British Steel has collapsed, putting more than 4,000 jobs directly at risk and threatening a further 20,000 in the company’s supply chain.

The company has been put into compulsory liquidation after talks broke down between the government and British Steel’s private equity owners Greybull Capital.

Greg Clark, the business secretary, said the government had worked “tirelessly” to try to save the company but had no remaining legal options to provide financial support.

Insolvency experts labelled British Steel’s demise as the “first heavyweight casualty of Brexit” and warned of a “tsunami effect” that would result in taxpayers footing a significant bill.

Unions said the company’s collapse was an “economic and industrial catastrophe” and vowed to continue fighting to save jobs at the company, which was bought by Greybull for £1 in 2016.

Tim Roache, general secretary of the GMB union, described the news as “devastating” for thousands of workers at British Steel’s Scunthorpe plant and across the UK.

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“Consecutive UK governments have failed to protect our proud steel heritage, and now this prime minister is overseeing its demise,” he said.

“Ministers should have been ready to make use of all the options – including nationalisation – in order to save British Steel but they either don’t care or wouldn’t take off their ideological blinkers to save hard working people and communities.

“GMB demands urgent reassurances on what the future holds for the thousands of British Steel workers and their families.”

The government’s official receiver has now taken control of British Steel with accountancy firm EY acting as special manager.

British Steel employs around 3,000 people in Scunthorpe and 800 on Teesside and in northeastern England; the rest of its workforce is outside the UK.

As of Wednesday, none of those jobs had gone and all staff will continue to be paid.

MP Anna Turley, who represents the Redcar constituency in Teesside, tweeted: “This is absolutely gutting. So many people have given everything to try & make British Steel a success.”

The government lent British Steel £120m last month so it could pay a carbon emissions bill and avoid a fine from the European Union.

But Greybull had asked for another £75m, later reduced to £30m, saying it needed the cash to deal with “Brexit-related” issues.

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The business secretary said the government had proved its willingness to act but could not legally provide any further support.

“The government can only act within the law, which requires any financial support to a steel company to be on a commercial basis,” Mr Clark said.

“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 acknowledged that it would be a “deeply worrying” time for workers and local communities close to British Steel’s plants.

Mr Clark added: “In the days and weeks ahead, I will be working with the official receiver and a British Steel support group of management, trade unions, companies in the supply chain and local communities, to pursue remorselessly every possible step to secure the future of the valuable operations in sites at Scunthorpe, Skinningrove and on Teesside.”

Private equity owners

Eyes will now turn to the role of British Steel’s private equity owners who have been at the helm of a number of companies that have gone bust in recent years.

Greybull has been paid £9m in management fees and more than £33m in interest since taking over British Steel in June 2016, weeks before the EU referendum.

Former City minister Lord Myners accused Greybull of avoiding tax through an ownership structure, which includes a Jersey-based entity that loaned British Steel money at 9.6 per cent interest.

He told the BBC’s Today programme: “We know with British Steel it’s already taken large management fees out of the company, which have been paid into an offshore company, and it’s also lent a lot of money from offshore lenders to British Steel.

“This means that the interest payments on those related-party loans are set off against the taxable profits of British Steel, whilst the interest accumulates offshore tax-free.

“On that basis, I don’t see why the government should be putting money in to support Greybull.”

In 2017, Monarch Airlines went bust while under Greybull’s ownership, leading to more than 1,800 job losses and 85,000 repatriation flights for passengers at a cost to the taxpayer of £40.5m.

It later emerged that Greybull had struck deals with aircraft maker Boeing to insulate itself from heavy losses.

Greybull also bought Morrisons’ My Local convenience store chain and Rileys snooker halls, both of which later failed.

What has actually happened to British Steel?

It has been put into compulsory liquidation by a court. A government office known as the official receiver has been appointed with the primary duty to maximise the returns to British Steel’s creditors by identifying the company’s assets and selling them.

The sun rises behind the British Steel – Scunthorpe plant in north Lincolnshire, north east England (AFP/Getty) (AFP)

The liquidator also has an important role to play in investigating the conduct of the company’s directors prior to the insolvency and may later begin disqualification proceedings against the directors.

What about British Steel’s employees?

Steve Turner, Unite assistant general secretary, said he would continue to fight to secure the future of the company’s employees.

“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,” he said.

But this has been ruled out by the government. Unless a “white knight” buyer can be found to buy British Steel out of insolvency there appear to be few options for keeping on staff.

Around 20,000 jobs in the company’s supply chain will also come under pressure with other smaller firms expected to go out of business if British Steel shuts down.

What about British Steel’s employees and customers?

Michael Mulligan, insolvency partner at law firm Shakespeare Martineau, said when large firms collapse it is inevitably employees and those in the supply chain who suffer.

He urged customers and suppliers of British Steel to act quickly to mitigate against a “Carillion-style domino-effect”.

“It is essential that directors of businesses in the supply chain are realistic and avoid burying their heads in the sand,” Mr Mulligan said.

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“Suppliers should open dialogue with the insolvency officeholders at the earliest opportunity and seek advice on individual directors’ duties since the collapse of a large customer like British Steel could leave them potentially trading insolvently.”

There will also be a knock-on effect to publicly-owned Network Rail. British Steel provides 95 per cent of the company’s rails.

Why is British Steel in trouble?

It has been struggling with falling orders from European customers, which it says are linked to uncertainty around tariffs on steel after Brexit.

Steelmakers have also been damaged by a flood of cheap imports from China and a weak pound that has pushed up the cost of raw materials. Energy prices have also risen.

In June 2016, just weeks before the referendum, Greybull Capital bought was then part of Indian conglomerate Tata for £1.

Greybull, a London-based private equity firm that specialises in buying up companies in financial distress, claimed it would revive the company’s “proud history”.

Sajid Javid, business secretary at the time, hailed the deal as securing a “sustainable future for world-class steel making in this country”.

The unit was renamed British Steel and it has struggled for much of the time since, prompting additional scrutiny of Greybull’s role.