Immigration breaches remain a focus of the Home Office. Under section 35 of the Immigration Act 2016, the Home Office can commence criminal proceedings against employers who know or have reasonable cause to believe that they are employing someone illegally. This can lead to an up to 5 year prison sentence. This sits alongside the existing civil penalty regime under the Immigration, Asylum and Nationality Act 2006 through which companies can receive fines of up to £20,000 per illegal worker. Undertaking rigorous right to work checks and retaining compliant right to work evidence will provide a defence against these charges.

A recent case demonstrates another way in which those who breach immigration law may be penalised: in this case, a director was disqualified.

The case

Mr Montaz Ali Azad, an Oldham Councillor, was sole director of Eurolinen UK Ltd, an industrial laundry. In September 2013 Eurolinen was visited by the Home Office’s Enforcement Team who found that it had recruited three overseas nationals between February 2008 and May 2014 who did not have the right to work lawfully in the UK. Eurolinen had not undertaken the necessary statutory checks to ensure that the workers had the right to work nor retained any right to work evidence as a defence against illegal working on their files. As sole director, Mr Azad had responsibility to ensure such compliance.

Due to Eurolinen’s non-compliance with the statutory obligations imposed on it by the Immigration Asylum and Nationality Act 2006 they received a civil penalty of £15,000. This had a payment date of 9 January 2014 but was neither settled nor challenged.

Eurolinen went into liquidation on 18 September 2014 owing its creditors £105,367, which included the Home Office’s unpaid civil penalty. An investigation by the Insolvency Service uncovered this civil penalty breach. Furthermore the investigation found that Mr Azad had failed to ensure that the company operated a PAYE scheme for these employees. This meant that the company had not declared the employees to HMRC nor accounted to HMRC for any deductions made from their wages.

In connection with the liquidation, Mr Azad signed a disqualification undertaking banning him from being a director of a company or from being involved in the management of a limited company for six years from 7 September 2016. The reason for the disqualification was that, due to the above breaches of both employment and immigration law, he was not deemed fit to act as a director.

Failing to operate PAYE, particularly where this is a deliberate decision, can bring a substantial financial penalty for an employer. It can be assumed that the decision not to operate PAYE for these employees was due to the fact that they did not have the right to work lawfully in the UK. Operating PAYE would undoubtedly have flagged this breach to HMRC who may have taken necessary action.

Under the Companies Act 2006 directors must carry out their duties honestly and responsibly, and ensure that they and the company comply with the law and all relevant regulations. Directors must exercise adequate skill and care with proper regard to the interests of the company’s creditors, customers, shareholders, employees and, in some circumstances, the public. A director may be disqualified following conviction for an offence under the criminal regime, or as a result of unfit conduct under the civil regime. Unfit conduct includes, amongst other things, failure to comply with regulatory requirements (as was the case for Mr Azad).

Alongside the possible immigration civil and criminal penalties available to it, we increasingly see that the government is prepared to rely on immigration breaches alongside other breaches to take action against directors. Disqualification orders mean that, in addition to not being able to act as a director, or receive company property, the individual cannot take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership. In addition, that person cannot act as an insolvency practitioner and there are many other restrictions placed on disqualified directors by other regulations.

In relation to this case Insolvent Investigations North said, “The Insolvency Service rigorously pursues directors who break employment and immigration laws. Taking on staff illegally means those staff do not enjoy basic employment rights and is a clear breach of a director’s duties. The public has a right to expect that those who break the law will face the consequences. Running a limited company means you have statutory obligations as well as protections, and this should serve as a warning to other directors tempted to take on illegal staff.”

The future of enforcement

This was another occasion when the Insolvency Service chose to pursue a civil as opposed to a criminal resolution, despite having the powers to do so. The lower thresholds which need to be met to bring a civil resolution make this a simpler and more attractive way to resolve matters. In this climate of increasing numbers of Home Office raids and anticipated prosecution under the newly introduced right to work provisions of the Immigration Act 2016, we anticipate that more disqualifications may occur where breaches are found.

Whilst a finding of illegal working does not in itself normally lead to a director’s disqualification, we are seeing more such cases; however, in this case we believe it is likely it was the additional non-compliance with PAYE rules which resulted in Mr Azad’s striking off.

The Government has announced plans to introduce a criminal offence of corporate failure to prevent tax evasion or of facilitating tax evasion. In broad terms, the new offence will apply to all legal persons that fail to take reasonable steps to prevent their representatives (other than independent representatives) from criminally facilitating tax evasion (UK or offshore). The Government closed its consultation on this area in July 2016 and the new law is expected