Brexit: the implications for M&A and corporate
Mergers & acquisitions (M&A)
Reviewed: 07 February 2017
Brexit is unlikely to have a major impact on share sale transactions unless they are affected by competition regulation, as they are typically not subject to much EU law or regulation. Asset and business sales including employees are likely to be affected if the regulations which protect the rights of employees on a business transfer are affected. (See Brexit: the employment law implications).
Areas which might be affected include:
References in sale and purchase contracts to the EU and EU legislation may cease to work as intended. However, given that there is now a transitional period before the UK exits the EU, contracts entered into in this period should be capable of being drafted so as to ensure this is not an issue in practice. Older contracts can be reviewed and, if necessary, amended.
Any proposed acquisition of a UK public company is governed by the rules of the UK Takeover Code. Although the UK Code implemented the EU Takeovers Directive, the Code contains a large number of UK specific rules and we therefore expect them to continue substantially in the same format, but with some amendments to reflect the UK's exit from the EU.
Cross border mergers
The EU Cross Border Mergers Directive allows mergers (ie the collapsing together of two companies either so that the assets of the entity ceasing to exist transfer by law to the survivor, or so both cease to exist with their assets transferring by operation of law) between companies incorporated in different European Economic Area (EEA) states, provided certain rules are satisfied. The regime, whilst enacted into English law, comes from EU legislation and should the UK cease to be an EEA Member State, then references to "EEA member states" in the legislation of other EU members would cease to include the UK, meaning such mergers were no longer possible under the existing framework. It is likely that a number of businesses which need to reorganise as a result of Brexit may choose cross border mergers to move business outside the UK - it will be important to ensure that the merger is complete prior to the UK actually leaving the EU (and hence the EEA).
Brexit is unlikely to have a major effect on UK company law as this is an area of EU law which is largely left to individual member states to regulate. It could, however, affect the ability of UK-based companies to use European company structures.
Areas which might be affected include:
Companies Act 2006
This Act is one of the main pieces of legislation governing UK companies. Some of the provisions are based on EU directives, such as the Company Law Directives, the Shareholder Rights Directive and the Accounting Directives, which could be repealed. The Act has, however, only recently had a major overhaul and we would not expect major changes to be made.
It is unlikely that the UK government would seek to update the Act to reflect further amendments to those directives and in due course updates of the Act may diverge from the European equivalent.
The European Company Statute allows a European company (also known as a Societas Europaea or SE) to be formed in any EU member state, but they have not proved popular and there are very few registered in the UK. These companies are subject to certain EU-wide laws. Any SEs incorporated in the UK are likely to cease to be capable of existing in the UK and therefore should be prepared to transfer their registered office to another member state or to remain in the UK in a different corporate form.
Minority investments, shareholders’ agreements, private equity structures
The main implications are similar to those for M&A transactions, in particular the effect of competition regulation. In addition, existing shareholders’ agreements and investment agreements may need to be reviewed to consider whether their provisions require technical amendment.
A number of private equity structures have found themselves within the scope of the EU’s Alternative Investment Fund Managers Directive and this would likely cease to be an issue.
For further information on Brexit, please refer to Brexit: the legal implications.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.