Collapsed steel firm Aartee Bright Bar is set to be merged with Liberty Steel Group after steel tycoon Sanjeev Gupta stepped in to take over the business.

GFG Alliance, owned by Mr Gupta and his family, has bought Aartee’s parent company and filed an application to challenge the administration, it revealed on Friday.

The rescue deal comes after Aartee, the UK’s largest distributor of engineering steel products and a key customer of Mr Gupta’s Liberty Steel, called in administrators Alvarez & Marsal (A&M) earlier this month.

The West Midlands-based business blamed tough economic conditions and surging metal costs for the downfall.

The administrator said it has not been approached by GFG about the acquisition or with a rescue plan, and that the move does not impact its ongoing administration process of Aartee Bright Bar.

Michael Magnay, the joint administrator at A&M, said: “The joint administrators continue to market the business and assets of Aartee Bright Bar Limited and Aartee Bright Bar Property Limited for sale, and are in dialogue with a number of interested parties.

“The recent acquisition of Aartee Group Pte Limited does not impact the ongoing administration process. As joint administrators, we continue to perform our duties to realise the best outcome for creditors.”

GFG said it wants to restart operations in a bid to save the firm’s 250 staff, who operate from two productions sites in Willenhall and Dudley, West Midlands; and three distribution and sales offices in Rugby, Warwickshire; Bolton, Lancashire; and Newport in South Wales.

Over time, the business would be integrated into Liberty’s operations.

Jeffrey Kabel, the chief transformation officer at GFG, said: “Aartee is a significant part of the UK’s steel supply chain and distribution network, and a key customer for GFG’s bar products produced in Rotherham by Liberty.

“Our rescue plan would save 250 viable steel jobs in the West Midlands and across the UK.

“Over time, Aartee’s business would be integrated into Liberty’s operations helping to reinforce our UK transformation plan focused on producing specialist steel products.”

The steelworkers’ union, Community, said the rescue deal is good news for workers and that Aartee seems a “natural fit” for GFG, which has about 35,000 staff in 10 countries.

Alun Davies, Community’s national officer, said: “The news of GFG Alliance’s purchase of Aartee Bright Bar is very encouraging.

“Aartee seems a natural fit for GFG and the acquisition can safeguard jobs and important steel assets.

“While we await further details about GFG’s plans for Aartee, this development will, no doubt, be welcomed by both the Aartee workforce as well as those working across the supply chain.”

Last week, Mr Davies said that Government negligence is to blame for the firm’s collapse, having failed to act on issues like energy costs and procurement.

He said it reflects the extreme pressures the industry is under, with thousands of jobs reliant on the future of the sector.

It follows reports earlier this month that British Steel is planning to axe hundreds of jobs as part of closures of its coke ovens in Scunthorpe, according to a union source.

GFG’s application to challenge administration is being supported by a majority of business creditors, it said.

Administrators said that a legal challenge to the administration has been filed to the court by an unnamed creditor.