Restructuring your business or investing in a UK business? Mind the immigration traps

27 March 2015

As the UK economy emerges from recession, it is an exciting time to be doing business here. We have seen a significant increase in clients coming to us following mergers with questions about immigration matters. Whatever the outcome of the 2015 General Election in May, the new Government will be working with a stronger economy and encouraging businesses to invest in the UK which will have an impact on immigration. This blog explores some of the practical considerations in respect of immigration rules that companies should be aware of.

Often companies assume that there will be no immigration issues, particularly where there is a share sale and no change to the day-to-day running of the UK based employer. However, the law in this area is not clear cut and we are increasingly required to make representations to the Home Office in respect of these matters.

Failure to address immigration issues can have serious consequences including revocation of an existing sponsor licence with the result that any sponsored employees no longer have permission to work in the UK. These employees will subsequently be handed notice to leave the UK within 60 days unless action is taken quickly. The potential consequences for the business, employees and their families can be dire.

What are the rules?

Home Office guidance for corporate sponsors was introduced in April 2013 as follows:

If there is a change in ownership of your organisation or business, for example if it sold as a going concern or a share sale results in the controlling number of shares being transferred to a new owner, your sponsor licence will be revoked. The new owners must then apply for a new sponsor licence, unless they already have one, if they wish to continue employing any migrants that you were sponsoring.”

On the face of it, this paragraph is clear in that where there is a change in ownership as a result of an asset sale or share sale, the sponsor licence of the company affected (by change of ownership) will be revoked.

Asset sale v share sale

In very broad terms, an asset sale will generally trigger a Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) transfer of employees from the sponsor licence holding company to the new company. Where there is a transfer of employees to a new company by way of TUPE, the new company (new owner) will require a sponsor licence in order to continue employing sponsored employees.

Companies who are considering restructuring by way of asset sales should be alert to this requirement and take steps to ensure that the purchasing company obtains a sponsor licence (unless it already holds one).

Share sales, on the other hand, do not generally trigger TUPE. In such cases, the guidance set out  by the Home Office is wholly unsatisfactory. Where a UK entity holding a sponsor licence gains a new ultimate parent company as a result of a share sale, there will often be no material change to the day-to-day running of the UK based company. That company is likely to employ a number of sponsored migrants, whom they wish to continue employing (and indeed are contractually obliged to continue to employ).

Difficulties then arise as the UK entity is required to relinquish their sponsor licence under the Home Office guidance. The sponsored employees will have their leave curtailed and will need to leave the UK if they cannot find other sponsored employment within 60 days. They cannot continue to work for the UK entity as it will have lost its licence and will need to reapply for a new one.  The company, theoretically, is required to apply again using the same documentation (with the exception that the ultimate parent company at the head of the corporate structure will have changed) to employ the same staff to do the same jobs as prior to the acquisition.

The current guidance leaves companies in the unsatisfactory position whereby they are required to follow prescribed steps in order to satisfy guidance which does not take into account the nature of share sales or the true nature of their business.

What does this mean for sponsors in practice?

  • It is important to always remember your sponsor reporting obligations: where there is a change to the sponsor’s circumstances (including change of ownership), the sponsor must report this to the Home Office within 20 working days.
  • If an asset sale is taking place, the acquiring company needs to ensure it obtains a sponsor licence so that employees retain their work permission following the TUPE transfer. Companies need to be alert to this requirement. The Home Office require this to be completed within 20 days of the acquisition so we advise that companies organise this as soon as possible.
  • Where there is a share sale of the controlling number of shares, the change in circumstances should be reported to the Home Office. Representations may be made to the Home Office to explain that there is no change to the UK based company and no TUPE transfer and, as such, the licence should not be revoked.

We regularly make representations to the Home Office on the basis of the anomalies in their guidance and are awaiting clarification in relation to this scenario which is becoming increasingly common. This may be an area updated in the rule changes in April 2015. We hope that it will reflect the practical reality of companies and ensure that they are not required to “go through the motions” of obtaining a new licence for the same company with the same employees due to a lack of clarity in the guidance.

Further information

Should you have any questions regarding the issues in this blog or any other issues relating to investing in UK businesses, please contact Marcia Longdon or a member of the Immigration team.

You may also be interested in following our Immigration Law Blog for regular updates on changes to UK immigration rules.

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We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

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