This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/2019/may/22/british-steel-to-enter-insolvency-after-rescue-talks-with-government-fail

The article has changed 4 times. There is an RSS feed of changes available.

Version 0 Version 1
British Steel enters insolvency after rescue talks with government fail British Steel enters insolvency after rescue talks with government fail
(about 3 hours later)
British Steel has entered insolvency, putting 5,000 jobs directly at risk and endangering thousands more in the supply chain after talks with the UK government failed to reach an agreement on emergency funding.British Steel has entered insolvency, putting 5,000 jobs directly at risk and endangering thousands more in the supply chain after talks with the UK government failed to reach an agreement on emergency funding.
The business secretary, Greg Clark, issued a statement on Wednesday following confirmation that the court has granted an application by the directors of British Steel to enter an insolvency process.The business secretary, Greg Clark, issued a statement on Wednesday following confirmation that the court has granted an application by the directors of British Steel to enter an insolvency process.
Control of the company will pass to the official receiver – an employee of the Insolvency Service – who will run a compulsory liquidation. EY has been lined up to assist with the liquidation.Control of the company will pass to the official receiver – an employee of the Insolvency Service – who will run a compulsory liquidation. EY has been lined up to assist with the liquidation.
Clark said: “The government has worked tirelessly with British Steel, its owner Greybull Capital and lenders to explore all potential options to secure a solution for British Steel.” The official receiver, David Chapman, said the company would continue to trade and supply its customers as it tries to find a buyer. Sources with knowledge of the process said they expected the government to stand behind the process for as long as it takes to find a new owner.
Clark said the government had been willing to act, following a previous loan, but was not able to agree terms with Greybull. 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”.
He said: “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.” “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 UK’s second-largest steelmaker had sought £30m in government support after its private equity owner Greybull Capital and lenders agreed to inject £30m. The company had initially sought £75m from the government. Rebecca Long-Bailey, Labour’s shadow business secretary, 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.’’
The company has not announced redundancies, and staff have been paid their salaries for May. British Steel employs about 5,000 people in total, of whom more than 3,000 are at its Scunthorpe steelworks.
Clark said the government had been willing to act to secure British Steel’s future, following a previous loan, but was not able to agree terms with its owner, the private equity firm Greybull Capital.
“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,” he said.
The collapse of the company, which blamed its woes partly on Brexit-related uncertainty, will add to pressure on the government in the run-up to the European parliament elections on Thursday.The collapse of the company, which blamed its woes partly on Brexit-related uncertainty, will add to pressure on the government in the run-up to the European parliament elections on Thursday.
Greybull said in a statement: “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.”
British Steel counts Network Rail, Liberty Steel and Caterpillar among its major customers. A Network Rail spokeswoman said it had increased orders and brought orders forwards, as well as paying invoices quicker, in an attempt to help its ailing supplier.
The company’s insolvency also puts at risk at least 20,000 jobs in its supply chain.
One of the company’s major suppliers, Durham-based logistics firm Hargreaves Services, warned on Wednesday morning that 170 jobs could be affected.
The firm manages the transport of raw materials to Scunthorpe from the Immingham bulk terminal on the Humber, loads it into the furnaces and moves finished product into British Steel’s warehouses.
Hargreaves said it faces a £9m hit this year if British Steel cannot be saved, while next year’s revenue would fall by a further £11m, reducing pretax profit by £1.5m.
The UK’s second-largest steelmaker had sought £30m in government support after Greybull and lenders agreed to inject £30m. The company had initially sought £75m from the government.
Greybull Capital bought the business from Indian-owned Tata Steel in June 2016 and within a year appeared to have completed a rapid turnaround as it reached profitability.Greybull Capital bought the business from Indian-owned Tata Steel in June 2016 and within a year appeared to have completed a rapid turnaround as it reached profitability.
When Greybull Capital bought British Steel in 2016 it promised great things. The private equity firm pledged to invest £400m and within months it was boasting of a return to profit and a bright future ahead. Two years later it appears to be on the brink of collapse unless it receives a government-funded bailout. In a letter to staff last week, the British Steel chief executive blamed weak market demand, high raw material prices, the weakness of sterling and uncertainty over the outcome of Brexit discussions. Unions called for Greybull, which is understood to be a secured creditor to British Steel, to leave the company.
It is not the only factor in the crisis but it is very important. Steel contracts are typically agreed well in advance of the product being delivered. As things stand, the UK is due to leave the EU on 31 October and the terms of that separation are yet to be agreed, meaning British Steel’s overseas customers don’t know what tariffs will apply to steel they buy from the company. Sources close to the company say orders from customers in the EU and further afield have dried up as a result. Unite’s assistant general secretary, Steve Turner, said: “We are clear that the government must now step up and step in and bring British Steel into public ownership until a buyer can be found to avoid an economic and industrial catastrophe.”
The steelworks in Scunthorpe represents the bulk of the company and it is hard to see who would be an obvious buyer for the site, given that it has struggled under successive owners. The fundamental problems affecting it show no sign of solution any time soon. Roy Rickhuss, the general secretary of Community, another union representing steelworkers, said the official receiver should allow enough time for an alternative buyer to be found.
The UK steel industry has been in decline for some time due to a variety of factors such as overcapacity in EU steelmaking and Chinese state-subsidised firms flooding the global market with cheap product. An industry that employed 323,000 people in 1971 now employs less than a tenth of that, at 31,900. The closure of the Redcar steelworks in 2015 was a significant blow to the sector and left the UK with just two blast furnace steelworks: Scunthorpe and Tata Steel-owned Port Talbot in south Wales. “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.”
Rob Davies
Unite’s assistant general secretary Steve Turner said: “We are clear that the government must now step up and step in and bring British Steel into public ownership until a buyer can be found to avoid an economic and industrial catastrophe.
“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, nor allow a business of such strategic importance to UK plc to disappear like the steelworks of SSI several years ago.”
However, it has struggled more recently, with prolonged Brexit uncertainty resulting in it losing 25% of orders at its Scunthorpe plant, adding to the problems already facing the UK steel industry, including higher energy costs than rival countries and a weaker pound, which made raw material imports more expensive.
Steel industrySteel industry
BrexitBrexit
newsnews
Share on FacebookShare on Facebook
Share on TwitterShare on Twitter
Share via EmailShare via Email
Share on LinkedInShare on LinkedIn
Share on PinterestShare on Pinterest
Share on WhatsAppShare on WhatsApp
Share on MessengerShare on Messenger
Reuse this contentReuse this content