[2024] UKUT 00418 (IAC)

The applicant is a national of Kenya. On 25 August 2016 he made an application for entry clearance as a Tier 1 (Entrepreneur) Migrant. On 15 September 2016 he was granted entry clearance valid until 15 January 2020. The applicant was then granted further leave to remain as a Tier 1 (Entrepreneur) Migrant valid until 4 March 2022.

The applications for entry clearance and further leave to remain were made in reliance upon investment in a company known as Fametex Textile Recycling Ltd (“Fametex”). The applicant entered into a ‘Directors Loan Agreement’ with the company on 19 October 2016 for the sum of £220,000 for the ‘purchase of assets and working capital’. The applicant was initially a co-director of that company with two others but following the death of one of the co-directors in October 2017 and the departure of the other in February 2018, the applicant became the sole Director.

The applicant applied for further leave to remain as a Tier 1 (Entrepreneur) Migrant on 3 March 2022. The application was refused by the respondent on 6 May 2022. The respondent said:

“We wrote to you on 21 April 2021 advising you that the directors loan you had provided did not meet the criteria as specified in Appendix A, Paragraph 45 of the immigration rules as the loan makes no reference to being unsecured and subordinated to other creditors’ loans to the business.

In response to this request for evidence of a directors loan that meets the criteria as specified in Appendix A, Paragraph 45 of the immigration rules, you resubmitted the same directors loan that had been provided with your application.”

The applicant applied for Administrative Review of the respondent’s decision. In summary, the applicant claimed the respondent erroneously characterized the applicant’s director’s loan to his company as being secured and overlooked evidence that established the loan is unsecured. The representations made on behalf of the applicant are elaborated upon in a letter to the respondent from the applicant’s representatives dated 17 May 2022.

Having considered the matters relied upon by the applicant in support of the application for Administrative Review, the respondent made a decision to maintain the refusal of the application for the reasons set out in the decision dated 6 May 2022 following Administrative Review. Insofar as is material, in the decision issued on 5 June 2023 the respondent said:

“…Within your administrative review you state that the requirement within the immigration rules regarding a directors loan is that is must “show” that the criteria are met and that this is not the same as expressly addressing each requirement. You highlight that there is no specific term within the loan to demonstrate that it has been secured, therefore making the loan unsecured. In addition you state that the clauses 8 and 9 demonstrate what will happen in the event of default, which shows that the loan is subordinate.

On reviewing your application, I note that within your application you provided a copy of your loan agreement. On 21 April 2022 the decision maker exercised evidential flexibility and requested that you provide further evidence of the directors loan and employees payslips. In response to this request you provided a number of documents which included the directors loan agreement previously submitted.

Whilst you state that a secured loan will normally identify the security within the agreement. However, I am not satisfied that the absence of a named security sufficiently demonstrates that the loan is unsecured. In addition, the details of what would happen in the event of default that the applicant would become an ‘ordinary shareholder’ does not confirm that the shareholders interest would automatically become subordinate to other creditors. The agreement must make it sufficiently clear that the loan will be unsecured and subordinate in favour or others. Therefore, I am satisfied that the original decision maker was correct to refuse your application under Appendix A, Paragraph 45 of the immigration rules.

…”

Permission to claim Judicial Review was granted by Upper Tribunal Judge Sheridan on 5 March 2024. He said:

“It is arguable that the respondent applied the wrong test. Arguably, the test is not whether the loan refers to the agreement being unsecured and subordinated, but rather is whether the terms of the agreement show that the loan is unsecured and subordinated. This is because the wording in para. 45 of Appendix A is that the applicant must provide an agreement showing the loan is unsecured and subordinated. Arguably, the terms of the loan agreement show that the loan is unsecured and subordinated.”