Ministers have lined up special managers to run Liberty Steel’s South Yorkshire operations if they are put into administration, according to a revelation at the high court in London.
The development shows that the government is ready to step in immediately to secure the continued operations of the Speciality Steel UK (SSUK), which employs 1,450 people at the group’s operations in Rotherham and in Stocksbridge.
The fate of the steelworks could be decided as soon as this week.
SSUK’s creditors are seeking a compulsory winding-up order, the high court heard on Wednesday. The company asked to adjourn the hearing to buy time to try to agree a “pre-pack” administration that would allow its owner, the metals tycoon Sanjeev Gupta, to keep control of the insolvent company.
The Guardian last month revealed that the UK government was considering options to step in should SSUK fall into liquidation. It would be the second government intervention in the steel industry this year, after it took control of British Steel’s Scunthorpe plant, fearing that its Chinese owners would let the blast furnaces cool beyond repair.
At the hearing in London, counsel representing the creditors showed the judge a letter from the Department for Business and Trade which said the government’s official receiver was ready to carry out a sales process if the company entered administration.
The insolvency and companies court judge, Sally Barber, initially said she was minded to give two weeks of extra time to decide what the consequences of each course would be.
However, after a short break, the creditors’ counsel, Ryan Perkins, of South Square chambers, disclosed that lawyers for the government were present in the court. The barrister said he had just been informed that an application for the appointment of a special manager to carry out the administration had already been filed.
The judge referred the case to another court to decide in parallel whether to grant the application for a special manager and whether the company should be wound up immediately. That decision means that the steelworks will probably either enter a government-handled administration, or remain in Gupta’s control through the pre-pack deal, as soon as this week.
Judge Barber said: “In the absence of some certainty, there is too much at stake for the court to shoot blind.”
Gupta has been scrambling to find new financing for his businesses since the collapse in 2021 of Greensill Capital, which had lent the Gupta Family Group (GFG) Alliance about $4.5bn (£3.3bn). Administrators for Greensill are trying to recover that money on behalf of creditors, including the investment bank Citibank, which is owed £233m.
The winding-up petition was originally brought by an equipment supplier in October but SSUK had been granted several adjournments to look for new investment.
Fundraising efforts have been complicated by an investigation into GFG Alliance by the UK’s Serious Fraud Office for suspected fraud, fraudulent trading and money laundering.
At the same time, the steel industry has been hit by the turmoil caused by the coronavirus pandemic, followed by a glut of metal produced by Chinese companies.
SSUK usually supplies aerospace and defence companies such as Rolls-Royce and Airbus. However, workers in South Yorkshire have dealt with years of uncertainty, as work at the plants has wound down. SSUK lost £340m in four years, and only has £650,000 in its bank account, according to figures revealed during the court process.
The Rotherham plant and a similar operation in Motherwell, Scotland, have not produced any steel for about a year because of a lack of working capital to buy materials. However, workers’ salaries have continued to be paid.
The court heard that Gupta wanted to buy the company back out of insolvency with money borrowed from BlackRock, the world’s biggest investment manager, with the consultancy Begbies Traynor preparing a pre-pack administration that would cut the company’s debts. Counsel for the creditors argued that standard liquidation would be “value-destructive” for the business.
The creditors opposed the plan, arguing that they would prefer a sale via a government-controlled liquidation. “All the creditors here in court have had enough,” said Perkins, for the creditors.
A Liberty Steel spokesperson said: “Liberty’s shareholder [Gupta] has invested nearly £200m, recognising the vital role steel plays in supplying the UK’s strategic defence, aerospace and energy industries.
“We continue to believe our commercial solution backed by major private capital provides the best outcome for the business, its employees and all stakeholders concerned without cost to UK taxpayers or unnecessary uncertainty.”
A government spokesperson said: “We continue to closely monitor developments around Liberty Steel, including any public hearings, which are a matter for the company.
“We are supporting the official receiver so that they are prepared to take the necessary steps should the company enter into compulsory liquidation.”
