Tuesday, November 9, 2021

News: Commons committee critical of Rotherham steel firm's ownership


A group of MPs has noted a series of audit and corporate governance "red flags" around Liberty Steel, the firm that operates facilities in Rotherham.

The company, part of Sanjeev Gupta's GFG Alliance, employs hundreds of staff in South Yorkshire, including in Rotherham. It completed a £100m deal to acquire the Speciality Steels division of Tata Steel UK in 2017.

The Business, Energy and Industrial Strategy (BEIS) Committee has been looking at the steel industry more closely following the collapse of Liberty's principal lender, Greensill Capital.

In a report, the MPs delved further into the workings of the business. It followed on from the Government turning down a request for £170m to support the company with Business Secretary, Kwasi Kwarteng describing GFG as having an "opaque structure" with "no guarantees where that money might eventually go."

GFG Alliance, and its subsidiary companies, are a collection of businesses and investments that do not operate as a consolidated group but as an alliance of businesses.

The report said: "Witnesses to our inquiry identified questionable corporate governance arrangements within GFG Alliance and Liberty Steel UK, due to decision-making structures being centralised around Sanjeev Gupta, with only very minimal input or knowledge of decision making from other executives.

"The corporate structure and governance of GFG Alliance companies resulted in no formal oversight or accountability of the decisions taken by Sanjeev Gupta. Mr Gupta put members of his staff in an unacceptable position by employing them with job titles associated with traditional executive functions in well run companies, without giving them the required access to information or decision-making powers necessary for them to perform their duties. It is unclear why Mr Gupta opted to structure his companies in this unusual and, given the scale of his operations, unacceptable way."

The report went on to discuss Liberty Steel's use of a relatively small audit firm, King & King, and the issue of no consolidated accounts being published for the business. It said: "We found it utterly unconvincing, and do not believe that King & King had the capacity, expertise, or resources to audit the accounts of multiple large GFG Alliance and Liberty Steel UK companies representing over £2.5 billion of revenue.

"The reputation of Liberty Steel UK has been threatened by the poor audit and accounting practices of GFG Alliance, including the changing of accounting deadlines and its inability to produce consolidated accounts. As these accounts are yet to be published it is difficult to see the true financial picture of Liberty Steel UK. Unless remedied, these deficiencies severely limit the potential of that firm to be viewed as a reliable partner in any long-term strategy for the UK steel industry."

Since the inquiry, Liberty Steel has restarted production in Rotherham, having injected £50m of shareholder funds into the business, which is running as normal with funding for growth in working capital approved through Liberty Capital.

On this, the report adds: "We note the recent developments within GFG Alliance and Liberty Steel UK and welcome the injection of capital at Liberty Steel’s Rotherham plant. However, we note that once again Sanjeev Gupta has decided to set up an additional corporate entity to provide financial support to Liberty Steel UK companies without clear reporting and decision making on the source and terms of use of that funding.

"We would welcome the Insolvency Service considering whether, on the basis of the evidence we have received, Sanjeev Gupta may have acted in breach of his fiduciary duties as a company director in the United Kingdom.

"More broadly, we believe that until Mr Gupta restructures his GFG Alliance companies into a more acceptable corporate structure and publishes consolidated accounts that are adequately audited, that he fails to fulfil the criteria that we believe should be applied to define a fit and proper person for the purposes of receiving any form of Government support."

The report also used the opportunity to call on the Government to establish a new Steel Sector Deal to address long-running challenges to the industry’s competitiveness, including those from high energy prices and barriers to supplying steel for major public projects, as part of a strategic plan for decarbonising the industry and protecting jobs.

Darren Jones, Chair of the Business, Energy and Industrial Strategy Committee, said:"Steel is a national strategic asset, a foundation industry, and a sector which the UK cannot afford to lose.

"There is an urgent need for Government support for the steel industry on long-standing issues including electricity costs and better use of public procurement to support steel in the UK. But the Government should go further by bringing forward a steel sector deal which helps UK producers compete internationally and provides the long-term, sustainable policy support necessary for the steel industry to transition to a low-carbon future.

"The systemic issues at the heart of GFG Alliance has highlighted the vulnerabilities of Liberty Steel and its place in the wider steel sector in the UK. We met with hard working and dedicated workers at Liberty Steel and want to ensure that the UK steel sector is able to continue to support their jobs. However, the evidence we heard during our inquiry has highlighted serious problems with high-risk financial practices, weaknesses in audit, and about inadequate accountability and corporate governance arrangements within GFG Alliance. Sanjeev Gupta must urgently fix these problems if he is to be seen as a fit and proper owner of steel companies in the UK."

Liberty Steel website

Images: Liberty


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