When a business faces insolvency, the focus naturally falls on creditors and employees, but for companies holding a Home Office sponsor licence, there are additional immigration duties that can’t be overlooked.
UK insolvencies remain high in 2025, with more than 2,000 companies entering formal insolvency in September alone. At the same time, wider economic indicators point to slower growth, with the Institute for Fiscal Studies (IFS) recently warning that “the UK economy stands at a pivotal juncture, with growth decelerating, unemployment rising and inflation above target.” In this climate, businesses under financial pressure must consider not only the immediate financial and operational consequences of insolvency, but also the immigration compliance obligations that may apply.
Sponsor licence compliance is usually front of mind when business is thriving and recruitment is strong, however the same responsibilities apply when a company faces financial difficulty. Overlooking these duties can add to the pressure on a business already under strain.
For organisations registered with the Home Office to sponsor migrant workers, insolvency triggers a series of additional requirements. Both the company and its appointed administrators must act quickly to remain compliant, protect the sponsor licence, and safeguard the position of any sponsored migrants.
Why It Matters
A sponsor licence is not an asset that can be sold or transferred to another company. A change of ownership will therefore normally result in the licence being revoked, requiring the new entity or owner to secure its own licence if it wishes to continue employing sponsored workers.
If a sponsor licence is revoked, sponsored workers are typically given just 60 days to find a new sponsor – including completing a transfer to a new business owner – or leave the UK. For employees with family here, this inevitably adds to an already stressful situation. For businesses, the obligation to report changes within short, strict timeframes – and, where continuity is planned, to secure a new sponsor licence – adds a further layer of challenge at an already busy time.
Key Scenarios
Different insolvency processes bring different implications for sponsor licence holders.
Administration / Administrative Receivership
When a company enters administration or receivership, the insolvency practitioner must be appointed as the new Authorising Officer. This can be done by an existing Level 1 User, who updates the details via the Sponsorship Management System, or – where no active Level 1 User is in place – by the practitioner appointing themselves by post. In either case, the Home Office must be notified within 20 working days. The future of the licence will then depend on the outcome of the process – whether the business is sold, restructured or continues trading.
Company Voluntary Arrangement (CVA) / Debt Arrangement Scheme
A company voluntary arrangement (CVA) or debt arrangement scheme must also be reported to the Home Office within 20 working days. Where a CVA results in a change of ownership the licence will be automatically revoked, and the new owner must apply for a new licence within 20 working days if they wish to continue employing sponsored workers. Where there is no change of ownership, the company will usually be able to retain its licence, provided that the details of its Key Personnel are kept up to date.
Liquidation / Sequestration
In the case of liquidation or sequestration, the Home Office must again be notified within 20 working days. If trading ceases, the licence will be revoked. If the Sponsorship Management System cannot be accessed, the insolvency practitioner must notify the Sponsor Compliance Team directly by email.
Sole Traders
For sole traders, an IVA or DAS must be reported within 20 working days. If the sole trader remains the owner and continues trading, the licence can remain. However, if the business is sold, the new owner must apply for their own licence within 20 working days. Where a bankruptcy order or sequestration is issued, the Home Office must be informed and the licence will be revoked, as bankrupt individuals cannot act as Key Personnel.
Practical Steps
Insolvency situations often unfold quickly and under significant pressure. It is, however, possible to take proactive steps to prepare for such scenarios:
- Ensure the details of Key Personnel listed on the licence remain up to date.
- Confirm who holds access to the Sponsorship Management System – there must be at least one Level 1 User with current access.
- Keep details of all sponsored workers accurate; for example, remove anyone who is no longer sponsored or employed and notify the Home Office accordingly.
- Review and maintain personal contact details for all sponsored workers. These may need to be provided to the Home Office if employment — and therefore sponsorship — ends as a result of insolvency proceedings.
- Plan communication with employees. Whilst reporting the end of sponsorship does not automatically invalidate a person’s right to remain in the UK, some aspects of their residence – for example, the ability to travel before securing new sponsorship – will be impaired. For those affected, particularly with families, this can have profound consequences. Businesses should therefore consider offering support and signposting employees to professional advice to help them understand their options.
The Bottom Line
Immigration compliance may not be the first concern in an insolvency, but it cannot be overlooked. Administrators and directors should take early steps to understand their obligations under the sponsor licence. Key Personnel who neglect their reporting duties in relation to corporate changes may be prohibited from acting in similar roles in the future. Early engagement with immigration specialists can help businesses manage these obligations effectively, minimise disruption, and protect both the organisation and its people.
At Brecher, our Immigration, Employment and Insolvency teams work together to help clients manage these risks and best protect both their business and employees. For further information or tailored advice, please get in touch at kkingsmill@brecher.co.uk
This update is for general purpose and guidance only and does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. No part of this update may be used, reproduced, stored or transmitted in any form, or by any means without the prior permission of Brecher LLP.
