Stuart McWilliams

The economic consequences we are experiencing because of the coronavirus crisis are clear. Many businesses are closed, while others are trying to reduce costs as they cope with a loss of income. When a business is in the process of restructuring, seeking new investment, or even entering an insolvency process, there are a lot of factors to take into consideration. One that is often overlooked, is employees’ immigration and right to work status.

In any business, when a new owner takes control, it is important they make sure that all existing employees have the right to work. The business remains liable for any right to work fines and could even be closed while the Home Office investigate right to work issues. Immigration status becomes an even more important factor when the company in question has a Sponsor licence.

A sponsor licence, also known as a tier 2 or tier 5 licence, is a special status given to some companies in order to allow them to hire staff from outside the EU. These licences will also allow businesses to recruit EU nationals from January 2021 onwards, meaning they will be even more valuable. However, a licence isn’t an asset that appears on a balance sheet and it cannot be transferred when ownership of the business changes.

The reason a licence cannot transfer is simple, the Home Office want to ensure that only people they trust can support visa applications from non-EU nationals. They want to avoid a situation where someone sets up a company, obtains a licence and then sells the company and licence to an individual who has been involved in illegal working.

It is for this reason that within any restructuring or insolvency procedure consideration needs to be made if a company has a sponsor licence. There are some important principles that need to be considered including: A new licence may be needed even where ultimate control of the business remains with the same individual(s). The Home Office look at the immediate ownership of the company, so the introducing of a holding company can trigger the need for a new licence.

Even changes further up the corporate structure, and not affecting the immediate ownership of the company, need to be notified to the Home Office.

Where a new licence is needed, it must be applied for within 20 working days of the change in ownership.

Where, during any restructuring, employees transfer to a new company via TUPE there is a risk of illegal working penalties if a new licence application is not submitted.

Administrators or other insolvency practitioners do not need to apply for a new licence but must report their appointment to the Home Office.

Although these principles are clear, in practice the situation can be complicated. For example, last year I dealt with a case where the Home Office had told my client they needed a new licence, but when I reviewed the case it was my view that the guidance allowed the company to use its existing licence. We entered discussions with the Home Office and were able to change its mind, saving our client the cost, and hassle, of a new licence application.

Stuart McWilliams is a partner at Morton Fraser