UK's second largest steel producer British Steel enters liquidation over Brexit worries

COMPILED FROM WIRE SERVICES
ISTANBUL
Published 22.05.2019 15:50
The British Steel works in Scunthorpe, northern England, May 21, 2019. (Reuters File Photo)
The British Steel works in Scunthorpe, northern England, May 21, 2019. (Reuters File Photo)

British Steel has been ordered into compulsory liquidation after talks with the government failed to secure a bailout, Britain's Insolvency Service said Wednesday.

The move threatens some 5,000 workers employed by the company, with another 20,000 jobs in the supply chain. The company has asked for a package of support to tackle issues related to Britain's pending departure from the European Union.

"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, referring to the Scunthorpe plant in northeast England.

Chapman said the company "is continuing to trade and supply its customers while I consider options for the business."

The government said it had done all it could for the company, including providing a 120 million pound ($152 million) bridging facility to help meet emission trading compliance costs. Going further would not be lawful, Business Secretary Greg Clark said.

"The government can only act within the law, which requires any financial support to a steel company to be on a commercial basis," he said. "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."

"This will be a deeply worrying time for the thousands of dedicated British Steel workers, those in the supply chain and local communities," Clark said, adding that he will work with the liquidator - the Official Receiver - the company, trade unions and suppliers to "pursue remorselessly every possible step to secure the future of the valuable operations in sites at Scunthorpe, Skinningrove and on Teesside." The three sites are in northeastern England.

The Official Receiver confirmed that the company was wound up in the High Court on Wednesday and placed in liquidation.

The immediate priority is to "continue safe operation of the site[s]," the liquidator, who will be assisted by business consultants EY, said in a separate statement.

British Steel will continue to trade and supply its customers while the liquidators "consider options for the business," it said.

Britain has granted an indemnity to the official receiver handling the collapse of British Steel, the country's second largest steel producer, Prime Minister Theresa May said on Wednesday.

"(Finance minister Philip Hammond) has also agreed an indemnity for the official receiver to enable British Steel to continue to operate in the immediate future," May told parliament.

Unions had called for the government to nationalize the business, but the government demurred mid reports that the company was trying to secure up to 75 million pounds (95 million dollars) in financial support to help it over "Brexit-related issues."

The opposition Labour Party's deputy leader, Tom Watson described the news as "devastating."

"It is testament to the government's industrial policy vacuum, and the farce of its failed Brexit," he said in a Tweet.

British Steel is owned by investment firm Greybull Capital, who founded the long steel products maker in 2016 after snapping up assets from Tata Steel.

Long steel products include plates, rails for railways, sections used in construction, and wire rod. The latter can be used as steel rope for infrastructure like suspension bridges or filaments for car tires to give rigidity.

Greybull, which specializes in turning around distressed businesses, paid Tata a nominal one pound in 2016 for the loss-making company which they renamed British Steel.

Greybull said on Wednesday it had worked hard to keep the company alive but that the challenges of Brexit had proven insurmountable.

"Having rescued the business from closure over three years ago, we have worked hard to bring this important company back on its feet," Greybull Capital said.

"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 crisis underscores the anxieties of British manufacturers, who have been demanding clarity around plans for Britain's departure from the EU. Longstanding issues such as uncompetitive electricity prices also continue to deter investment in U.K. manufacturing, said Gareth Stace, the director-general of U.K. Steel, the trade association of the industry.

"Many of our challenges are far from unique to steel - the whole manufacturing sector is crying out for certainty over Brexit," Stace said. "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."

Tim Roache, general secretary of the GMB union, described the collapse of Britain's second-biggest steelmaker as "devastating news for the thousands of workers" in the U.K.

"While Greybull cannot be allowed to walk away scot-free and must be held to account for its stewardship of Britain's second largest steelmaker, ministers cannot wash their hands of the Brexit farce and ongoing uncertainty that has placed the company in difficulty," Steve Turner, assistant general secretary of the Unite union, said Wednesday.

"To do so would be a betrayal of a loyal workforce that has made great sacrifices to make British Steel a success and send economic shockwaves throughout the steel industry, UK manufacturing and the households of 20,000 workers in the supply chain who rely on the steelmaker for their livelihoods."

A rescue deal for the Ascoval steel plant in northern France is not impacted by the current woes at British Steel since the Ascoval transaction involves another unit of British Steel not impacted by the liquidation process, said the French government.

"The mother company behind the British Steel group has confirmed its ability to see through the Ascoval rescue and to bring over the necessary funds in the agreed timetable," said a statement by the French finance ministry.

The firm had earlier this month won approval from a French court to buy the Ascoval steel mill, in a deal under which the French state and local authorities are also to invest.

There are clouds also over the future of Tata Steel's main European operations based in the U.K. after German industrial conglomerate Thyssenkrupp recently scrapped merger plans with the Indian giant.

A deal was seen as positive for Tata's Port Talbot plant in Wales that employs more than 4,000 staff.

Following the merger collapse, Thyssenkrupp said it would slash 6,000 jobs worldwide in a structural shakeup.

Share on Facebook Share on Twitter