Tuesday, June 14, 2022

News: Lenders come after Liberty Steel


Winding up petitions against the speciality steels division of Liberty Steel could still go ahead.

The company, part of Sanjeev Gupta's GFG Alliance, employs hundreds of staff in South Yorkshire, including in Rotherham. GFG underwent a restructuring and transformation drive following the collapse of its main lender Greensill Capital.

HM Revenue & Customs (HMRC) issued a petition to have the speciality steel company wound up but following positive discussions, the petitions were withdrawn.

However, a judge has recently ruled that financial firms Citibank and Credit Suisse can continue with their own winding up petition, issued to the courts by those seeking to recover money that they are owed. The courts do not look on it as a debt recovery process, rather that the company can't pay its debts and should be wound up so that liquidation can be used to collect the company's assets.

Statutory demands and winding-up petitions were restricted by the Government to protect companies from creditor enforcement action due to debts related to coronavirus (COVID-19). These restrictions have now ended.

Chief Insolvency and Companies Court Judge Briggs ruled that despite the impact of the Covid-19 pandemic, Liberty Steel's financial difficulties followed the collapse of its main lender Greensill Capital, a specialist in invoice financing that operated with less regulation than the traditional banks and that went into administration.

Court documents show that the Rotherham-based speciality steels division, with its forecast turnover for the year to March 2021 of £267m, owed Citibank and Credit Suisse £46,860,465.59. Other parts of the alliance owed £19,913,081.97 and $131,615,184.95.

Gupta argued that the pandemic has had a significant adverse financial effect on the businesses adding: "Coronavirus had an almost existential effect on the GFG Alliance's operations globally. There was not a single part of the numerous businesses that was not impacted, although there were various degrees of impact. Across the board, production was severely hindered and a number of the plants had to shut or production was substantially curtailed.

"The damage looked to be substantial and we had to take extraordinary steps to try to keep the businesses running. This was made all the more difficult by absenteeism due to employees' sickness; production being severely curtailed; and the need to shut plants suddenly.

"Demand in many of our sectors almost evaporated for a significant period of time, which had a massive impact, and prices came under severe pressure. It was inevitable that some of our sectors would be the ones most impacted by the crisis. The automotive, air travel industries ceased almost completely during the lockdown and the construction industry was severely impacted. Each of these industries are significant consumers of steel."

"If there had been no pandemic, then I believe the companies would have continued to trade successfully as they had before with financing either from GCUK [Greensill] (which would have continued in operation) or from alternative sources of funding."

The judge however, deemed that "the statement is challenging evidentially as the words "continued to trade successfully" presuppose that the Companies had been trading successfully before Coronavirus, yet there is little evidence that this was the case, and I was not taken to evidence that supported the premise."

Gupta and his GFG Alliance's position was weakened by its "opaque structure" and "questionable corporate governance arrangements" described by a recent commons committee.

Accounts for the year ending March 2020 are yet to be published.

Judge Briggs said: "Mr Gupta has said that the reason for not producing more focussed financial information is due to his view that it is "unlikely to materially assist the Court in determining the effect of coronavirus on the Companies". He says that more detailed financial information is in draft form only or has been prepared for "internal management purposes only".

"As far as the state of the financial information is concerned, even if it is in draft form or prepared for internal management purposes, I do not see why that should prevent it being placed before the Court to support his assertions. He chose not to do so."

The judge concluded that he was "satisfied that the ground relied upon for winding up would have arisen even if Coronavirus had not had an effect."

Further court dates are expected over winding up proceedings.

The search for refinancing continues and despite this, and legal battles, the GREENSTEEL operation in Rotherham is growing, fuelled by new investment and volume growth.

In October 2021, Liberty Steel restarted production at Aldwarke, following an injection £50m of shareholder funds into the business. A restructuring of the special alloys businesses "in order to enhance their productivity and competitiveness ahead of a possible sale or partnership" shifted further focus to Rotherham with 161 extra jobs.

Rotherham MP Sarah Champion described the winding up petitions as "deeply concerning." In a statement, she said: "I have written to the Secretary of State for Business to urge him not to allow this crucial strategic industry to be sacrificed as a result of problems at the wider group.

"I will be doing all that I can to defend our steel industry and Rotherham steel workers."

Liberty Steel website

Images: Liberty Steel

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