British Steel collapses putting thousands of UK jobs at risk

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

FILE PHOTO: A British Steel works sign is seen in Scunthorpe, northern England, May 21, 2019. REUTERS/Scott Heppell/File Photo

British Steel was placed into an insolvency process, putting 5,000 UK jobs at risk and endangering 20,000 more in the supply chain.

Administrators from accountancy firm EY were in court on Wednesday morning to finalise the details, local media reported.

The move follows a breakdown in rescue talks between the British government and the company's owner, Greybull Capital. The government's Official Receiver was appointed as liquidator.

British Steel, which is the UK's second largest steel maker, employs about 5,000 people in the UK. It was bought by Greybull Capital, which specialises in trying to turn around distressed businesses, for a nominal £1 in 2016 from Tata Steel and rebranded with the old British Steel name. The private equity firm pledged to invest £400 million (Dh1.86 billion) to revive the company.

Prime Minister Theresa May told parliament on Wednesday the Treasury had “agreed an indemnity for the official receiver to enable British Steel to continue to operate in the immediate future”.

“We will be working with the company and the official receiver in the days and weeks ahead to ensure that we pursue every step to secure the operations at Scunthorpe, Skinningrove and Teeside,” she said.

The collapse of the company, which was partly blamed on the uncertainty that followed the Brexit vote, will add to pressure on the government in the run-up to the European parliament elections on Thursday.

britain's exit from the European Union was an important factor in the crisis. Steel contracts are typically agreed well in advance of the product being delivered. British Steel’s overseas customers do not know what tariffs will apply to the steel they buy after the UK leaves the European Union, something which is now scheduled for October 31 but with no agreed terms to the separation.

Sources close to the company said orders from customers in the EU and further afield dried up as a result.

"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 a billion pounds.

Signs of the ripple effect on related companies are already beginning to emerge.

Hargreaves Services, which supplies materials handling and other services to British Steel, said earlier if the steelmaker ceases to trade, this could reduce its profit before tax in the next full year by about 1.3 million.

British Steel had asked the government for a 75 million pound loan, later reducing its demand to 30 million pounds after Greybull agreed to put up more money, according to a source close to the negotiations.

It had already secured a government loan of around 120 million pounds ($154 million) this month to enable it to comply with the European Union's Emissions Trading System (ETS) rules.

Greybull was the former owner of Monarch, an airline that went bust in October 2017, and also provided backing for the buyout of British high street electronics chain Comet before its collapse in 2012.

The UK government has a chequered history with Greybull, after the Monarch collapse forced it to repatriate more than 100,000 stranded tourists at a cost of about 60 million pounds.

The collapse of British Steel comes after Germany's Thyssenkrupp and India's Tata Steel ditched a plan this month to merge their European steel assets to create the EU's second largest steelmaker after ArcelorMittal.

The collapsed merger leaves the wider EU steel sector fragmented and vulnerable to economic downturns. It also calls into question the fate of Britain's largest steelworks in Port Talbot, Wales, owned by Tata Steel.

After making a profit in 2017, British Steel cut around 400 jobs last year, blaming factors such as the weak pound and uncertainties surrounding Britain's departure from the European Union, which it said hammered its order book.

Hunter Kelly, Sam Woodward and Alan Hudson of EY have been appointed to act as special managers to assist the Official Receiver with his duties in relation to British Steel, including engaging with staff and contacting the steelmaker's customers.

* With agencies