International Steel Mills

British Steel Faces Insolvency

May 23, 2019

British Steel Ltd. has been ordered into liquidation after failing to receive another bailout from the government.

British Steel hoped to receive a $95 million support package from the government to help it with issues related to the U.K.’s withdrawal from the European Union. The government previously granted a $152 million loan to the company to help meet emission trading compliance costs. Any further funding could be considered illegal state aid, said U.K Business Secretary Greg Clark.

The company was transferred to the government’s Insolvency Service on Wednesday, May 22.

“The immediate priority following my appointment as liquidator of British Steel is to continue safe operation of the site,” said David Chapman, the official receiver. Chapman will work with financial firm EY to identify a purchaser for the business.

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

The impending Brexit challenged the completion of the company’s contracts as overseas customers hesitated to commit without knowing what tariffs will apply to steel.

“Many of our challenges are far from unique to steel – the whole manufacturing sector is crying out for certainty over Brexit,” said Gareth Stace, the director-general of industry trade association U.K. Steel. “Unable to decipher the trading relationship the U.K. will have with its biggest market in just five months’ time, planning and decision making has become nightmarish in its complexity.”

Greybull Capital bought the long products division from Tata Steel for just one pound in 2016, changing its name to British Steel. Greybull hoped to revive the distressed company and did manage to pull a profit in 2017 and 2018. The company, however, didn’t count on a devalued currency, trade wars and a drawn out exit from the EU.

Greybull said in a statement on Wednesday: “The turnaround of British Steel was always going to be a challenge, and yet the business overcame many difficulties and until recently looked set for renewed prosperity. The workforce, the trade unions and the management team have worked closely together in their determination to strengthen the business. However, the additional blows dealt by Brexit-related issues have proven insurmountable.”

The demise of British Steel will mean the loss of 5,000 direct jobs and will threaten 20,000 jobs in the company’s supply chain.

“Failure to find a buyer would be devastating to many areas which rely so strongly on this industry,” said Hannah Essex, co-executive director of the British Chambers of Commerce.

British Steel produces 2.8 million metric tons of steel annually.