Month: February 2019

In June 2016, the UK referendum on EU membership was taken and the UK voted, by a narrow margin, to exit the EU. On the 29^thMarch 2017, the UK Government served formal notice under Article 50 of The Treaty on European Union to terminate the UK’s membership of the EU. Based upon this Article, the EU Treaties that govern much of the law of the UK and the EU as a whole, will cease to apply to the UK on the 29^thMarch 2019. Much of the governing party of the UK is working tirelessly with their EU counterparts to conclude upon a Withdrawal Agreement. If the agreement approved by the EU and is passed through the UK Parliament, a transitional or ‘implementation’ period will run through to the end of 2020. During this period, EU law will continue to apply through the UK. This agreement is expected to include a future relationship framework between the UK & the EU to cover trade, law, transport and boarder control amongst many other areas of concern. Any Withdrawal Agreement, in the form of a political declaration, will enable the future of the UK/EU to be negotiated during the implementation period, up to the end of 2020. The alternative, should no Withdrawal Agreement be forthcoming for unilateral agreement, is a ‘hard’ or ‘no-deal’ Brexit. In the case of a no-deal, EU law will cease to apply in and to the UK on the 29^thMarch 2019. Just six-weeks from today.

EU Law

There is an increasing likelihood that businesses and corporations will need to plan for an outcome that very few would prefer. All businesses should begin to plan for a variety of outcomes, including the possibility that EU law will cease to be ‘Law’ in the UK on the 29^thMarch 2019. Businesses likely to be affected by a hard Brexit, should identify their potential areas of risk. Planning internal and external communications to employees and customers immediately, is vital in order to be prepared for a possible negative outcome. Businesses should set aside time, resources and budget to initial analysis and further deep-dive reviews of the impact of the outcomes as the future plans become more apparent.

UK Head Offices for Non-EU Companies

There are significant, serious implications for overseas businesses with bases in the UK. Many businesses create UK operations and office bases as a stepping stone into the EU from, for example, the Middle East, North America and China. Research carried out 5-years ago, found that over 50% of non-EU firms had built their European base in the UK. Many key issues are arising for such businesses and will become critical if a Withdrawal Agreement is not reached and the UK/EU face a hard Brexit. The future of the UK trading agreement with the EU will be vital. As will the rights of EU nationals living in the UK. Issues around immigration and the controls of EU nationals living and working across the UK are of top priority to the majority of international training firms at present. The uncertainty over trade and personnel, future arrangements and agreements, are bound to effect decisions taken in the coming months and years. Major decisions have been stalled, numerous international firms have already voiced the possibility of moving out of the UK and significant volumes of international firms who have their European Head Office based in the UK may look to relocate to countries who are remaining within the EU, in order to maintain their route to the single market, as well as for legal continuity.

Cross-Border Mergers Directive

The Cross-Border Mergers Directive and the associated implementing UK regulations which support the merging of European companies, will no longer be available to UK companies. The present regulations allow the merger of EEA companies, so long as one company within the merger is a UK business and another company is from another EEA member state. For transactions planned which involve one or more UK companies and one or more companies from European member states, thus undertaking a cross-border merger, pursuant to the Cross-Border Mergers Directive must be planned to conclude before Britain leaves the EU. If a no-deal Brexit becomes apparent, these transactions should be completed ahead of a 29^thMarch deadline.

Wider Implications upon EU Law in the UK

There are significant wider implications on English corporate law of a no-deal Brexit. The plan, with a Withdrawal Agreement, was for EU law to cease to apply to the UK, directly, but the existing law will be transposed into UK law upon Brexit under the European Union (Withdrawal) Act 2018. At that point, Parliament will work through all UK law to decide which sections of the law will remain, which will require modification, replacement or removal from UK law.

The Companies Act 2006, the core legislation upon which incorporation and operation of UK companies is platformed is not wholly derived from EU law, although some parts have been brought from EU Directives. The areas of EU influence include accounts, disclosure of information and shareholder rights, to name but a few. The most significant areas up for review will apply to companies with shares listed on the regulated markets, such as the London Stock Exchange.

Although change may be minimal over the coming months and years, businesses must be aware that change is likely. The Financial Conduct Authority and the London Stock Exchange will want to see current directives and regulations, or similar frameworks to remain in place. However, without an agreement or deal yet tabled for unilateral agreement, the future does not present clearly.

If you require advice or assistance in the risk awareness or future planning for your business, please contact David Heys on dheys@lawson-west.co.uk at your earliest convenience, alternatively call 0116 212 1000 to speak to another member of the commercial team.

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.