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Understandably the focus of corporate transactions, restructures and insolvencies tends to be big ticket issues such as finance, tax and assets.

Immigration considerations are often overlooked, potentially resulting in hidden risks and headaches for those involved. In this article, we look at the implications of such scenarios in two key compliance areas: sponsor licences and the prevention of illegal working.

What is a sponsor licence?

In brief, a sponsor licence allows a business operating in the UK to employ migrant workers for certain prescribed jobs. There are currently over 78,000 sponsor licences registered with the Home Office and the numbers are continuing to increase post Brexit and as we recover from the pandemic. Accordingly, even if organisations have so far avoided a sponsor licence under the points-based system, the chances of stumbling into this world through acquiring a licensed business or team of sponsored workers are now significantly increased.

Sponsor licences, although sought after by businesses, come with a vast number of compliance duties, including specific time-sensitive duties triggered by certain corporate events. It’s extremely important to be aware of the duties triggered, and the timescales for compliance. If you are buying a business which holds a sponsor licence and a key asset of that business is its staff (some of whom may be sponsored migrants), and all the expertise and skills they bring, read on – as failing to comply with the relevant duties triggered by a corporate transaction could mean the difference between retaining those staff and losing them.

How do corporate transactions, restructures and insolvencies impact a sponsor licence?

This will depend on the specific circumstances; however, the starting point should always be that sponsor licences are non-transferable. Therefore, if the business affected by changes holds a sponsor licence, specialist immigration advice should be sought at the outset due to the time sensitive compliance duties that will arise. What steps should be taken will depend on whether:

  • there is a change in direct or controlling ownership through the sale of shares
  • the business is sold as a going concern and staff transfer under TUPE
  • the business is partly or wholly taken over by another organisation
  • the business is splitting to form a new organisation
  • the business enters insolvency.

Such situations will generally trigger a duty to report the organisational change to UK Visas and Immigration (UKVI) within 20 working days. Further, any potential impact on sponsored workers must be reported within 10 working days. In the context of a wider transaction these timescales are tight!

Depending upon the nature of the situation, the licence holder may be required to apply for a new sponsor licence within 20 working days and request the transfer of any sponsored workers to that new licence. Failure to identify these duties and act on them is a serious compliance breach and can result in licence revocation and/or staff visas being curtailed.

Overall, if a licensed business is involved in a change of ownership, merger, takeover, demerger, loses or accepts sponsored workers under TUPE it must tell UKVI as a minimum.

What about right to work checks?

Even if none of the parties involved hold a sponsor licence, at the forefront of all employers’ minds should be the prevention of illegal working and how compliant right to work checks have been to date. All UK employers should complete right to work checks against all staff, regardless of nationality. These are essential to ensure each individual is who they say they are and has the right to work in the UK in their role. If those checks are completed in line with Home Office requirements, the employer secures a statutory excuse to civil liability. Essentially this means that if an employee is found not to have the right to work, but the employer has a statutory excuse, it will not be liable for a civil penalty. If no statutory excuse is held, a civil penalty of up to £20,000 per illegal worker can arise. Additional risks including criminal liability and reputational damage can also stem from this.

A statutory excuse cannot be retrospectively secured – compliant checks must have been completed at the required time to secure and retain a statutory excuse. It is important to note that many employees can have time-limited permission to work in the UK in a non-employer sponsored immigration route. Accordingly, it is possible that an individual’s right to work in the UK has changed or been lost without the employer’s knowledge. The protection of a statutory excuse for the business is vital.

If you are acquiring a business or team of staff, it is important to identify whether compliant right to work checks have been completed against the staff or if there are any shortcomings in this respect which may leave the business exposed. Past compliance failures could become your liability in the future.

Did you know?

Some examples of commonly overlooked issues include:

• A transfer of 100% of the shares in a licensed company results in a direct change in ownership. The company must report its sale and apply for a new sponsor licence, and the transfer of sponsorship of all sponsored workers to that new licence, within 20 working days of the sale. If its new owner holds a sponsor licence, an application may instead be made to add it to that licence, if appropriate, within the same timescales.

• A change to the ownership of a licensed business more than once removed (e.g. sale of parent company) will not trigger a duty to seek a new sponsor licence. It will, however, have to be reported to UKVI. A failure to comply with reporting duties can result in a sponsor licence being downgraded or revoked.

• If a sponsor goes into administration, it must notify the administrator or administrative receiver that it is a licensed sponsor; and notify UKVI within 20 working days. The insolvency practitioner must then be appointed on the sponsor licence.

