Immigration and M&A

In late 2008 the UK Government terminated the work permit scheme and introduced a new points-based system (PBS). Companies now wishing to sponsor non-EEA (European Economic Area) nationals must first obtain a licence and undertake new policing and sponsorship duties, including updating the UK Border Agency about changes of control and takeovers. Failure to comply with the terms of the licence may lead to financial and criminal penalties (which can be inherited by the purchaser) and the sponsorship licence could be revoked, which in turn could lead to all sponsored migrants losing their permission to work for the company. In addition, the Government has introduced new penalties for employing migrants without the right to work (currently up to £10,000 per migrant).

In light of these changes it is now important to undertake additional due diligence in respect of the immigration permission of employees, the procedures the company undertakes to avoid penalties and compliance with the terms of its sponsorship licence, if applicable. If the purchaser is receiving sponsored migrants or purchasing a company (or part thereof) which sponsors migrants, the purchaser and seller must inform the UK Border Agency of the changes to sponsorship.

Regardless of how a business is acquired, it is important that purchasers undertake additional due diligence pre-completion to ensure that all current employees have the right to work in the respective roles in which they are employed and that documents evidencing each employee’s right to work in the UK have been requested and retained for inspection by the UK Border Agency. This is necessary to identify any illegal employment and liabilities which could pass to the purchaser and to ensure that employees key to the continuance of the business have the ongoing right to work.

If the acquisition target business is registered as a sponsor under the PBS, it is important for the buyer to ascertain what documents are held in respect of the licence (and the sponsorship duties) and what processes the business has in place to ensure that they are compliant with the terms of the sponsorship licence.

This is particularly important if the business depends on employing foreign nationals. Specialist advice may be required to determine compliance and to identify and quantify possible exposure. If exposure is identified, the purchaser may wish to consider drafting specific warranties (and indemnities). The current employer may also need to take action to regularise immigration permissions or terminate employment if migrants are found to be working without permission.

In the event that the company is a registered sponsor being acquired by a share purchase, the purchaser has 28 days from the date of completion to inform the UK Border Agency about the change of ownership. If the purchaser is acquiring part of a business and a number of employees, including sponsored migrants, then the applicable requirements depend on whether the purchaser is already registered as a sponsor. If the purchasers themselves are a registered sponsor they have 28 days in which to issue new certificates of sponsorship to the sponsored migrants so that their immigration permission transfers to the purchasers.

However, if the purchaser is not already a registered sponsor, they have 28 days from the date of the purchase to apply for a sponsorship licence. Meanwhile if the seller was registered as a sponsor and sponsored migrants have transferred to the purchaser, so that they are no longer employed by the seller, the seller must also update the UK Border Agency as to the change of circumstances. Failure by either party to undertake their obligations within the 28-day timeframe may result in sponsored migrants’ permission being curtailed to just 60 days.

If a purchaser receives sponsored migrants as part of the transfer of an undertaking they should ensure that new right to work checks (i.e. request and retain original documents in respect of all employees) are undertaken again. If however a company and its employees are acquired by way of a share purchase, so that their employment is ongoing with the original employer, there is no requirement to undertake new checks, unless there are specific concerns to address.