Sponsoring an international workforce: what insolvency practitioners need to know

Jacqueline Moore explains why insolvency practitioners need to be aware of their responsibilities when being appointed administrators to a company that holds a sponsor licence.

12 November 2019

The recent collapse of Flybe has thrown a spotlight on the future of its 2,000-strong workforce, including its international employees who rely on the airline’s sponsor licence to live and work in the UK.

Flybe, which is now in administration, holds a sponsor licence issued by the Home Office, which allowed it to sponsor non-British employees to live and work in the UK. Currently, just over 31,000 companies in the UK hold sponsor licences.

Insolvency practitioners need to be aware of their responsibilities when being appointed administrators to a company that holds a sponsor licence.

The importance of such knowledge is only likely to increase post-Brexit as more businesses will now have to become sponsor licence-holders in order to meet their recruitment needs. Indeed, in its recent policy paper the Home Office advised that

“employers not currently approved by the Home Office to be a sponsor should consider doing so now if they think they will want to sponsor skilled migrants, including from the EU, from early 2021.”

What is a sponsor licence?

A sponsor licence is issued by the Home Office and allows businesses to employ non-EU staff in skilled roles.

A sponsor licence should be considered as an item of value to the business and something that the administrator should take steps to protect. In terms of protecting the licence, the onus is on the administrator to make sure that it is complying with sponsor licence duties.

What are the duties placed on sponsor licence holders?

The duties are contained within a sponsor guidance document issued by the Home Office, which can be found here.

Broadly speaking, sponsor licence holders’ duties fall into four categories. They must:

  • comply with the law (this includes, for example, complying with minimum wage regulations);
  • cooperate with the Home Office;
  • keep records in respect of the migrant employee (these are onerous and include a duty to keep a complete address history, record every change in contact details and  sponsor workers for a ‘genuine vacancy’ only - this duty includes properly carrying out a recruitment test on the local labour market); and
  • report changes to the Home Office in respect of both the migrant worker and the organisation.

Failure to comply with any one duty can result in punitive Home Office action, including the revocation of the sponsor licence, which will result in any migrant employees who are sponsored losing their right to live and work in the UK.

This will also affect any family members who are not UK citizens.

It is therefore imperative that employers comply with all their duties. While the HR team within a sponsoring company should be aware of the licence and their duties, there are specific duties that only apply when a company enters into administration that are much less well known. These are set out below.

What happens when a company enters administration?

Ordinarily when “control” of a sponsor licence changes, a new licence is required. There is, however, an exception for administrators.

This exception allows administrators to take control of a company and retain the sponsor licence, however the appointment of the administrator must be reported to the Home Office within 20 working days.

Failure to report this change is a breach of the sponsor’s duties and can result in the Home Office taking punitive compliance action, including revocation of the licence (with the consequence for sponsored workers and their families outlined above).

Another important point is that when a company enters administration it can be a turbulent time for employees.

It is good practice to identify which individuals in the business are responsible for managing the sponsor licence. Specifically, the administrator should find out who is the Authorising Officer (AO) on the licence.

The AO has overall control of the licence and if they leave the company they must be replaced on the licence. Failure to have an Authorising Officer in place is a breach of sponsor duties and can be the grounds for the Home Office revoking a licence.

Another key role in the sponsorship scheme is the “Level 1” User (one person can hold both the Level 1 User and Authorising Officer roles, however this is not good practice).

The Level 1 User’s role is important as they administer the day-to-day running of the sponsor licence.

This includes making reports on sponsored employees and issuing the paperwork required for a new employee to apply for a visa. If no Level 1 User is in place, then this is also a breach of a sponsor’s duties.

What happens at the end of the administration?

If matters progress well and the company leaves administration with a joint agreement, and the owner regains control, the only action that needs to be taken is that the company needs to report back to the Home Office that it is no longer in administration.

In the more likely event that the company is sold and there is a change in control, a new sponsor Licence needs to be acquired.

At the point that the transfer of ownership takes place the old licence is automatically revoked, although more often than not it falls to the sponsor to take action.

A new licence needs to be applied for within 20 days of the transaction completing in order to protect the right to work of any sponsored international staff.

This tight timeline can be a challenge, but where the purchaser and the HR team is aware of the timescales, steps can be taken in advance to ensure that the required documentary evidence is prepared in good time before the application deadline.

The sponsored workers are then transferred and sponsored under the new licence, once granted.

Getting things right ahead of time can be important in not only avoiding unnecessary administrative procedure, but also in maintaining the value of any business.