Stanlow refinery owner hit by legal resignations amid governance row

April 12, 2021

The owner of Britain's second-biggest oil refinery has been hit by the resignation of two blue-chip City law firms amid a deepening financial and corporate governance crisis at the company.

Sky News has learnt that Linklaters and Ashurst both recently quit as legal advisers to Essar Oil UK - a relatively unusual move triggered, according to insiders, by anxieties over the running of the business.

The disclosure of the law firms' decision to step down comes just days after it emerged that the company was in urgent talks about its future.

An insider said that a covenant waiver from Lloyds Banking Group, Essar Oil UK's main lender, had expired at the end of March, forcing the company to seek new sources of funding.

Lloyds is said to have become frustrated by a failure to address repeatedly expressed concerns about the Stanlow refinery-owner's governance over a protracted period, as well as a series of delays to the filing of audited accounts.

In a statement issued to Sky News, Essar Oil UK said it did not comment on "the role of advisers that we work with from time to time".

"In terms of governance, we always seek to adopt best practices and, working with our advisers, we made some changes to the board in recent weeks.

"We continue to work with our legal advisers to adopt best practices in this regard for a private company, including a firm intention to appoint two independent directors in due course."

Linklaters and Ashurst both declined to comment.

Frustrations over the running of the company had led to the departures of two chief executives within a year.

The situation has alerted officials in Whitehall because of the implications of a collapse of a company responsible for supplying one-sixth of the UK's transport fuels - including through a pipeline from Stanlow to Manchester Airport.

Essar Oil UK insisted: "No [borrowing] facilities were withdrawn solely due to governance issues"

"We are in an advanced stage of discussions with a replacement lender, with both Stanlow operations and supply of products to our customers continuing as usual.

Nevertheless, oil industry sources say they are legitimate concerns about the future of the company, which bought the Stanlow refinery at Ellesmere Port from Shell in 2011.

The site occupies an important role in the UK's industrial manufacturing sector, directly employing more than 900 people, with an additional 800 on-site contractors and a further 5,000 people employed indirectly through the extended value chain, according to Essar Oil UK's website.

A source close to Essar Oil UK said the COVID-19 pandemic had depressed margins and impacted demand for its products, along with other refining businesses around the world.

Stanlow was now seeing increased demand for road transport fuels, and the company remained committed to a sustainable future and aiding the UK's decarbonisation agenda, the source said.

The Department for Business, Energy and Industrial Strategy said on Friday: "We do not comment on individual companies.

"The government has put in place a far-reaching package of support to help businesses across the economy during the pandemic, including the furlough scheme, loans and VAT deferrals.

"The government continually monitors fuel supply across the country to ensure the public do not see any disruption."

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