British Steel continues to trade whilst under receivers

More details have emerged about the circumstances surrounding the insolvency of UK long products specialist British Steel. The company was wound-up in the High Court on 22 May 2019 and the UK Official Receiver was appointed as liquidator on the same day. The company is still operating whilst it is in administration.

“The company in liquidation is continuing to trade and supply its customers while I consider options for the business. Staff have been paid and will continue to be employed. The court also appointed Special Managers to assist me with my work and they are engaging with staff and their representatives to keep them informed, as well as contacting British Steel’s customers,” the Official Receiver said in a statement.

Ernst and Young have been appointed as Special Managers and a three-strong team from the company are now in place. Former British Steel Limited directors Roland Junck, Gerald Reichmann and Antonius Deelen all resigned their positions on 22 May. The insolvency also removes Greybull Capital from day-to-day control of the company, UK Business secretary Greg Clarke said in a statement.

The scale of the company’s debts which led to its winding up have also been revealed, with one media source, citing the High Court winding-up judgment, placing the figure at £800 million ($1.012 billion). Although figures for the company’s financial year ending 31 March 2019 are not yet available, British Steel had made a loss of £19m a year earlier. That had followed a healthy £92m profit in the company’s first year of operations.

A steel industry source tells Kallanish that the integrated steelmaker was also hard hit by the rise in seaborne iron ore prices seen so far in 2019. The company had seen an average cost increase for iron ore of £5 million/month so far this year, the source says. The steelmaker was already on sticky ground, with the fall in value of the pound versus the dollar since 2016 also making dollar-denominated iron ore purchases that much more expensive over the period.

In the year ending 31 March 2018, 42% of the company’s revenue was generated in Europe, (as compared to 47% in the UK and the balance from the rest of the world). British Steel’s dependency on its European business therefore will not have been helped by the UK voters’ decision to Brexit. Greybull has already cited Brexit as one of the reasons for the steelmaker’s problems.

The North East Lincolnshire area, in which the firm’s Scunthorpe headquarters are located, saw one of the largest pro-Brexit results in 2016. 69.9% of those who took part in the referendum in that area chose to leave the EU, the tenth highest ‘leave’ percentage out of 400 polling areas in the UK