An overview of two technical papers which explain certain legal implications in the event of a no-deal exit from the EU.
On 12 October 2018, the Government published two technical papers which explain certain legal implications in the event of a no-deal exit from the EU on 29 March 2019: “Structuring your business if there’s no Brexit deal” and “Accounting and audit if there is no Brexit deal”. One deals with the implications for legal entities operating across a UK-EU border or which are in the form of a European specific entity (such as a Societas Europea); and the other deals with the implications for accounting, corporate reporting and audit.
The notices state that, if after March 2019 there is no deal, the Government will ensure that the UK continues to have a functioning regulatory framework for companies and that, as far as possible, the same laws and rules that are currently in place continue to apply. Some changes will be necessary, however, to reflect that the UK is no longer an EU member state.
Implications for legal entities
The notice includes the following:
Branches in the UK
Companies incorporated in countries outside the EU that operate through a branch in the UK will remain third country businesses. The overseas company regime in the Overseas Companies Regulations 2009 will continue to apply to them.
EU companies that operate branches in the UK will become "third country" businesses and be subject to the same information and filing requirements as other third country businesses.
An EU company with a branch in the UK that is required by the law of the EEA state where the company is incorporated to prepare, have audited and disclose accounts, will be required to file in the UK accounting documents which will include the accounts, any annual directors' report, any auditors' report on the accounts, and any auditors' report on the directors’ report.
An EU company with a branch in the UK which does not meet this description will, after exit day, have to comply with the provisions of Part 15 Companies Act 2006 that have been applied (with modifications) to overseas companies by the Overseas Companies Regulations 2009.
Action: EU companies with UK branches need to familiarise themselves with the additional information and filing obligations and accounting rules for "third country" businesses.
Ownership/management of EU companies
UK citizens may face restrictions on their ability to own, manage or direct a company registered in the EU, depending on the sector or EU country in which the company is operating.
UK businesses that own or run business operations in EU member states are likely to face changes to the law under which they operate, depending on the sector and EU member state.
UK companies and limited liability partnerships (LLPs) that have their central administration or principal place of business in certain EU member states may no longer have their limited liability recognised. This is the case in certain jurisdictions that operate the ‘real seat’ principle of incorporation.
UK investors in EU businesses may face restrictions on the amount of equity that they can hold in certain sectors in some EU member states.
Action: UK investors in, and owners of, EU businesses need to check what restrictions (if any) will apply in the relevant EU jurisdiction(s).
UK companies and LLPs that have their central administration or principal place of business in an EU member state need to check in the relevant jurisdiction whether their limited liability status will be affected.
Cross border mergers
The EU cross border mergers regime will no longer be available to UK companies. EU member states will also no longer have to give effect to cross border mergers that do not complete before the UK leaves the EU.
Action: Any UK company doing an EU cross-border merger should ensure that it is completed before exit day.
Societas Europea (SE)
These entities will no longer be able to be registered in the UK. If any SEs have not made alternative arrangements before the UK exits the EU, the UK government will automatically convert them into a new UK corporate structure so that they have clear legal status after exit. This will include maintaining the employee involvement provisions but these entities will no longer be able to move their registered seat to another EU jurisdiction.
Action: Any SEs should consider whether they want to convert to a UK public limited company (if they satisfy the requirements for conversion) and/or move their seat of incorporation to another EU member state.
European Economic Interest Groupings and European Public Limited-Liability Companies
These entities will also no longer be able to be registered in the UK. UK members of European Economic Interest Groupings registered in another member state will no longer be able to participate in that grouping unless the contract under which they are formed allows them to do so.
Accounting and corporate reporting
The notice includes the following:
UK incorporated subsidiaries and parents of EU businesses will continue to be subject to the UK’s corporate reporting regime but certain exemptions in the Companies Act 2006 relating to the preparation of individual accounts will no longer apply. For example, a UK company is currently exempted from having to prepare individual accounts if it is dormant and part of a group of companies with an EU parent company that prepares group accounts. This exemption will only continue to apply after exit if the parent company is established in the UK.
Action: UK incorporated subsidiaries and parents of EU businesses need to check which exemptions will no longer be available.
UK businesses with a branch operating in the EU will become third country businesses and will be required to comply with specific accounting and reporting requirements for such businesses in the member state in which they operate.
Action: UK businesses with branches in the EU need to familiarise themselves with any additional reporting obligations that may be required in the relevant EU member state.
UK companies listed on an EU market may have to provide additional assurance to the relevant listing authority that their accounts comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board. This will need to be done in accordance with EU third country requirements.
Action: UK companies listed on an EU market need to check whether they will have to provide additional assurance about their accounts.
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.