The Collapse of Monarch Airlines and Home Office duties of Administrators and Insolvency Practitioners
By Oshin Shahiean, of OTS Solicitors
After months of speculation, Monarch Airlines was put into administration yesterday. Blair Nimmo, Partner at KPMG and Joint Administrator at Monarch Airlines Limited stated:
“Mounting cost pressures and increasingly competitive market conditions in the European short-haul market have contributed to the Monarch Group experiencing a sustained period of trading losses. This has resulted in Management appointing us as administrators in the early hours of this morning.
“While this timing is unusual in insolvency situations, it was necessary for the appointment to be made once all Monarch aircraft were on the ground. This only occurs in the early hours of each morning. Once the company entered insolvency, the Air Operating Certificate it needs to be able to fly was effectively suspended, which is why all outbound flights were cancelled with immediate effect."
According to the official Register of Sponsors (Tiers 2 & 5 and Sub Tiers Only), Monarch Airlines holds a UK Sponsor Licence with an A-rating. This means they have the legal capacity to issue Certificates of Sponsorship to non-EEA nationals, allowing them to work for the airline.
Immigration law is unlikely to fall into the everyday practice of insolvency lawyers. But if an organisation holding a UK Sponsor Licence collapses, the insolvency solicitors will be required to understand the duties and responsibilities owed to the Home Office.
UK Sponsor Licence – the basics
The Points-Based System for Immigration was introduced from April 2008. It replaced most of the existing Immigration categories which enabled non-European Economic Area nationals to work and study in the UK. The previous work permit scheme was replaced by Tiers 2 and 5 in November 2008. Under the Points-Based System, UK-based employers are required to apply to register for a licence from the Home Office if they wish to sponsor skilled workers from outside the EEA.
Employers who hold a Sponsor Licence must comply with a significant number of duties and responsibilities, mainly contained in the Sponsor Guidance for Tiers 2 and 5. The sponsoring employee must be confident that their existing HR systems are of a standard that allows them to meet their compliance obligations. In addition, they need to be prepared for unannounced visits from UK Visas and Immigration; as such you must be able to produce accurate, up-to-date records and documents at a moment’s notice.
A Sponsor Licence holder must always comply with the following duties and responsibilities:
- monitoring the Immigration status of its non-EEA employees and preventing illegal Employment
- maintaining migrant contact details
- any other record keeping mentioned in the Sponsor Guidance
- monitoring and reporting migrant activity, such as whether their position within the organisation has changed
- ensuring that relevant professional registrations and accreditations have been obtained
- reporting various changes of circumstances through the Sponsor Management System (SMS)
- complying with all other UK law
- cooperating with the Home Office
If a Sponsor Licence holder fails to meet their duties and responsibilities, their licence can be downgraded, suspended, or revoked.
What are an administrator’s responsibilities if a Sponsor Licence holder goes into administration?
The Sponsorship Guidance states that if a Sponsor Licence holder falls 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 inform the Home Office of the fact within 20 days.
If this is not done, the Sponsor Licence may be revoked. This could seriously damage the value of the business and the ability to sell it. In addition, if the administrator has allowed the business to continue to trade, they are breaching Immigration law if there are non-EEA nationals continuing to be employed by the business.
The insolvency practitioner who is appointed as an administrator or administrative receiver must also be appointed as the licensed sponsor’s authorising officer (AO). They will then be responsible for ensuring all Sponsor Licence duties are complied with and for applying for new Certificates of Sponsorship.
Note – mergers and acquisitions, demergers and company buyouts can affect the status of a Sponsor Licence. Any commercial law or insolvency practitioner involved in a company restructure will need to quickly familiarise themselves with any Sponsor Licence holdings and the impact the restructure will have on them.
Checking the Immigration status of Tier 2 and 5 employees of a company in administration
If the organisation is to continue trading for a period, the duties and responsibilities of the Sponsor Licence may need to be upheld by the newly appointed AO (the insolvency practitioner). The AO will need to ensure the Sponsor Management System is kept up-to-date and the visas of any sponsored employees remain valid.
In the unlikely event a new employee is recruited from outside the EEA, not only will the AO be responsible for conducting the required document checks to prevent illegal working, a proper Residential Labour Market Test will be conducted and the Certificate of Sponsorship correctly issued.
Protecting administrators from liability
Being caught employing illegal workers can result in substantial fines, severely diluting the capital available to meet creditors’ claims. In addition, failure to comply with Sponsor Licence duties and responsibilities can lead to expensive administrative expenses, further diminishing the value of the organisation.
To protect yourself from liability, the following actions are advisable prior to, or immediately after accepting an appointment as an administrator:
- check whether the organisation has a Sponsor Licence; this information is available on the official Register of Sponsors (Tiers 2 & 5 and Sub Tiers Only)
- ensure all Sponsor Licence duties are being complied with by conducting a mock audit on the organisation’s HR systems
- do an immediate check on the Immigration status of all employees (selecting only those of a specific nationality could result in a discrimination claim under the Equality Act 2010 being brought against you)
OTS Solicitors is one of the most respected Immigration law firms in London. We can provide clear, practical advice on all business immigration matters and have years of experience in assisting insolvency practitioners dealing with a Sponsor Licence holder in administration.
If you wish to discuss any of the points raised in this blog, please phone our London office on 0203 959 9123.