An interesting case on Tier 1 (Entrepreneur) applications and investment periods.

The Upper Tribunal has promulgated a detailed and interesting case on the Tier 1 (Entrepreneur) rules; Arshad and Others (Tier 1 applicants – funding – "availability") [2016] UKUT 00334 (IAC).

It is interesting for a number of reasons. Primarily, as a practitioner, it is helpful to see some judicial interpretation of some complex and ambiguous rules.

The consequence of removing appellate rights for many cases, including Tier 1, is a reduction, apart from judicial review applications, in the number of reported cases that can resolve areas of ambiguity in the Rules. It was, in years gone by, invaluable to have a case on a particular aspect of the Rules, so that the interpretation was clear (most of the time).

The Tier 1 (Entrepreneur) Rules are particularly tortuous. What is notable is that despite their complexity, when time is taken to focus down on particular aspects, they fail to provide clear guidance on significant aspects of the Entrepreneur route.

One aspect that Arshad, decided by the President Mr Justice McCloskey, attempts to resolve is the timing of when investment from an entrepreneur is made. The case actually says a lot more than that, and is a forensic examination of a particular venture capital firm and the credibility of applications for Entrepreneur visas which it supported, however I thought the particular implications as regards the timing of the investment funding were worth highlighting.

The headnote indicates that:

“The Rules stipulate that every Tier 1 Entrepreneurial applicant have available £50,000 to invest in the proposed business venture. "Available" in this context denotes that the applicant must be in a position to invest this money in his business consequential upon a positive decision of the Secretary of State. The clear import of the Rules is that the investment must be capable of being made almost immediately thereafter.”

In the decision itself the President examines the rules relating to investment:

“We turn our attention to one discrete issue of law. This relates to the word "available" in the various provisions of the Rules rehearsed above. The language of the Rules, in this respect, is, variously, "available ….genuinely available … made available …." The word "available" is an unpretentious member of the English language. It carries no technical or special meaning in this context. In our judgment, it denotes that in the case of every Tier 1 applicant or partnership the requisite sum, £50,000, must be capable of being provided for the purpose of investment in the proposed business upon the grant of the Tier 1 visa. The Rules clearly contemplate that the grant of such visa will be the impetus for establishing the business and beginning to operate it. The Rules do not address the issue of delay between these two events. We accept that, in the real world, some delay will normally eventuate. However, it is clearly implicit in the Rules that this will be of very short dimensions. Based on this analysis, we consider that £50,000 is "available" only if this sum is capable of being invested in the business within a short period of the grant of a Tier 1 visa. Cases where this cannot be effected are antithetical to the clear thrust and philosophy of the Rules.”

This is, on its face, relatively uncontroversial. The Rules require that an entrepreneur has the required figure of £50k or more usually £200k, available to invest in a UK business once their Entrepreneur visa is granted. Indeed the Rules also permit reliance in some cases on investments already made. The President is clear that ‘available’  means what it says, the money is ready to be invested without any impediment or delay.

At the conclusion of the judgement the President states:

“We conclude with the observation that, in the interests of certainty and maximum clarity, consideration could usefully be given, if a viable and workable model could be found, to the introduction in the Rules of some time limit or time measurement for the actual investment of monies calculated from the date of a positive Tier 1 decision.”

The issue is that the Immigration Rules currently provide no stipulation on when the money which had been shown as available to invest is actually invested. The primary requirement is that by the time the applicant comes to extend their visa they have invested the required figure. In fact what the Rules actually state is that the money should have been invested into “ one or more businesses in the UK”.

The Rules as they relate to initial applications mirror that provision, that the money shown should be destined for a ‘business or businesses’ which the applicant has taken over, established or become a director of.

There is a degree of friction here. The Rules require that the money shown for investment must remain available to the applicant until it is invested into the applicant’s business or businesses, but the rules do not stipulate when this money should be invested. Therefore, theoretically the money could be held until nearly the end of the visa just before an extension is required and invested in the last few months. More realistically the money could be invested in tranches, staged as the business grows and develops.

Actually, particularly when talking about a figure of £200k, it may make sense for the rules not to stipulate a precise time for investment. The Rules and Policy guidance clearly recognise that an applicant may be involved in a completely different business to the one originally proposed or invested into when they are first granted the visa. Entrepreneurs by their nature are taking on a degree of risk. Investing all of their capital immediately in a business exposes them to a far greater degree of risk. It is entirely sensible, in my humble view, that they may want to hold off further investment to ensure the model is viable.

The President appears to disagree and the import of the decision is that the spirit of the rules require that the full investment of the money to be made shortly after the visa is granted. I would respectfully disagree, and all the rules require is that the money remains available for investment and is eventually invested if the applicant wants to extend their visa.

The issue is that the Entrepreneurial route requires an applicant to establish a business, create employment and invest money. However it is wrong to see it as a commitment that cannot be resiled from. What if, after giving things a good shot, the Entrepreneur decides that in fact the business isn’t viable? Perhaps they therefore accept that they will not be able to extend the visa and remain in the UK. In such circumstance they may not wish to commit all of their funds immediately.

Part of the problem is that the strict points based system rules originally required that you had the money to invest and would act as an entrepreneur, your success in this and adherence to the rules was measured after 3 years when you came to extend the visa. The rules were altered by the ‘genuine’ tests, which require a business plan and assessment of an applicant’s credibility in advance, and as the President states requires an “evaluative judgment and intuition on the part of the decision maker”- though not now, as would be appropriate, an appellate remedy if the decision maker gets that judgement wrong.

The original import of the Rule and indeed the implication of the Rules for extension as drafted currently, envisage an applicant being free to act as an entrepreneur, investing in different businesses, taking different risks and ventures, which is in some ways at odds with the ‘genuine’ test, which now seeks to mandate the Entrepreneur’s activities in advance and demand the path is followed. This is, in my view, a difficult prospect, since a business plan can really only provide a limited degree of predictability of what will happen in the real world and constraining an applicant to a plan’s terms too rigidly seems to run against the whole premise of an entrepreneur.