• If the necessary sponsor reports are not submitted on time, sponsored workers may have their visas curtailed to 60 days.

• Intra-group exercises are not exempt from such duties. For example, inserting a new holding company as the parent of a licensed sponsor will not avoid the requirement for the sponsor to report this and seek a new sponsor licence. However, depending upon the overall structure and impact on the business, it may be possible to engage UKVI on this and get them to agree to a mere reporting duty here.

• If you acquire a company through a share purchase, you will inherit any illegal working liability and exposure through a lack of statutory excuse. Whilst there are ways to mitigate those risks, you cannot retrospectively eliminate them by acquiring a statutory excuse. Illegal working attracts civil penalties of up to £20,000 per illegal worker and can result in criminal liability and significant reputational damage, to name a few risks. Right to work checking requirements have changed frequently over the years. In due diligence exercises, we frequently find that employers have not conducted compliant checks and so a statutory excuse is unlikely to be held in respect of all employees, presenting ongoing exposure.

• If you acquire staff by TUPE transfer, you do have an opportunity to complete fresh right to work checks within a specific period post-transfer and acquire your own statutory excuse in doing so. Those checks must be strictly in line with Home Office requirements though.

• There are limited circumstances in which a sponsored worker can move from one sponsor licence to another without having to be sponsored afresh and submit a new visa application. Outside of a share sale or TUPE transfer scenario this will rarely be permitted.

Some of our top tips

Take advice on the changes happening within your business at an early stage and before the changes occur. This will enable the immigration implications and duties to be mapped out in advance and appropriately prepared. Don’t assume the other side will be on top of this – these issues are commonly missed. Particularly complex transactions and structures may require the proposed course of action to be put to UKVI for approval in advance, which will take time.

Ensure you are instructing appropriate and thorough due diligence to flush out potential immigration issues and risks so these can be addressed as far as possible pre-completion, or you can seek appropriate contractual protections. This will also enable you to identify sensible post-completion actions required. Crucially, is the target business a licensed sponsor and does it have sponsored employees? Such issues do not only arise in multinational businesses. If you hold a licence and are acquiring a licensed business or team of sponsored workers, such due diligence will also help you weigh up the risks of adding them to your licence and whether it is safer to, even in the short-term, secure a separate licence for them. If you don’t hold a licence, it will be important to quickly gain an understanding of what a licence entails and ensure appropriate compliance processes and procedures are in place.

Make sure your house is in order. A pre-transaction compliance audit is sensible to get ahead of any compliance headaches and failings and address or mitigate those as far as possible in advance. If you hold a sponsor licence, make sure it’s fully up-to-date and you are on top of your compliance duties, both reporting and record-keeping. Check if your right to work checks are in order and compliant with Home Office requirements – if in doubt consider fresh checks to at least secure comfort as to the current immigration status of employees.

Are wider parts of the group using a sponsor licence held by a company being sold? If the sponsor is being sold in isolation, steps will have to be taken to secure a licence for those remaining parts of the group.

For example, will the arrangements impact any of the following? If so, appropriate steps should be taken:

  • Company name and/or registered office

  • Company address(es) on licence

  • Key personnel named on a sponsor licence

  • Termination of employment of sponsored workers

  • Place of work of sponsored workers

  • Role, duties or remuneration package of sponsored workers

  • Governing body registrations

  • Certificate of sponsorship allocation requirements

Carefully consider any immigration warranties and indemnities being sought/offered in the context of identified risks.

If your business holds a sponsor licence, the licence should be regularly reviewed – including periodically reviewing the business’ corporate structure, any changes therein and the licence footprint required.

Remember that reporting such events and submitting licence applications late may result in UKVI requiring individuals to be sponsored afresh, whereas if done on time that may have been avoided. This would incur significant additional cost and jeopardise their immigration status (and that of any dependants) in the UK. Further, late compliance will increase the risk of a compliance visit from UKVI.

If the business is considering getting a licence, depending upon the specifics of the transaction proposed, advice should be sought as to whether it would be more sensible, and cost-effective, to delay acquiring a licence until the sale has completed.

How can TLT help?

This article provides a brief overview of the complexities of immigration considerations in corporate transactions and organisational changes. In reality, it is often much more complex and specialist advise should be sought from the outset. Our business immigration team at TLT has the expertise to assist with all aspects of business immigration and can assist clients with such issues.

Authors: Joanne Hennessy and Megan Anderson

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Date published

05 July 2023

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