“We wrote to you on21 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.”
“…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. On21 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. …”
“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.”
“45. The applicant must provide their business accounts and accompanying evidence of their investment, which must meet the following requirements: … (d) if the applicant has made the investment in the form of a director’s loan: … (iii) the applicant must provide a legal agreement, between the applicant (in the name that appears on their application) and the business, showing: (1) the terms of the loan, (2) any interest that is payable, (3) the period of the loan, and (4) that the loan is unsecured and subordinated to other creditors’ loans to the business;” … (iii) the applicant must provide a legal agreement, between the applicant (in the name that appears on their application) and the business, showing: (1) the terms of the loan, (2) any interest that is payable, (3) the period of the loan, and (4) that the loan is unsecured and subordinated to other creditors’ loans to the business;”
“Director’s loan This only applies to migrants who become directors of a company. A director’s loan to the company will be considered for the award of points as long as it is unsecured and subordinated in favour of third-party creditors. This means that the loan agreement states that any loans to third parties are to be repaid before the director's loan is repaid. For the purposes of this guidance an unsecured loan is where the applicant has loaned money to the business that is not secured by property or assets that become subject to seizure on default. Third-party creditors are those individuals or companies that the business owes money to, not including the applicant. … Evidence for Invested Funds … Directors Loan If the applicant has made the investment in the form of a director’s loan, it must be shown in the relevant set of financial accounts provided. Investments made on or after19 November 2015 must also be shown through readily identifiable transactions in the applicant’s business bank statements, which must clearly show the transfer of this money from the applicant to the business. They must also provide a legal agreement, between them (in the name that appears on their application) and the company. This agreement must show: • the terms of the loan • any interest payable • the period of the loan • evidence to show the loan is unsecured and subordinated in favour of third party creditors If the information provided does not clearly show the loan is unsecured and subordinated in favour of third-party creditors, you cannot accept the loan for the award of points. Subordinated loans rank after other debts, should a company fall into liquidation or bankruptcy.”
“29. It was common ground between counsel that the leading authority on the general principles to be applied in interpreting the Immigration Rules is Mahad v Entry Clearance Officer[2010] 1WLR 48 and, in particular, the following two passages in the judgment of Lord Brown of Eaton-under-Heywood JSC. The first is his citation at para 10 from Lord Hoffmann’s judgment in MO (Nigeria) v Secretary of State for the Home Department[2009] 1WLR 1230 , para 4: “Like any other question of construction, this [whether a rule change applies to all undetermined applications or only to subsequent applications] depends upon the language of the rule, construed against the relevant background. That involves a consideration of the immigration rules as a whole and the function which they serve in the administration of immigration policy.” “Like any other question of construction, this [whether a rule change applies to all undetermined applications or only to subsequent applications] depends upon the language of the rule, construed against the relevant background. That involves a consideration of the immigration rules as a whole and the function which they serve in the administration of immigration policy.” 30. The second is Lord Brown JSC’s own contribution, later in para 10: “Essentially it comes to this. The Rules are not to be construed with all the strictness applicable to the construction of a statute or a statutory instrument but, instead, sensibly according to the natural and ordinary meaning of the words used, recognising that they are statements of the Secretary of State’s administrative policy.”
“45. …The requirement that the loan be unsecured ensures that in the event of the company's insolvency, secured creditors will have priority over the debt payable to the director. The requirement for subordination ensures that other unsecured creditors will have such priority. In the absence of such a provision, the loan to the director would rank equally with debts to other unsecured creditors and, if the amount of the loan represents a substantial proportion of the company's debts, could mean that the director takes the greater part of whatever assets there are. Accordingly the requirement for subordination puts an applicant who chooses to invest in his company by making a loan in the same position, in the event of the company's insolvency, as one who makes an equity investment.”
