EY appointed as British Steel administrator

28 May 2019 Consultancy.uk 3 min. read

British Steel has announced its collapse into administration, following years of turbulence and changing hands between owners on multiple occasions. Big Four firm EY has been appointed to oversee proceedings, after British Steel plunged into insolvency, having failed to secure an emergency government loan.

Originating from the nationalised British Steel Corporation, metal producer British Steel was privatised in 1988. The Government of Margaret Thatcher undertook the task as part of its wholesale campaign to open up UK markets to the rules of competition capitalism, on the premise that this would lead to increased efficiency and improved service. As with the many of the entities which this sell-off included, however, the opposite occurred, and the privatised group has floundered for the three decades since.

British Steel merged with a Dutch company to form Corus in 1999, but the combined entity was absorbed less than a decade later by Indian steel operator Tata. Less than another 10 years had passed before Tata began to ramp up its own efforts to offload the property, which faced a number of issues. This included a large pension scheme – one of the biggest in the UK – which Tata unceremoniously dumped to apparently avoid its British wing becoming insolvent.

EY appointed as British Steel administrator

With British Steel still struggling, Greybull Capital stepped in. Greybull specialises in trying to turn around distressed businesses, and completed a deal for just £1, saving the company from collapse. The entity resumed its name of British Steel, and at the time no jobs were shed – but this proved to merely be a momentary stay of execution for the briefly renewed company.

Citing a weak pound and euro, British Steel downsized its UK workforce by almost 10%, laying off 400 workers before raising a £90 million asset-backed finance injection from White Oak Global Advisors, in a bid to once again stay afloat. On this occasion, however, it was not enough. As was the case with Greybull-owned airline Monarch – also purchased for £1 in October 2014 – British Steel has collapsed three years after its purchase.

The firm had been seeking a £75 million emergency loan from the Government, while the Labour opposition called upon Theresa May to re-nationalise the company to preserve jobs – neither of which yielded any result. The UK’s High Court has subsequently ordered the compulsory liquidation of British Steel, jeopardising some 5,000 jobs directly, and 20,000 in the wider supply chain. While staff will continue to be employed, as liquidators from EY oversee the continuing operation of British Steel’s main site in Scunthorpe, if a buyer cannot be found the firm will be wound up and redundancies will follow.

EY told the BBC the appointment followed "a number of weeks" of negotiations by management with the company's various stakeholders, which “regrettably… were unable to secure a solution before the company's funding resources were exhausted."

Steelmakers pay some of the highest green taxes and energy costs in the world, while contending with high labour costs and business rates, meaning the operation of the industry in order to generate profit in the UK is becoming ever more difficult. Finding buyers for British Steel’s assets may therefore be easier said than done, while according to Reuters, signs of the ripple effect of British Steel’s collapse are already beginning to emerge. Hargreaves Services, a company based in Durham – which supplies materials handling and other services – expects its profit before tax in the next full year to fall by about £1.3 million, thanks to the collapse.