Workers at the company’s plants now face weeks of uncertainty as efforts are made to rescue the business.
The grim news was given to employees after a week of speculation, with the plant at Scunthorpe most affected, employing more than 4,000 workers.
British Steel’s owner, Greybull Capital, had been seeking financial support from the Government, saying it faced a number of Brexit related issues.
Business Secretary Greg Clark said: “The Government has worked tirelessly with British Steel, its owner Greybull Capital, and lenders to explore all potential options to secure a solution for British Steel.
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“We have shown our willingness to act, having already provided the company with a £120 million bridging facility to enable it to meet its emissions trading compliance costs.
“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.
“This will be a deeply worrying time for the thousands of dedicated British Steel workers, those in the supply chain and local communities.
“In the days and weeks ahead, I will be working with the Official Receiver and a British Steel support group of management, trade unions, companies in the supply chain and local communities, to pursue remorselessly every possible step to secure the future of the valuable operations in sites at Scunthorpe, Skinningrove and on Teesside.”
A statement by the Official Receiver said: “The immediate priority following my appointment as liquidator of British Steel is to continue safe operation of the site. I appreciate that this a difficult time for the company’s employees and I want to thank them for their ongoing co-operation.
“The company in liquidation is continuing to trade and supply its customers while I consider options for the business.
“Staff have been paid and will continue to be employed.
“The court also appointed Special Managers to assist me with my work and they are engaging with staff and their representatives to keep them informed, as well as contacting British Steel’s customers.”
Roy Rickhuss, general secretary of the Community trade union, said: “This news will heap more worries on workers and everyone connected with British Steel but it will also end the uncertainty under Greybull’s ownership and must be seized as an opportunity to look for an alternative future.
“It is vital now that cool heads prevail and all parties focus on saving the jobs.”
Unite union assistant general secretary Steve Turner said: “We are clear that the Government must now step up and step in and bring British Steel into public ownership until a buyer can be found to avoid an economic and industrial catastrophe.”
Shadow business secretary Rebecca Long Bailey said: “This is absolutely devastating news for the thousands of workers, their families and the communities in Scunthorpe and Teesside and those throughout the supply chain.
“The Tories’ legacy will once again be industrial decline whilst they endlessly squabble over the European Union.”
Hannah Essex, of the British Chambers of Commerce, said: “Many Chamber businesses will be concerned about the potential impact of British Steel entering insolvency, particularly those in their supply chain who will be directly and deeply affected.
“The company’s operations are at the centre of many local communities, generating thousands of direct and indirect jobs.
“Failure to find a buyer would be devastating to many areas which rely so strongly on this industry. Small and medium-sized suppliers and contractors must be at the forefront of the Official Receiver’s mind throughout this process.”
A spokesman for Greybull Capital said: “Having rescued the business from closure over three years ago, we have worked hard to bring this important company back on its feet.
“Since 2016 we have arranged a financing package of more than £500 million, appointed a new and talented management team, helped the business open up new markets and reduce costs whilst addressing long-term under-investment.
“The turnaround of British Steel was always going to be a challenge, and yet the business overcame many difficulties, and until recently looked set for renewed prosperity.
“The workforce, the trade unions and the management team have worked closely together in their determination to strengthen the business; however, the additional blows dealt by Brexit-related issues have proven insurmountable.
“We are grateful to all those who supported British Steel on the attempted journey to resurrect this vital part of British industry. We are now focused on assisting all involved as best we can through this process.”