The challenges facing British Steel have been well documented over recent weeks as the impact of the Brexit impasse has bitten. A material repair to its main blast furnace, the delay of carbon credit allocations and a reluctance of overseas customers to place orders without a known outcome of Brexit negotiations have all contributed to British Steel's demise.
As the UK's second largest steel manufacturer, the effect of its failure could have significant and far reaching implications for its stakeholders and employees, the local community and its vast supply chain. With negotiations between British Steel and the Government failing to deliver a solvent solution, others look on in fear of a similar fate to that of SSI in Teesside during 2015, when the Official Receiver was appointed to wind-down and close operations.
British Steel's collapse will result in real uncertainty within its supply chain and in many cases a critical trading position requiring immediate operational support. Businesses within the supply chain with unpaid debts who are small to medium-sized enterprises may not have the financial resources to absorb the impact of its collapse without external support.
Coupled with this, the Special Manager working alongside the Official Receiver may require subcontractors and suppliers to continue to work and provide goods and services as normal, under existing contracts, with a promise of payment for supplies delivered post their appointment. This could lead to even greater concern for many suppliers and their respective stakeholders, asking questions such as: Should I remain onsite? Who am I supplying to/contracting with? When will I get paid? Who is underwriting the payment? What will happen to any outstanding debt, including liquidated damages, and how should that impact commercial negotiations with respect to future works or supply?
Inevitably, future supply contracts will be uncertain whilst the Official Receiver's strategy is established, whether that be a sale or a wind-down and closure. In the event of a closure, suppliers will be faced with a critical period within which they may have to win new work to replace that lost and/or rationalize their own cost base and overheads.
Duff & Phelps Can Guide Firms Through These Challenges
In times of financial instability or crisis management, companies invariably rely upon external advice to ensure they not only make informed decisions but comply with their own fiduciary responsibilities to ensure that subjective judgements cannot be challenged at a later date.
Duff & Phelps' Restructuring Advisory practice provides a suite of solutions tailored to assist companies during periods of uncertainty and operational difficulty.
Our Services Include:
- Negotiating "time to pay" arrangements with HMRC
- Raising new working capital
- Managing key stakeholders, stabilizing current arrangements with lenders, creditors or shareholders
- Acting as representative in onward discussions/negotiations with the Official Receiver and Special Manager to ensure that your interests are best represented
- Assisting management to prepare financial models and operational proposals to deal with challenges that lay ahead
- Cash management, which is often critical and time sensitive in these situations
For decades, our Restructuring practice has forged longstanding working relationships with the most active stakeholders and investors in the distressed community. Our team includes more than 200 restructuring and insolvency professionals throughout the UK and globally.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.