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THE POSSIBLE LEGAL CONSEQUENCES OF THE UK LEAVING THE EU

2016-05-04

The UK referendum to take place on 23 June 2016 marks a very important day in the history of the European Union, a real cross-road. No country has ever left the EU, so an English “no” will mark a significant junction in European history – and one where the potential consequences are hard to predict.

From a legal perspective corporates carrying on business with or in the UK should be starting to think about what changes may follow if brexit becomes a reality. Contingency planning should be a focus area.

Businesses should start to budget for fluctuations in exchange rates and should consider revising trade agreements they are a party to, involving the UK in some way.

Other issues to consider in light of a potential brexit are retention of employees, tax issues, financing, cross-border pension schemes, intellectual property and data protection.

Corporates should consider what consequences brexit will have on the contracts they are a party to, whether their rights and obligations will remain the same and whether a departure by the UK from the EU will trigger a “material change” – clauses common in commercial agreements, for instance M&A transaction documents and debt financing agreements.

Governing law

Corporates should be aware that the standard form of legal contracts may change in the aftermath of a brexit. For instance “governing law” clauses may not continue to refer to English law as being the governing law, but rather to European legislation, European legal concepts or be governed by the “Territory” of the European Union.”

Corporates should consider updating their legal contracts and should bear this in mind when entering into future contracts.

Employer/employee contracts

Corporates should also consider instructing their in-house HR departments if they contemplate to relocate employees, restructure or downsize their business or otherwise take steps in terms of employee planning and strategies in the light of a brexit.

They should consider how to communicate brexit to their workforce, internal audits of UK/EU nationals, expatriates, secondments, immigration issues and future recruitment policies. Employment contracts may need review and attention should be paid to restrictive covenants, confidentiality and pension scheme clauses as well as general EU related clauses. In addition, new employment contracts may require updating as a consequence of brexit.

Tax issues

Brexit may, depending on the outcome, have an impact on customs, value added tax, withholding tax and corporate tax levels in the UK. Contract clauses relating to customs procedures as well as import and export of goods to and from the UK may need amending. Levels of value added tax may decrease or increase in the UK. Other tax issues to consider are headoffice/subsidiary issues and royalty and dividend payments to and from the UK. Lastly UK´s double tax treaties should be borne in mind as they may also impact future tax levels. Corporates are advised to review their internal tax plans in light of brexit and pay particular attention to group structures and parent/subsidiary issues, interests and royalty payments etc.

Patent registrations/IP issues

Corporates should bear in mind that the new EU patent courts may not apply to the UK if brexit becomes a reality and that they may need to obtain separate judgements in relation to their patent registrations after brexit.

Furthermore, if brexit becomes a reality it may mean that harmonisation of IP registrations will become blocked and it will be harder for corporates to provide cross border services and settle disputes. Trademark and design holders with UK registered rights may lose priority and may face being granted new or equivalent priority rights on brexit.

Pension schemes

Fundamental principles with respect to pensions and pension schemes in the UK may not change on brexit. However, corporates are advised to consider whether eventual changes could trigger reporting or funding requirements under existing pension scheme arrangements.

They should also consider liaising with their trustees with regards to investments and hedging arrangements contained within pension schemes and pension scheme provisions in general.

Banking/insurance

Corporates operating in the banking and insurance sector should be aware that the current financial passporting system may be amended or abolished if the UK steps out of the EU. Head offices may need to be relocated to continental Europe and business models and group structures may need restructuring. Consideration should be given to the provision of derivatives and fund management and whether brexit will cause changes to market infrastructures. Furthermore, the rules on capital requirements may or may not become more onerous as a consequence of brexit which in turn, may affect corporates operating in this sector.

Data protection

The consequences of brexit for corporates in terms of data protection may have minor effect. The present data protection regime in the UK is likely to continue in a similar form to the current regime.

Securitisations, insolvencies, debt and equity financing issues

Brexit is not expected to materially change UK securitisation structures from a regulatory point of view; however, any change will depend on the precise exit structure decided upon by the UK government and the EU. This, generally speaking, also applies to insolvencies and debt and equity financing issues.

Conclusion

Brexit is a complex issue and the outcome of the coming referendum difficult to predict. Corporates carrying on operations in or with the UK ought to consider the consequences of brexit becoming a reality.

Some UK registered businesses have begun preparing for the eventuality already. Continental European and other non UK businesses should be doing the same and should start to review the areas, contracts and clauses suggested above as a minimum.

Brexit as a concept is being considered a “risk factor” or a “material change” factor and is becoming a standard term in legal agreements across Europe and beyond.

In addition, brexit is being treated as a risk factor in prospectuses and listing documents in IPO´s in some instances. The consequences of brexit, therefore, should be taken seriously, whether it becomes a reality or not.

Magnusson´s role

Magnusson Lawfirm offers seamless legal services in all countries across the Baltic Sea Region and beyond. Please feel free to contact us if you have any questions in relation to any of the specific legal issues raised in this newsletter. We would be more than happy to provide you with our Legal “Brexit” Service Check in order to prepare your business for brexit regardless of the outcome.

We would advise you to start thinking about the issues raised in this newsletter if you are carrying on business with or in the UK. In relation to implementation of any necessary legal changes Magnusson would work in conjunction with our partner law firms in the UK. We are also happy to assist you with any ongoing legal requirements that you may have after Brexit has taken place or otherwise.

Related People: Nikolaj Juhl Hansen, Tina Ravn
Related Service Areas: Banking and Finance, Commercial, Corporate and M&A, Employment, EU and Competition, Intellectual Property, Tax
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