Talks to secure a government bailout have collapsed, and British Steel, the UK's second-largest steel producer, has officially started insolvency proceedings, putting some 25,000 jobs - 5,000 workers at its Scunthorpe plant and another 20,000 along the supply chain - at risk, the FT reports.
The British High Court has ordered the compulsory liquidation of British Steel, and appointed an Official Receiver to oversee the liquidation alongside accountancy firm Ernst & Young.
The bankruptcy, which was hastened by a loss of business that the company has blamed on Brexit uncertainty, as well as a spike in iron prices (ore prices climbed above $100 a tonne on Friday, the first time they've closed above that level since May 2014).
Greybull, British Steel's private equity owner, and a consortium of the firm's lenders managed to assemble a rescue package worth £30,000 ($38,000). The only problem is the funds were contingent on a match from the UK government. But the money fell through at the last minute as ministers judged that it would violate EU rules.
The deal's biggest proponent, Theresa May's business secretary, Greg Clark, will now need to explain why he approved an earlier £120 million ($152 million) loan to help British Steel meet an EU environmental bill, but can't save the company from bankruptcy.
As the FT explains in a video, the earlier bailout was required because under its previous owners, British Steel had used the EU's system of carbon-credit trading to raise money by selling excess credits then covering its short position at the beginning of the following year.
But this year, the EU ruled that since the UK is leaving the bloc, its companies don't deserve any more credits, leaving the company on the hook for a massive bill.
Unions in the UK have demanded that the government do something, while Labour Leader Jeremy Corbyn warned on Tuesday that the collapse of British Steel would be 'devastating'.
Our steel industry doesn't just provide thousands of jobs, it has a major role to play in ushering in a Green Industrial Revolution and securing a sustainable future for British manufacturing.— Jeremy Corbyn (@jeremycorbyn) May 21, 2019
The government must not allow this vital industry to collapse.https://t.co/3Un2fyOvM9
In a statement, Clark insisted that the government had done all it can, but that it can't risk violating EU laws stipulating that any financial support must be made 'on a commercial basis'
"We have shown our willingness to act, having already provided the company with a £120m bridging facility to enable it to meet its emissions trading compliance costs," he said. "The government can only act within the law, which requires any financial support to a steel company to be on a commercial basis. 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."
If the company goes under, it's unclear what will happen to its Scunthorpe plant, or the thousands of jobs there. But it certainly raises questions about who benefits, and who suffers, thanks to unmitigated free trade. By imposing tariffs on imported steel and aluminum, Trump has sought to spare American steel companies a similar fate.