Can heavy industry be reshaped for a sustainable future?
British Steel was in urgent need of a suitable buyer to avoid closure.
A sense of history comes to the fore when reshaping a traditional organization like British Steel. Since its establishment 150 years ago, British Steel has been central to European and nationwide steel production and employment in the industry. By directly and indirectly supporting 23,000 jobs, the steel plant in Scunthorpe – one of the company’s main sites, with others across the UK, France and the Netherlands – has a vital role to play in the lives and wellbeing of those connected to it.
However, steel production in the UK has tumbled from its peak in the 1970s and commercial pressures have increased in recent years, threatening these jobs and the local economy. Greater supply internationally has pushed down prices, making higher cost operators less competitive in the global markets.
As a result, heavy industry organizations like British Steel are in a state of transition. If they are to survive, these companies – and by extension the local communities they support – must transform to recover their value.
In the case of British Steel, it had become clear in 2019 that its cashflow position was no longer viable – it could no longer afford to buy necessary materials or carbon credits from the EU to let it continue trading. It was in critical need of a buyer and a fresh, sustainable business model in order to avoid closure. According to Antonius Ron Deelen, CEO of British Steel, “The real reason that British Steel got into the situation we were in before EY joined was twofold: the cashflow of the company and bad messaging; people did not see the real situation British Steel was in and, therefore, were not prepared to take the measures needed.”
In May 2019, the British High Court granted an order to place British Steel into compulsory liquidation. The Official Receiver was appointed as liquidator and he concurrently petitioned the Court to appoint Sam Woodward, Alan Hudson and Hunter Kelly of EY to act as Special Managers to assist the Official Receiver with his duties as liquidator.
The function of the liquidator appointed by the Court is to secure all of the company’s assets, realise them and distribute proceeds to the company’s creditors.
In the case of British Steel, the Official Receiver as liquidator was responsible for overseeing the entire liquidation process and statutory compliance, and with the assistance of the Special Managers also appointed by the Court, they together ensured the best outcome was achieved for the liquidation. EY, as Special Managers, ran parallel processes that prepared for both the wind down and closure of British Steel, as well as for the sale of the business as a going concern. The relative outcome to creditors of each scenario would ultimately dictate the future of British Steel.
British Steel’s legacy and its multi-generational workforce, who were heavily invested in the plant and its survival, made this insolvency unique. “The number of people we came across as third-generation family employees was mind-blowing,” says Sam Woodward, EY-Parthenon Turnaround and Restructuring Strategy Partner. This feeling of personal significance is echoed by Paul McBean, Community Union and Multi-Union Chairman of British Steel who says of the Scunthorpe plant, “Closure would have been devastating. We have other businesses in town, but the vast majority of businesses here rely on the steel industry.”
Both the Official Receiver and EY were aware of the importance of British Steel to its employees, suppliers, customers, local communities and the wider economy. However, emotion could not overrule legislation and the Official Receiver and EY had a role to fulfil to meet statutory obligations. Working with multiple stakeholders, EY set about devising a strategy for the liquidation that included planning for wind down and closure while in parallel assessing the possibility of realizing value from a sale of the business, in whole or in part. The ultimate aim was securing the best possible outcome from liquidation, and while the chances of a going concern sale appeared remote, the counter factual to closure needing testing.