Brexit: impact on corporates if there is no deal

An overview of two technical papers and guidance which explain certain legal implications in the event of a no-deal exit from the EU.
  • Submitted 9 November 2018
  • Reviewed 20 August 2019
  • Applicable Law UK (England & Wales)
  • Topic Brexit

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: “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 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.

On 14 February 2019, Companies House published guidance on changes to company registrations if the UK leaves the EU without a deal. It also published a list of the Companies House forms that will change if the UK leaves the EU without a deal.

On 21 February 2019, BEIS published a letter with further information about accounting and corporate reporting in the event of a no deal. BEIS also published a letter with information for auditors and firms about audit regulation.

The EU has allowed the UK to delay the exit date until 31 October 2019 (from 12 April 2019). The UK can exit earlier if the Withdrawal Agreement is approved by Parliament. See Brexit negotiations: recent developments for more information.

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.

UK companies with EEA corporate officers

The filing requirements for a UK company or LLP with EEA corporate officers will change. They will have to provide the corporate officer’s name, registered (or principal) office address, legal form and its governing law and register and registration number (if applicable). This will not affect a company or LLP which has a UK registered limited company as a corporate officer.

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, they will automatically be converted into a new UK corporate structure, a "UK Societas", 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.

The legislative changes for SEs can be found in The European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2018.

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. This must be completed before exit day.

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.

Any EEIG registered in the UK after exit day will be automatically converted to a United Kingdom Economic Interest Grouping (UKEIG).

The legislative changes for EEIGs can be found in The European Economic Interest Grouping (Amendment) (EU Exit) Regulations 2018.

Accounting and corporate reporting

The notice and the 2019 letter include the following:

UK incorporated companies and groups

Preparation of Accounts using IAS - UK incorporated companies can continue to use EU-adopted IAS for financial years straddling the exit date but will have to use UK-adopted IAS for financial years beginning after the exit date. A new endorsement body will be set up to assess EU IAS for adoption in the UK.

UK companies with cross border presence - UK incorporated parent companies with subsidiaries based in the EEA and UK companies with an EEA presence (eg a branch) need to check the relevant reporting requirements in the EEA state where the subsidiary or branch is based. After exit, the Companies Act 2006 corporate reporting requirements will not be automatically be deemed equivalent to the EU’s Accounting Directive and therefore UK reporting requirements may no longer be considered sufficient for EU purposes.

EEA companies and groups with cross border presence

After exit date, EEA companies with a UK incorporated subsidiary will no longer be eligible for certain exemptions from preparing and filing accounts. For example, intermediate UK parent companies with an immediate EEA parent will no longer be exempt from producing group accounts. Similarly, UK incorporated dormant companies with EEA parents will no longer be exempt from preparing individual accounts.

See Brexit: the implications for equity capital markets for the accounting implications for listed companies.

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.