Immigration sponsor licence considerations during insolvency
11th October, 2023
With recent challenges such as the COVID-19 pandemic, the economic downturn and the costs of living crisis, it's no surprise that the number of corporate insolvencies over the first half of 2023 are in excess of 12,000; the highest in the previous 10 years for this point of the year.
Whilst insolvency processes come with a number of obligations in themselves, the obligations for businesses undergoing insolvency and holding Home Office sponsor licences bring with them further challenges and duties which IP’s, Boards, Senior Leadership and HR teams need to be alert to.
The Home Office Guidance sets out the obligations which must be met by organisations going into insolvency, including administration, special administration, company voluntary arrangements and liquidation. Some of these obligations will require a new sponsor licence to be sought from the Home Office, new Key Personnel on the licence or even potentially, the loss of sponsored employees in order to avoid revocation of the sponsor licence.
The obligations on a business include tight timescales within which notifications must be made to the Home Office as well as action points to be undertaken by the insolvency practitioner(s) involved.
The duties and obligations set by the Home Office vary depending on whether the business enters into Administration, a Company Voluntary Arrangement (“CVA”), Liquidation. If the business is operated by an individual as a sole trader, that individual might be subject to Bankruptcy proceedings of an Individual Voluntary Arrangement (“IVA”).
Where a business goes into administration, including special administration, it must:
- Tell the administrator that it is a licensed sponsor as soon as possible
- Report the change to the Home Office within 20 working days of going into administration.
The insolvency practitioner appointed as the administrator must be named on the sponsor licence. Further issues can arise where the Key Personnel details have not been kept up to date on the licence or where there is no longer a Level 1 user on the licence (which is in itself a breach of a sponsor licence holding company’s compliance obligations).
How the business comes out of administration will have an impact on its continuing permission to hold a sponsor licence, with a key consideration being whether or not trading ceases. It is important therefore that any Administrator who chooses to trade the business with a view to rescuing or selling as a going concern, adheres to the Home Office obligations.
Entering into a CVA
If a business enters into a CVA, this must be reported to the Home Office within 20 working days of it being agreed, as well as provide the Home Office with information as to whether the CVA has resulted in a change of ownership. Where there is a change of ownership, the Home Office will treat this is the organisation having been sold, and the sponsor licence will be revoked.
If any migrant workers are sponsored when ownership changes, and the new owner wishes to continue employing them, they must apply for a sponsor licence within 20 working days of taking ownership.
Where there is an agreement with creditors as a result of the CVA but no change in ownership, the organisation will be able to retain its sponsor licence and thereby continue to employ its migrant sponsored workers. However, notification is key.
Where an organisation goes into voluntary or compulsory liquidation, the Home Office must be notified within 20 working days of entering liquidation. The liquidator must notify the Home Office that the business has ceased trading and this must be done within 20 working days of the last day of trading.
Where an individual is a sole trader and enters into an IVA or a debt arrangement scheme (“DAS”), this must be reported to the Home Office within 20 working days. If there is agreement reached with creditors that the sole trader will remain as the sole owner of the business and continue to trade, this must also be reported and it is likely that the sponsor licence can be retained in these circumstances.
If however, the IVA or DAS results in the business being sold, this must be reported to the Home Office within 20 working days and the licence will then be revoked. If any migrant workers are sponsored when ownership changes, and the new owner wishes to continue employing them, they must apply for a sponsor licence within 20 working days of taking ownership.
Where a bankruptcy order is made against the sole trader or sequestration has been awarded, this must be reported to the Home Office Sponsor Compliance Team within 20 working days of trading ceasing, and the licence will be revoked.
Where employees are being dismissed, and they hold Key Personnel positions on the sponsor licence, advice will need to be taken as to appointing replacement Key Personnel.
Equally, where any sponsored workers are being dismissed, further notifications will need to be made to the Home Office. It is also necessary to bear in mind that dismissal will bring an end to that worker’s visa and therefore their right to live and work in the UK.
Given the complexity of this area and the potential consequences, it is important to seek legal advice as soon as possible to ensure the implications are understood and all reporting duties and obligations are duly fulfilled. You can get in touch with our immigration team here and our insolvency team here.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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