Tier 1 Investor investment scheme fails

As many readers will know, the Tier 1 Investor visa enables “high net worth individuals” to invest large sums of money into the UK and acquire leave and potentially settlement on that basis.

The rules about the investment – both the amount and the destination – have changed over the last few years. But it has always been the case that the funds that the investor has for investment must be “under his control” (legal drafting traditionally adopts the male gender but of course the investor can be a woman).

What does “under his control” mean? Well, according to the Upper Immigration Tribunal – and relying on well-established previous authority from the higher courts – such rules must be interpreted sensibly according to the natural and ordinary meaning of the words used”.

We suppose we must applaud the Upper Tribunal and indeed the higher courts for requiring sensible interpretations of the rules. And the words “natural” and “ordinary” evidently imply a simple and straightforward approach rather than a densely legal one.

In any event, the occasion for the Upper Tribunal’s opinion about this came in a Judicial Review case that was heard before it called “JW and others”. JW and others – Chinese nationals apparently – had got themselves into a rather sticky situation regarding their Tier 1 Investor route. They had relied on an intricate investment scheme to satisfy the requirements of the rules.

Although the Upper Tribunal exercised the admirable principles of interpreting sensibly, naturally and ordinarily, as is sometimes the case a simple concept applied to a real-life situation produced a lot of complexity.

The scheme worked something like this. The applicants bought a contractual product (a “Services Agreement”) from a company called “Maxwell Holding Ltd”, which was a company registered in Jersey. The Director was Mr Dmitry Petrovich Kirpichenko, a Russian national.

These products included the giving of advice about the requirements for Tier 1 Investor visas and also facilitated the applicants taking out a loan from another company called “Maxwell Asset Management Ltd” (a UK-registered company and a wholly-owned subsidiary of a company incorporated in Cyprus). In furtherance of this there were “negotiations” about the loan between Maxwell Holding Ltd and Maxwell Asset Management Ltd on the applicants’ behalf.

Now, if you think there might be a connection between these two companies you would be right: Mr Kirpichenko was also the Director of Maxwell Asset Management Ltd. (And he was also the owner of the company in Cyprus.)

Anyway, then these funds were invested into another company called “Eclectic Capital Ltd” (also a UK-registered company), whose Director and owner was Nika Kirpichenko. If you think that there might be a connection between DP Kirpichenko and N Kirpichenko you would be right: they are husband and wife. And, incidentally, Mrs Kirpinchenko also held shares in Maxwell Asset Management Ltd.

The funds invested into Eclectic Capital Ltd were subsequently converted into share capital, within a complex share structure.

The core principle behind the scheme was that the ultimate investment of funds into Eclectic was a “qualifying investment” for the purposes of the Tier 1 Investor route. An investment, either by loan capital or share capital into “active and trading UK registered companies” can indeed be such a qualifying investment.

But clearly this arrangement was unusually complex. Did the Home Office believe that it nonetheless met the requirements of the rules? No, unfortunately not. In fact it seems that there was hardly anything that it did like about it.

The applicants’ applications were refused on a gamut of reasons. For a start, the Home Office said that Eclectic Capital Ltd was not the right type of company for the investment to meet the requirements of the rules because its financial activities at the time of the visa applications had not been of the right type. So the applications failed on this ground alone. But this was only the start.

The dreaded words “We are aware of a link between Maxwell and Eclectic” appeared in the refusal decisions. The Home Office had spotted the interesting fact that Mr and Mrs Kirpichenko were married to each other and, as they put it, “This raises concerns about the loan and investment arrangements you have entered into”.

It is fair to say that a high of suspicion had thus been engendered, and a lot of words (but not good ones) followed, about the restrictive nature of the loans made by the applicants to Eclectic. The Home Office said that once the Services Agreement had been made with Maxwell Holding Ltd the applicants had lost control of their investments. They had had no choice about where they were invested – ie they could not be invested other than in Eclectic – and no choice about them being converted into Eclectic’s share capital, and they could not withdraw from the investment if they wanted to.

And there was another factor: the rates of financial return for the applicants’ investments were very low. This it seems contributed to the miasma of suspicion surrounding the whole business and it raised issues about whether the scheme was “genuine”.

The case went through Administrative Review and then Judicial Review before the Upper Tribunal and, unfortunately for the applicants, the Upper Tribunal was fully on board with the Home Office.

They agreed with them that there were a number of fatally unsatisfactory features about the investment scheme. On the question of “control” they indicated that a highly sophisticated definition of this word was unnecessary. What they such did say was that the investor must have “the authority to manage and/or direct the use of the money” and that in this case they did not.

So the applicants were unsuccessful in their case. And this prompts us to tell you that if you are thinking of becoming a Tier 1 Investor and you might be interested in entering an “investment scheme” you are very well advised to take good and competent legal advice before acting.