The government is bracing for the collapse of GFG Alliance by drawing up plans to run Liberty Steel using public money.
Liberty Steel is currently run by GFG Alliance, owned by tycoon Sanjeev Gupta, which is embroiled in the Greensill Capital scandal.
The boutique bank, advised by former PM David Cameron, was among GFG’s biggest lenders but its insolvency has left the company scrambling to find new financing.
Now the government is considering stepping in and using public funds to maintain production akin to support granted to British Steel in 2019, according to the Financial Times.
In May 2019, British Steel was forced into compulsory liquidation and was passed to the Official Receiver, an employee of the government agency, the Insolvency Service. It was then sold to Chinese steel group Jingye last March but the intervention cost taxpayers nearly £600m.
Concerns are rising over Liberty, which employs 5,000 workers across 12 sites in the UK. The government are particularly worried given the sites are in marginal constituencies, including Hartlepool where there will be a by-election in May.
A court filing revealed Greensil had around $5bn of exposure to Gupta’s company, which is Britain’s third-biggest steel company. There are worries that Greensill could have a charge on the Liberty assets and therefore taxpayer money.
GFG reportedly said in a letter last month that if Greensill stopped providing it with working capital it would collapse. Last week Gupta told colleagues he was seeking a standstill deal with Grant Thornton, Greensill’s administrators, over the money that GFG owed the bank.
Government officials told the FT no decision would be made unless and until GFG collapsed.