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On the edge - immigration law for insolvency practitioners

Posted: 07/10/2016

In an article for the LexisNexis ‘On the edge’ series of briefings, which highlight a selection of areas of legislation that may not fall within the everyday work of insolvency practitioners, Pat Saini and Séamas Gray offer guidance on immigration law.

Why is immigration law relevant to insolvency practitioners and their staff? 

Legislation applicable generally

In the first instance, employers have a duty to prevent illegal working in the UK by carrying out prescribed document checks before employing someone under a contract of employment, service or apprenticeship, whether expressed or implied and whether oral or in writing. This ‘right to work’ check is to ensure that an individual is lawfully allowed to undertake the work in question.

It is also important that the employers establish whether or not individuals are employees, self-employed, contractors or sub-contractors as only employees require a ‘right to work’ check. As the worker status of an individual can sometimes be difficult to ascertain, employers often need to seek legal advice from an employment or immigration practitioner.

Should the Home Office discover that an employer is employing an individual who does not have the right to undertake the work in question; an employer may be liable for a civil penalty of up to £20,000 per illegal worker. In addition and from 12 July 2016 an employer may face a criminal sanction or imprisonment of up to five years (previously two years) where he employs an illegal worker and knows or has reasonable cause to believe that the person has no right to do the work in the UK.

Secondly, a large number of companies, education providers and other organisations have sponsor licences issued to them by UK Visas and Immigration. Depending on the type of sponsor licence, an organisation is able to sponsor migrant workers and international students. To maintain a sponsor licence, the organisation must meet a number of duties and responsibilities as listed in the sponsor guidance.

Such duties and responsibilities include, but are not limited to:

  • storing specified records and documents and making them available to the Home Office upon request
  • reporting to the Home Office certain information or events - for example, changes to the sponsor’s circumstances, such as a new address or a sponsored migrant’s non-attendance
  • complying with the law
  • co-operating with the Home Office
  • tier-specific duties

Failure to meet the requisite duties and obligations can result in the Home Office taking action against a licensed sponsor.

A sponsor’s responsibilities for its sponsor licence start from the date of issue of its sponsor licence and will only cease where it surrenders its licence or the licence is revoked. 

The law applicable to administrators

Who is liable for a civil penalty when an illegal worker is employed will depend upon the circumstances; it may not only be a named individual of the employer, the corporate body itself or a partner in a partnership, but could also potentially be an administrator.

In relation to sponsorship, the sponsor guidance requires that if an employer/education provider holding a sponsor licence goes into administration (including special administration), administrative receivership, liquidation (both voluntary or compulsory), company voluntary arrangement or, in relation to a sole trader, an individual voluntary arrangement or bankruptcy, it must tell the Home Office within 20 working days. Failure to do so can result in action being taken against the licence holder, which may result in the revocation of the licence. Quite apart from the damage this might do to the value of the business which the administrator is likely to be seeking to sell, if trading continues after the licence is revoked, the administrator will effectively have caused the company to be in breach of the sponsor guidance. Accordingly, an administrator would be well advised to check whether the relevant entity holds a sponsor licence either prior to accepting the appointment or immediately upon appointment to ensure that this time limit is not breached inadvertently.

In the event that the time limit is breached, termination of the employer’s sponsor licence is not automatic and will only terminate when notice of termination is received from the Home Office. However, once the time limit has been breached, there is no way to extend it, so administrators will not want to allow a trading employer in administration to fall foul of this time limit.

Further, an insolvency practitioner appointed as an administrator or administrative receiver must be appointed as the licensed sponsor’s authorising officer (AO). The AO is responsible for the recruitment of all migrant workers and ensuring that all of the organisation’s sponsor duties are met. The AO must also meet the requirements as set out in the relevant sponsor guidance.

Additionally, mergers, takeovers, de-mergers and other similar restructurings can affect an organisation’s permission to hold a sponsor licence. Accordingly, insolvency practitioners advising clients which hold a sponsor licence and are undertaking a restructuring (with or without going through a formal insolvency procedure) will need to check what impact the proposed restructuring will have on the sponsor licence. 

Can a company in administration be subject to dawn raids where the authorities think there might be illegal immigrants employed?

Yes. The Home Office can visit an organisation’s premises to determine employees’ right to work, whether it is a routine inspection or whether it suspects that migrants may be illegally working.

One of the specified duties of a licensed sponsor is to comply with the Home Office, which includes allowing their staff access to any premises or site under the organisation’s control, on demand. Visits may be pre-arranged or unannounced.

Only if an organisation is able to demonstrate to officials that it has a statutory excuse in respect of any identified illegal workers will it not be served with a referral notice or civil penalty in respect of these workers.

What should administrators do in such a situation?

Whether the Home Office visits an organisation’s premises announced or unannounced, the administrators should, above all, cooperate with the officials, who have authority to:

  • assess the organisation’s trading presence
  • interview relevant personnel at the organisation, including migrants and administrators
  • make notes and have signed interview records
  • inspect and keep relevant documents or copies of them

Are administrators required to check the immigration status of employees of a company in administration?

New employees

In the unlikely event that the employer recruits a new employee after the appointment of an administrator, the latter will need to ensure that the prescribed document checks are undertaken to prevent illegal working in the UK. 

Existing employees

As a licensed sponsor’s duties are of a continuing nature and if the business in administration is to be traded for any period of time, the administrators will need to ensure that the visas of any sponsored employees do not expire during such time. If the AO (in this case the administrator or administrative receiver) fails to do so, while the Home Office would most likely apply a civil penalty against the company and revoke the sponsor licence, it could also seek criminal sanction against the AO. However, such action would be highly unusual and would likely only be used in exceptional circumstances.

