Immigration considerations for a merger and acquisition transaction

When working on a corporate M&A deal, whether buying or selling, it is all too common for those involved to ignore immigration considerations and matters of compliance.

However, by being blind to issues or simply considering it as an afterthought, the risk increases – financially, reputationally, as well as there being potential for criminal sanctions. 

So how does UK immigration law play a role in mergers and acquisitions and what immigration considerations do businesses need to think about? Let’s use a worked example.

1. Is it an asset purchase or share purchase transaction?

Alan owns 100% of “ApprenticeCo” but is looking to retire and wants to exit the business. Karren and Tim see potential in ApprenticeCo and want to buy the whole business from Alan – this includes all the assets and risks. This would be a share purchase transaction as ownership is being transferred.

If the sale goes through, Karren and Tim become the new owners of ApprenticeCo, and Alan will no longer be the owner.

The employees of ApprenticeCo will generally be unaffected after the sale because their employment relationship was with ApprenticeCo, and not directly with Alan. All that has happened is their employer is now owned by someone else – Karren and Tim.

After initial discussions, Karren and Tim decide they don’t want to buy ApprenticeCo as a whole. Instead, they want to pick and choose what they buy and transfer those parts to their own business called AdvisersCo. They are particularly keen on the transfer of the employees. This would be an asset purchase transaction.

If the sale goes through, Alan still owns ApprenticeCo minus the employees. The employees will have transferred to AdvisersCo usually under a “TUPE transfer”.

2. Right to Work consideration

Right to Work (RTW) checks are key immigration considerations that should always be carried out before employment commences, and compliant evidence retained. Follow-up RTW checks might be necessary depending on the immigration status of employees.

In the share purchase scenario, Karren and Tim bought ApprenticeCo in its entirety, taking on all assets and liabilities. If ApprenticeCo under Alan’s ownership did not carry out RTW checks, or did but these checks were not fully compliant, all the risks attached to these defects (such as civil penalty of up to £60,000 per illegal worker detected, “name and shame”, risk of unlimited fine and imprisonment of up to five years) remain. Equally, where the RTW checks were carried out correctly, the benefits also remain.

If Karren and Tim hired good corporate lawyers to advise on the deal, they would have been advised to seek immigration support. These specialists would have advised on immigration considerations and the risks relating to any non-compliance on RTW checks – this could include negotiating immigration warranties and indemnities to be put into the share purchase agreement, to cover losses which might arise.

In the asset purchase scenario, all the employees TUPE transferred from ApprenticeCo to AdviserCo. In this situation, Karren and Tim as the buyer inherit all the benefits of the compliant RTW checks, as well as all the risks of non-compliant RTW checks.

However, the immigration specialists will have recommended that Karren and Tim carry out fresh RTW checks on all employees, within the 60-day “grace period” after the transaction. In doing so, if any non-compliance is identified and if they take immediate steps (such as for a migrant employee to apply for a new visa or to terminate employment), then there is generally no liability for a civil penalty. In other words, the non-compliance risks which were inherited from ApprenticeCo are ignored by the Home Office.

3. Sponsor licence and sponsored worker considerations

Sponsor licences are non-transferable.

In the share purchase scenario, although the ApprenticeCo entity remains unchanged following the sale, there was a change of ownership – from Alan to Karren and Tim. In this situation, ApprenticeCo would be required to apply for a brand-new sponsor licence to reflect this change. A simple report would not suffice.

In the asset purchase scenario, all the employees TUPE transferred to AdvisersCo – this included sponsored workers. If AdvisersCo doesn’t have an appropriate licence, they will need to take steps to apply for the relevant sponsor licence.

For both scenarios, ApprenticeCo will have an obligation to report the changes to the Home Office. In addition, a new sponsor licence would need to be applied for – all of this within 20 working days after the transaction completed.

After the sponsor licence is granted, ApprenticeCo (in the share purchase scenario) or AdvisersCo (in the asset purchase scenario) would also need to report to the Home Office to accept responsibility for the sponsored workers.

If the strict deadlines are adhered to, the sponsored workers will usually not need to apply for new sponsored work visas. If there are changes to their roles, this might require a new Certificate of Sponsorship to be assigned and a new sponsored work visa to be applied for. 

If responsibility for the sponsored workers is not accepted, then the Home Office would take steps to cancel their visas – this would generate further RTW and immigration considerations.

4. Non-compliance

The potential issues of non-compliance on RTW checks have already been touched on above.

The consequences of failing to account for immigration considerations and complying with mandatory action points relating to a sponsor licence post transaction can be quite severe. It is not something which is always identified by the Home Office around the time of the transaction, and sometimes they might not be aware until some years down the line. The effects can include revocation of sponsor licence(s) and a ban on applying for a new sponsor licence. This would have an immediate effect on sponsored workers and would limit talent attraction in the longer term. This could also potentially impact any transaction involving the business in the future given the risks attached.

Whilst the need for immigration might not always be apparent early on in a deal, it is important that immigration specialists are instructed sooner rather than later. Even if there has been no immigration input before the completion of a deal, it is still worth getting an immigration “health check” to help identify any potential exposure and put into place damage limitation to minimise risks. Our firm is well placed to provide with specialist immigration support when it comes to immigration considerations for businesses. 

Please contact our market-leading team of immigration lawyers for expert advice and assistance. 

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