By Dr Sanchita Tewari and Vishal Raj Singh (National University of Study and Research in Law, Ranchi)
Background
For generations, insolvency law has been built on a deceptively simple promise: If creditors agree and courts allow, the market will sign off on the result. But the collapse of Liberty Steel in August 2025 demonstrates that this logic collapses when industrial policy smashes up against creditor primacy. The failure of Liberty Steel’s Speciality Steel UK (SSUK) and the appointment of the government’s new special manager are a big change from how insolvencies are usually handled. Creditors and administrators did not control the convalescence; Whitehall did, underpinning in the process the payment of wages and pensions with taxpayers’ money. The intervention illustrates a new model of insolvency governance in which strategic sectors set in motion political imperatives that override classical creditor supremacy. There are good reasons to welcome the move, if only because it has saved jobs and stabilised supply chains, but it also raises questions about accountability, moral hazard and the gradual erosion of predictability in insolvency law. Perhaps the long-lasting legacy of Liberty Steel will not be its financial collapse, but the insolvency in strategically important industries is no longer a matter for private deal-making but one in which the state is at the boardroom table.
The State as Special Manager
The purpose of insolvency law is essentially value preservation and the protection of creditors. But the collapse of Liberty Steel’s Speciality Steel UK (SSUK) operation highlights that in strategically important areas, it’s the state, not creditors, that holds the reins.
On 21 August 2025, the High Court found SSUK to be “hopelessly insolvent”. Within hours, the government stepped in: appointing Teneo as special manager, and committing taxpayer funds to pay the wages and pensions of 1,450 staff. The GFG Alliance is the official owner, but now the company’s future lies in Whitehall’s hands.
It is not business as usual in Schedule B1 of the Insolvency Act 1986; the schedule usually entrusts administrators with duties to act in the interests of the creditors as a whole. Liberty Steel case disrupts this sequence by replacing the administrator's independence with a government-appointed “special manager”. It is a breathtaking refashioning of governance: boards sidelined, creditors displaced, and taxpayers conscripted. The intervention in Liberty Steel asks some fundamental questions: when does the state stop being a neutral referee of corporate collapse and become instead the governor? And what kind of example does this set for the next “too-important-to-fail” falter?
The Significance Behind It
The immediate logic is straightforward. Liberty Steel provides specialist steel critical to infrastructure and defence. Its closure threatened not just the local area, scarred by de-industrialisation, but the nation’s supply chains. Government intervention kept the works running, saved jobs and staved off an overnight collapse of the pension liabilities in South Yorkshire.
The deeper aspect, though, is about governance. In a regular insolvency, power changes hands as expected: Directors stand down and administrators act on behalf of creditors as courts oversee the process. Liberty Steel disrupted that sequence. The cost is paid for by taxpayers, the position of creditors is weakened, the directors are thrown out, and governance becomes a tool of public policy. Bankruptcy, in this case, is not just about the preservation of value, but jobs, industries and aspects of national security.
Average Insolvency cause?
The Insolvency Act is structured to bring administrators in line with the broader interests of creditors. In contrast, Liberty Steel’s employment of a government-backed “special manager” is something of a hybrid. Teneo receives taxpayer money and owes a duty not limited to creditor recovery.
This shift invites difficult questions. What is left of directors’ duties with the state taking over governance responsibilities? How do creditors’ interests fare when political imperatives conflict with financial logic? And who are special managers answerable to — ministers, Parliament or the courts?
Predictability is the coin of the realm in solvency law. But Liberty Steel shows that in systemically important industries, predictability can be trumped by political imperative.
Comparative Insights
This is not entirely new ground for the UK. The Official Receiver ran British Steel after it failed in 2019, until it was sold to the Chinese Jingye Group. But Liberty Steel takes that further: Rather than a neutral caretaker, the government has insinuated itself into governance by means of a publicly funded manager.
Comparative perspectives underline the shift. That kind of direct engagement is generally barred by state aid rules in the European Union, although exceptions have been carved out in the wake of financial crises. In India, the Insolvency and Bankruptcy Code has put in place creditor primacy, which seeks to ensure that corporate rescue and commercial wisdom of the creditors is insulated from judicial and political interference. But in effect, it is often re-entering through strategic pushes and offers by public sector bodies in big cases. The contrast is striking, while Insolvency law in every jurisdiction seeks to keep the business and state apart yet Liberty Steel precedent shows how creditor primacy is given away when national supply chains are at stake.
The moral is plain: When insolvency strikes at industries that governments consider essential, they find it hard to remain neutral.
Balancing Risks and Rewards
The rewards of intervention are plain. Jobs have been saved, supply chains stabilised, and social unrest averted. It provides workers and communities with reassurance that, in the event of insolvency, it’s not game over.
But there are also serious risks. Once the state gets involved, it creates a moral hazard — if companies expect to be bailed out, it may become tempting to ease off on financial discipline. Just as no one lends to a borrower who can use his constitutional rights over contractual rights, so there will be reluctance to lend if contractual rights may be overridden by the common good.
Taxpayers are exposed to potential indefinite liabilities with uncertain results.
The accountability problem is particularly severe for corporate governance. They are not public officials who are voted into office, and they are not directors with fiduciary obligations to shareholders. Their charge is to act in the public interest, but it is difficult to judge how effective they are in doing so. Insolvency law has long been based on the transparency of private bargains; Liberty Steel demonstrates how rapidly that base can crack when political imperatives start to intrude.
Anticipating What Lies Ahead
Less what Liberty Steel will come to be remembered for might be not its insolvency, but what happened next. By its action in taking over the company’s governance, the UK government has effectively redrawn the boundaries of insolvency law in real time.
Should the intervention prove a success — restoring operations to normal and salvaging a buyer — it will be widely celebrated as a novel hybrid of insolvency practice and industrial policy. Should it fail, it would be perceived as an expensive precedent that would destroy the confidence of creditors and be laid on taxpayers. Either way, it’s something of a turning point. Insolvency is no longer just a private deal between debtors and creditors. In key strategic sectors, it has become a public bargain, with the state now itself sitting at the boardroom table.