Crossing borders - immigration implications in business transactions

When dealing with mergers and acquisitions, immigration is often an overlooked factor in the process.

This is particularly relevant in sectors such as technology, mobility, and living, where businesses frequently rely on a globally mobile workforce and sponsor a significant number of employees including, in many cases, senior executives. This commonly can include senior executives running the business.

The living sector, specifically the care sector, is particularly exposed to immigration compliance risks during acquisitions due to its heavy reliance on international workers. Smaller operators or those with decentralised or lean HR functions may lack robust systems for tracking visa expiry dates, maintaining audit-ready right to work documentation, or managing sponsor licence duties – especially if immigration compliance has not previously been a focus.

This dynamic gives rise to two key areas of immigration compliance that should be considered during an acquisition. The first is the law in relation to the prevention of illegal working (right to work permission) and the second, if applicable, is meeting the duties and responsibilities of a licenced sponsor.

It’s essential that immigration considerations are factored in at every stage of the transaction. Below, we outline the key issues to be aware of throughout the process. For the purpose of the article, the business being bought or sold will be referred to as the ‘Target company’.

Legal Due Diligence (LDD) and legal compliance

LDD is an essential step in any corporate transaction. It should involve a thorough review of the Target company's compliance with immigration laws. This includes verifying that all employees have the right to work in the UK and ensuring that the Target company holds any necessary sponsor licences for employing non-British nationals.

Key Steps in LDD:

• Right to work checks: Ensure that the Target company has conducted proper right to work checks for all employees. If the Target company has failed to carry out right to work checks properly, or at all, the buyer could be taking on the liability for fines of up to £60,000 per illegal worker. Ideally a sample of right to work checks are reviewed as part of the LDD process. If the Target company is being selective with its checks e.g. only checking non-British nationals, consider if there are any discriminatory risks to their practice. If the Target company has knowingly employed illegal workers, this could also give rise to criminal liability (with potential imprisonment) and also may require a ‘POCA report’ under the Proceeds of Crime Act 2002 to be considered as part of the transaction process.
• Sponsor licence verification: Check if the Target company holds a sponsor licence and if it sponsors any employees. It may be possible to find this information on the sponsor licence register but further enquiries should raised requesting confirmation of: who is sponsored and the visa expiry date for their visa(s); any action against the sponsor licence; and, who the key personnel are on the licence (and importantly are they staying with the Target company post-completion),
•  Employment contracts: Review employment contracts to check if they include a warranty regarding eligibility to work in the UK and the obligation to keep contact information and changes in immigration status up to date. 

Transactional documentation

It is important to include specific clauses in the transactional documentation to address immigration-related issues. These may include:

• Warranties: A contractual promise about a particular state of affairs of the Target company. This could be confirmation that any non British or Irish national employed by the company holds an appropriate visa and that right to work checks have been conducted properly on all employees;
• Indemnities: A promise to reimburse the buyer should certain liabilities arise. For example, there could be an indemnity that if right to work checks have not been conducted appropriately, the Seller will reimburse the Buyer for any civil penalties incurred.
• Disclosure Letter: If the seller is aware of issues with right to work checks or other immigration issues, they can provide specific disclosures in the letter identifying these problems. The purpose of the letter is to disclose against a warranty and absolve the seller of liability if the buyer suffers financial or reputational lost.

Post-completion steps

After the transaction is completed, there are several steps that need to be taken to ensure ongoing compliance:

• Reporting to the Home Office: If the buyer acquires a company with sponsored employees they must report the change of ownership or make a new sponsor licence application as appropriate within 20 working days. There may be additional reporting requirements if there are changes to the sponsored workers’ conditions such as their working address as a result of the transaction. If TUPE applied to the transaction, the TUPE transfer should be reported within 20 working days and the appropriate provisions put in place post-completion to accept the sponsored employees onto a new licence.
• New sponsor licence: A new sponsor licence is likely required post-completion where there has been a direct change of ownership of the entity holding the licence. This is because the change of ownership technically revokes the existing licence and licences are not transferrable between companies. It can be applied for in the name of the Target company, or the buyer or another group company linked by common ownership and control. If the buyer already has a sponsor licence, and the Target company is becoming a branch of the buyer, the buyer will need to apply to add the Target company as a branch.
• Right to work checks: Following completion, the buyer may wish to carry out fresh right to work checks. In the case of a share sale, although the buyer does not obtain a statutory excuse by doing so, conducting these checks ensures that right to work records are up to date and properly retained for all employees. For asset sales where TUPE applies, the buyer benefits from a 60-day grace period post-transfer to complete new right to work checks. This allows the buyer to establish their own statutory excuse against potential civil penalties for illegal working. The 60 day period does sound like a considerable period but if you have a large number of employees transferring then it can quickly be eaten up so planning ahead is important.
• Monitoring visa expiry dates: We would recommend implementing a system to monitor the visa expiry dates of sponsored employees to ensure timely renewals.

Summary

Immigration considerations are a critical aspect of buying or selling a business, particularly for sectors reliant on migrant workers within their workforce. By conducting thorough due diligence, addressing pre-completion issues, and taking appropriate post-completion steps, buyers and sellers can ensure compliance and mitigate risks relating to immigration. Including specific clauses in transaction documents can further protect the Buyer from potential liabilities.

By following these guidelines, businesses can navigate the complexities of immigration law and ensure a smooth and compliant transaction.

Our business immigration team regularly provides expert support and guidance on immigration-related matters in the context of corporate transactions, both pre- and post-completion. If you require assistance, please don’t hesitate to get in touch with the team.