At 03.00 hours on 19 Oct 1941 the Inverlee (Master Thomas Edward Alexander) was hit on the starboard side amidships in #16 tank abaft the bridge by a torpedo from U-204 while steaming on a zigzag course at 6 knots about 30 miles 240° from Cape Spartel, Morocco. The tanker was under escort by the British armed trawlers HMS Lady Hogarth (4.89) (Lt S.G. Barnes, RNR) and HMS Stella Carina (FY 352) (Lt J.V. Lobb, RANVR) since 15 October. The explosion blew oil all over the vessel, set the bridge on fire and damaged the steering gear, so she went out of control and took immediately a list to port. As the flames were increasing, the crew of 38 men and five gunners (the ship was armed with one 4.7” and four machine guns) stopped the engines and began to abandon ship in the four lifeboats, but the one on port aft was badly damaged upon launch and became waterlogged. The starboard aft boat was launched successfully on the weather side in choppy seas and broke many oars by pushing it away from the ship’s side. At 03.13 hours, a second torpedo struck on the starboard side a little forward from the first, probably in #15 tank and ignited the fuel, causing a huge explosion with a terrific flash that was seen by the nearby U-83 (Kraus) and HMS Haarlem (FY 306) (Lt L.B. Merrick, RNR) about 28 miles away. The explosion was so powerful that it blew out the fires and broke the back of the ship, which sagged in the middle with the tops of the mainmast and foremast nearly meeting, the bridge being submerged and the stern about 30 feet out of the water. The fire later broke out again when fuel leaked out of the tanker. Unfortunately the torpedo had hit directly underneath the starboard forward lifeboat that was being lowered and lifted it from the falls, sending the occupants hurling in all directions and killing the men lowering the boat, including the master, the chief officer and the radio operator. The third mate and the helmsman later managed to reboard this boat and rescued several people swimming in the water. The starboard aft boat was washed back on deck and badly damaged when it hit the superstructure, throwing all occupants into the sea except one boy who managed to jump back on deck, walked to the stern and remained there alone until daylight, when he was taken off by an officer from one of the armed trawlers who boarded the tanker after rowing to her in a jolly boat. Two other men were later taken off this badly damaged lifeboat by a trawler just before it sank. About 03.30 hours, the last men abandoned ship in the waterlogged port boat and were picked up three hours later by HMS Lady Hogarth while HMS Stella Carina screened the rescue operation. HMS Duncan (D 99) (LtCdr A.N. Rowell, RN) arrived in the meantime and searched for the U-boat, doing so she found four survivors from the tanker and picked them up. Another survivor was picked up by HMS Haarlem. At daylight, the Inverlee was reboarded when the fire subsided, but she was found so badly damaged that towing operations were impossible and a Catalina flying boat later reported that the wreck was seen to sink at about noon on 19 October. The master 19 crew members and one gunner were lost. The survivors, five of them injured, were landed at Gibraltar the next day and eventually returned to England aboard the CAM ship Empire Darwin in convoy HG-76. However, one of the survivors was lost on passage to the UK when Annavore was torpedoed and sunk in the same convoy.

Following this sinking, the corvettes of the 37th Escort Group were sent from Gibraltar to carry out an anti-submarine sweep off Cape Spartel and sank U-204 west of Tangier the following evening.