- If Article 50 is invoked, the UK will have a 2 year window to negotiate terms of its departure from the EU.
- This can only be extended with the unanimous consent of all Member States.
- There are various schools of thought on whether Article 50 notification can be withdrawn unilaterally. One school of thought says that it can be withdrawn and the UK could remain even once notice has been given. The other says that it requires the consent of all members. Another is that it requires the consent of a qualified majority i.e. 21 other members and the third is that it requires no consent at all!
- In any event some commentators estimate it could take up to 10 years to negotiate an exit.
- Prepare employee communications in advance to give comfort on operations, job security and relocation.
- Consider how you would respond to stakeholder enquiries or press coverage.
- Consider the timing of your next annual report and whether you need to cover Brexit.
- Check your exposure to Forex risks.
Changes in Law/Regulation
- Analysis of contractual clauses dealing with compliance with law will be essential. Parties will need to agree who has responsibility for monitoring compliance and who needs to pick up the costs to ensure goods/services are compliant with any new regimes.
- Contracts with EU territorial scope may no longer include the UK.
- Court judgments may become more uncertain as it is unclear what conflict of laws rules will be applied if Britain moves outside the EU. Arbitration may become more attractive. Please see our related article, "Brexit": Potential implications of the vote to leave on dispute resolution in the UK.
- Could Brexit fundamentally frustrate the purpose of a contract? It is possible it could be covered by the drafting of a standard force majeure clause, particularly if it includes reference to acts of government etc.
- European mergers are likely to be impacted by enforcement and jurisdictional questions. UK businesses could find themselves having to file both to the Competition and Markets Authority and the European Commission, causing delays and added cost. Please see our related article, Why Britain's current semi-detachment from EU Competition principles could become complete post Brexit.
- A unilateral Brexit would relegate UK Investment Managers to the status of "third country" managers. This may mean they would need to obtain new licences or to establish operations in an EU member state.
- It is unlikely that the majority of
EU employment law would be revoked, however certain regulations
have proved unpopular and may see change:
- Free movement of workers;
- Equal pay for agency workers;
- Accrual of holiday on maternity leave;
- The 48-hour working week; and
- The all embracing scope of TUPE.
Please see our related article, Does all employment in the UK derive from the EU?
- Personal data transfers to the UK may no longer automatically be permissible; this will impact on companies with UK based data centres who offer services to EU clients, though the GDPR would still catch UK businesses offering services in the EU.
- Manufacturing industries that rely on seamless multi-country non-tariff barrier free chains of supply could be hit with increased costs, red tape and delays.
- Life sciences, cosmetics and foodstuff businesses in particular could be hit with exposure to EU customs duties (ranging between 0.9% for wood and paper up to 42.1% for dairy products) and loss of mutual recognition of standards, qualifications and authorisations.
- EU free trade deals with other countries would be lost. Businesses should therefore consider introducing terms particularly into long-term sale and supply agreements to allow for price adjustments in the event of additional costs.
- Cost of borrowing may well increase owing to market uncertainty. Finance documentation should be reviewed to understand lenders' ability to adjust interest rates and collapse loans in the event of adverse credit markets.
- Where loan facilities are due to mature/be reviewed around the time of the UK's exit businesses should consider now accelerating those transactions.
- Clearly labour costs could rise if free movement of workers is reduced/abolished.
Industry Specific Impacts
Retailers & Automotive Suppliers:
- The UK is the EU's second largest market for new car purchases and a key base for car production. Trade barriers would hurt companies with supply chains which rely on imports.
Food & Beverage Sector:
- Import tariffs of up to 45% could be imposed. However, some food supplies could be obtained more cheaply outside the EU, since the UK would no longer be subject to the Common Agricultural Policy.
- The UK has Europe's largest defence budget and is a member of Nato. As such the UK is likely to remain part of multinational programmes to develop new military hardware.
Energy & Telecoms:
- Regulators may no longer be constrained by EU Directives that require significant levels of investment.
Managing commercial risks:
- Asset valuations – could market volatility affect value of collateral?
- Currency fluctuations
- EU Tax benefits – does your business benefit from this, in which case plan for increased costs.
- EU IP – have you planned protective measures if EU rights cease to apply, especially in relation to patents? Pan EU rights would not cover the UK on exit, although it is widely expected that the UK Government would provide for right-holders who lose protection in the UK in this way to be granted an equivalent UK national registered IP right to preserve their priority rights.
- Single Market Access – have you considered moving operations if you rely on EU pass-porting or setting up an EU subsidiary?
- Budget ¬– have you made contingency for costs increases?
- EU Regulations and approvals – Those in the medicine, life sciences, energy, road and airline industries who rely on EU wide approvals etc. need to assess how they can plug any gaps in approvals or licences.
- Staffing and Recruitment – do you employ EU workers or UK workers working in the EU, if so have you considered work permits?
- If your business benefits directly from EU funding, alternative sources need to be found.
- EU product standards may well continue to apply to UK exports and imports if exporters continue to export to Europe.
- There may be calls for Environmental and Climate Change legislation to be relaxed. Questions over how the UK continues to link to the EU emissions trading scheme will need to be answered.
Managing legal risks:
- Brexit Clauses – should you consider added Brexit related termination events or grace periods?
- Covenant Compliance – could market volatility affect your ability to comply with financial covenants and payment obligations?
- MAE – could the leave vote trigger a material adverse or force majeure effect in your contracts? (Unlikely with contracts entered into once the EU Referendum became common knowledge.)
- Choice of Law and Courts – do you need to (re)consider the effect of choice of law and jurisdiction clauses if EU legislation ceases to apply?
- EU Terms – if your contracts refer to EU legislation or terms you should consider how these terms should be interpreted for example by clarifying it refers to EU legislation as at the date of contract.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.