured a government loan of about £120m this month to enable it to comply with the EU’s Emissions Trading System rules.
Britain’s business minister said it would have been unlawful to provide a loan to British Steel on the terms the company or any other party had made.
Greybull had been negotiating with the government for the loan, a source said, adding the government wanted Greybull out of the picture before putting more money into the business for fear those funds will eventually end up in Greybull’s hands. Greybull is British Steel’s only creditor at the holding company level and has secured its loans against its assets.
The UK government has a chequered history with Greybull, after the collapse of the firm’s airline, Monarch, in 2017 forced the government to repatriate more than 100,000 stranded tourists at a cost of about £60m.
Greybull also provided backing for the buyout of British high street electronics chain Comet before its collapse in 2012.
“In light of events over the past few weeks, it is clear Greybull needs to do the right thing by getting out of the road and let those who are committed to our industry work to save the business,” the union Community said in a statement.
It called on the government to use all options to secure the assets and rebuild the business, adding clean-up costs for the industrial site could end up costing taxpayers more than £1bn.