British Steel has entered compulsory liquidation after failing to secure a £30 million loan from the government.
It puts as many as 25,000 jobs at risk, with 4,000 directly employed by British Steel and another 20,000+ in the supply chain.
The Government's Official Receiver has taken control of the company while a buyer is sought, and it will continue to operate as normal for the time being.
Roy Rickhuss, general secretary of the steelworkers' trade union, Community, 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.
"While the coke ovens keep burning and the steel assets remain, there continues to be hope both for steelmaking at Scunthorpe and for its downstream operations. What is needed is the right ownership."
The Official Receiver said: "I appreciate that this is 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."
British Steel has struggled as a result of uncertainty surrounding Brexit, which it says has affected orders. While the trade war between the US and China is also believed to be a major factor.
Business Secretary Greg Clark said the government had shown its commitment to helping British Steel, having already provided a £100m loan in April to cover its EU carbon bill. But he said: "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."
The other option open to British Steel and the government would be to take the business into public ownership. It's an option that shadow business secretary, Rebecca Long Bailey, favours.
She said: "The government must act quickly to save this strategically important industry and the livelihoods and communities of those who work in it, by bringing British Steel into public ownership.''