“2.1 The Lender has agreed to lend to the Borrower the amount set out in the Schedule ('the Loan'), and this agreement contains the terms of the Loan. It includes details of the interest to be paid, and explains what the Lender can do if the Borrower does not repay the Loan. It also explains what happens if the Loan is not repaid and is instead converted into shares in the Borrower. … 5. Repayment 5.1 The Borrower must repay the Loan, and all interest that has built up, on or before the date specified in the Schedule (unless the Lender chooses to convert the Loan into shares in the Borrower prior to that date as per Clause 9). … 8. Events of Default 8. 8.1 The following are Events of Default; … 8.2 If an Event of Default happens, then what it says in clause 9 below will apply 9. Conversion of the Loan into Shares … 8.2 If an Event of Default happens, then what it says in clause 9 below will apply 9. Conversion of the Loan into Shares 9.1 If: (i) The Lender gives written notice to the Borrower that it wishes to convert part or all of the loan into shares in the Borrower or; (ii) the loan and the due interest is not repaid in full by the date set out in the Schedule, or (iii) if there is an event of Default, then the Loan (to the extent it has not been repaid) provided by the Lender (set out in the Schedule) will automatically be converted into shares in the Borrower on the basis of a shareholder agreement. 9.2 The conversion of the Loan into shares will fulfil the Borrowers responsibility to repay the Loan and any due interest, and the Lender agrees that if the loan is converted into shares in the Borrower in this way then the Borrower will no longer have any legal responsibility to repay any part of the Loan and/or any interest to the Lender. The Lender cannot change its mind about this agreement. 10. General 10.1 The Lender may assign, transfer, charge or sub-contract its rights and obligations under this agreement to somebody else but the Borrower may not do so. 10.2 No one who is not a signatory to this agreement may have any rights under it. 10.3 Changes to this agreement are only binding if the Lender and the Borrower agree them in writing, sign them and give each other a copy. …”
“33. As those cases demonstrate, the PBS does deliberately sacrifice discretion and (occasionally) perfect fairness or equity in the pursuit of a migration regime which is efficient, transparent and predictable, and as far as possible capable of being operated reasonably quickly and reliably by quite junior officials. But none of those aims comes near to displacing the need to take an unblinkered and realistic view of the facts to which the PBS regime is to be applied, for the purpose of deciding whether the requirements for achieving the specified scores are met. And where those facts include the use of a pre-ordained multi-step scheme, like the Maxwell Scheme, nothing in the Immigration Rules or in those cases requires the adjudicator (or the court on appeal or application for judicial review) to blinker itself to the reality revealed by appraising such a scheme in the round. 34. I do not by that mean that where an applicant does tick all the relevant boxes under this or any PBS regime, the adjudicator or the court may nonetheless decide that the applicant fails to qualify because for other reasons he or she, or the scheme to which they have subscribed, appears to fall outside the general suitability for migration which the Secretary of State might be supposed to have intended. Just as the hard- edged elements in a PBS regime may fail to achieve perfect fairness and thereby exclude apparently deserving applicants (for example because of failure to comply with some time limit which there is no discretion to extend), so also it may qualify some applicants whose credentials, viewed in the round, may be far removed from that which the Immigration Rules were intended to admit. Notwithstanding their frequent amendment the Immigration Rules are far from being perfect, and both applicants and the Secretary of State, who makes the Immigration Rules, have to take the rough with the smooth in their operation: see per Jackson LJ in Pokhriyal v Secretary of State for the Home Department[2013] EWCA Civ 1568 [2014] Imm AR 711, para 43 . 35. But the present question is whether it is legitimate to look at this scheme in the round to see whether two particular "tick-box" conditions have been satisfied in fact. The condition principally in issue is whether Ms Wang had the MAM loan money under her control. A positive answer to that question cannot sensibly be garnered from looking at one aspect of the Maxwell Scheme in isolation from the rest. Nor can Ms Wang rely on a perception that her strict legal rights under the written terms of agreements constituting the scheme might appear to give her that control if the practical reality, as between her, the companies involved and their owners DK and NK was that the MAM loan moneys were under their exclusive control throughout, rather than under hers.”
“32. …In order to operate the PBS fairly and efficiently, the respondent must be able to ascertain quickly, from the information provided by an applicant, the precise nature and legal status of the investment made in order to confirm that it attracts an award of points under the terms of the scheme. That can effectively be done if the phrase is interpreted as covering any transaction in which a director pays money to or for the benefit of his company on the basis that it will one day be repaid. It cannot effectively be done if the respondent is to be required, on an application-by-application basis, to make an analysis of whether a particular transaction by which money passed from a director to a company amounted to a director's loan.”
“45. The fourth matter is important. The requirement that the loan be unsecured ensures that in the event of the company's insolvency, secured creditors will have priority over the debt payable to the director. The requirement for subordination ensures that other unsecured creditors will have such priority. In the absence of such a provision, the loan to the director would rank equally with debts to other unsecured creditors and, if the amount of the loan represents a substantial proportion of the company's debts, could mean that the director takes the greater part of whatever assets there are. Accordingly the requirement for subordination puts an applicant who chooses to invest in his company by making a loan in the same position, in the event of the company's insolvency, as one who makes an equity investment.”