Blog: Brexit – EU Company Law v UK Company Law – Business News Wales

Since  31st January 2020, the United Kingdom has not been a member of the European Union, but contrary to opinon, this day did not signal a clean break between the two parties.

Due to the “implementation period” introduced by the Withdrawal Agreement, EU company law will still apply in the UK and moreover the UK will still be bound by existing law and new law enacted in the EU.

The effect on UK company law will not be significant as directly applicable EU company law has been implemented over time in UK legislation. Furthermore, the introduction of the European Union (Withdrawal) Act 2018 means that the UK will be able to retain and convert applicable EU legislation into domestic law.

Market Response

In light of Brexit, corporate deals and transactions are still proceeding  smoothly and with prevalence. The volatile market and the change in circumstance has led to opportunities for buyers and sellers alike. These opportunities have been taken advantage of by key players and budding entrepreneurs to a great deal of success.

Due to Brexit many businesses have decided to exit certain markets and refocus efforts in different jurisdictions. This unique circumstance has created an opportunity to restructure the corporate governance framework of companies, enhancing their ability to succeed within the new market conditions.

Below we explore some key points to be mindful of.

Due Diligence

In a sale transaction, the buyer will proceed with an investigation of the target, a process called due diligence which entails the examination of public and private information regarding the target. As of 31st December 2020, this process will need to take into consideration further points, namely the effect of Brexit on the particular company.

It is important for the buyer to ensure that a potential UK target will still be able to operate in the EU and have contacts and contracts with EU Members. This will involve an investigation into the financial and practical impact that Brexit will have on the customers, on the geographical area and structure of the target and on the potential business interruption.

The impact will need to be monitored as well in light of any consents and regulations that might have been granted to companies before Brexit, which may no longer apply. The aforementioned factors will likely affect previous arrangements and commitments which will affect the operation of the business.

Buyers will need to register EU Intellectual Rights in the UK to ensure protection. The review of any contract will need to ensure that material adverse change and force majeure clauses are not triggered and that Brexit is not included as a frustrating event.

Purchase Agreements

Legal representatives should consider a more flexible approach when drafting share purchase agreements or asset purchase agreements. This will ensure that changes introduced by legislation that will be implemented on the Implementation Period Completion Day (31 December 2020) will be applicable to the transaction and would not put the parties in an uncomfortable position.

Reference to regulations will need to include references to Brexit and Brexit related legislation to ensure compliance without a further amendment of the document.

Insurance

Warranties and Indemnity insurances may be used by either party to the transaction to ensure coverage from the liabilities that could rise from a change of legislation post Brexit. This insurance will ensure that losses arising from a breach of the sellers’ warranties and indemnities could be recovered.

One of the questions arising around this type of insurance is the validity and the applicability in case of cross-border transactions between the UK and a member of the EU. The legal representative will need to ensure that the party taking out this type of insurance will check the validity and the possibility to enforce the insurance in that specific state, whether it is a non-member like the UK or a member of the Union.

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