It should be noted that even where an organisation does not hold a sponsor licence, it is required to continue to check the visa expiry dates of certain non-sponsored migrants - for example, the spouse of a Tier 2 sponsored migrant. If it fails to do so, the organisation will be exposed to a civil penalty.

While there is no case law directly on the point, it is possible that a breach of the legislation arising during the course of the administration will be treated as an expense of the administration - a breach arising prior to the administrators’ appointment being treated as an unsecured claim in the administration. 

How can insolvency practitioners and their staff spot an immigration issue?

Insolvency practitioners and their staff should familiarise themselves with UK Visas and Immigration’s code of practice on preventing illegal working and, if and where relevant, its sponsorship guidance for employers and educators. However, new versions of the guidance are frequently published, so it is important to keep up-to-date. 

What steps can insolvency practitioners take to protect themselves from liability?

Either before accepting an appointment or immediately after being appointed, administrators should check whether the organisation holds a sponsorship licence, as notifications will need to be made to UK Visas and Immigration. The administrator can also carry out this check by checking the sponsor register to see if the company is named on the register.

Whether or not the organisation holds a sponsor licence, the administrator may wish to ensure that the organisation continues to carry out checks to prevent illegal working and thus avoid causing the company to become liable for a civil penalty during administration.

Given the size of the civil penalty, a breach of the legislation could quickly result in a significant dilution of creditor claims even where these rank as unsecured debts and potentially ruinous administration expense claims in relation to breaches arising during the course of the administration.

This is a highly technical area. In order to avoid falling foul of the legislation, administrators may wish to ensure these checks are undertaken even if they do not have reason to suspect that the company may be employing illegal workers, for example: 

  • many businesses which administrators might not think would be likely to employ workers on a sponsored basis could be surprised to learn otherwise - for example, a law firm
  • ascertaining the immigration status of an individual can sometimes be complicated - for example, it may not be enough for a person to produce an original UK birth certificate as, depending on the date of birth, the individual may not be considered to be British despite having been born in the UK
  • should an organisation wish to employ an individual, it is not enough that an individual has the right to live in the UK (eg by possessing a valid visa). It is imperative that an individual has the right to work in the role on offer

Although it is important to ensure that an organisation is not employing an individual who does not have the right to work, administrators will also wish to ensure that an employee, especially whose immigration status is difficult to ascertain, is neither unfairly nor wrongly dismissed. While administrators should not personally be exposed to employee claims for wrongful or unfair dismissal, they will not want to unnecessarily dilute creditor dividends by causing the organisation to incur additional preferential or unsecured debts in the form of employee claims for wrongful or unfair dismissal.

If an administrator suspects that an employee is working illegally, again, it is recommended that legal advice is obtained in order to further determine the individual’s immigration and right-to-work status. Additionally, an administrator may report his or her suspicions to the Home Office’s sponsorship, employer and education helpline. Following this, the administrator would then receive an acknowledgement in the form of a unique number. If this number were obtained before the Home Office visited the premises, it would become a mitigating factor in the calculation of the civil penalty liability in respect of an employee found to be working illegally.

Where in doubt, an insolvency practitioner should obtain proper advice.

What is the effect of administration on a company which has a sponsor licence to sponsor non-EEA national employees under Tiers 2 and 5 of the Points-Based System and on its sponsored migrants?

The fact that the company goes into administration does not necessarily mean that the sponsor licence will be revoked, provided the Home Office is notified within 20 working days of the company entering administration. The Home Office is mostly concerned with whether the business continues to trade; change in the ownership of the business and what impact there will be on the sponsored workers’ abilities to perform their role.

Accordingly, a company which exits administration by a company voluntary arrangement (without a change to the ownership of the company), will usually be able to keep its sponsor licence. However, in the more usual administration circumstances that the business itself is sold, the old employer (still in administration) will likely have its licence revoked by the Home Office as it has ceased to trade the business. The purchaser of the business will have 20 working days from completion to apply for a sponsor licence (if it does not already have one) and must do so if there are any sponsored migrants when ownership changes and the purchaser wishes to continue employing them. 

What steps do insolvency practitioners need to take when a company in administration has a sponsor licence?

The administrator or administrative receiver should inform the Home Office within 20 working days of the fact that the organisation has gone into administration or administrative receivership.

The insolvency professional appointed as the administrator or administrative receiver is also required to be appointed as the new AO in respect of the company.

A prudent administrator will wish to ensure that the organisation continues to carry out checks to prevent illegal working and thus avoid causing the company to become liable for a civil penalty during the period of the administration.

What are the main laws and regulations governing this area? 

  • Immigration Act 1971
  • Forgery and Counterfeiting Act 1981
  • Asylum and Immigration Act 1996
  • Immigration and Asylum Act 1999
  • Nationality, Immigration and Asylum Act 2002
  • Asylum and Immigration (Treatment of Claimants, etc) Act 2004
  • Identity Cards Act 2006
  • Immigration, Asylum and Nationality Act 2006
  • Accession (Immigration and Worker Registration) Regulations 2006, SI 2006/3317
  • UK Borders Act 2007
  • Borders, Citizenship and Immigration Act 2009
  • Immigration Act 2014
  • Immigration Act 2016
  • UK Immigration Rules
  • UK Visas and Immigration’s operational guidance - in particular the ‘Code of practice on preventing illegal working and its sponsorship: guidance for employers and educators’

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