Brexit: the implications for M&A and corporate

An overview of the possible mergers & acquisitions and general corporate implications of an exit by the UK from the EU.

Mergers & acquisitions (M&A)

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 may 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:

Contractual wording

Sale and purchase agreements need to be reviewed to ensure any references to the EU and EU legislation still work and that clauses such as termination; governing law and jurisdiction are not affected. Older contracts should be reviewed and, if necessary, amended. See Disputes: What to look out for in 2019: Brexit for more information on governing law, jurisdiction clauses and enforcement of judgments when the UK leaves the EU.

Public takeovers

Any proposed acquisition of a UK public company is governed by the rules of the UK Takeover Code (Code). The legislation underpinning the Code and certain provisions of the Code itself are being updated to reflect the fact that EU law will no longer apply in the UK after the UK leaves the EU. Most of the changes are technical in nature and do not materially alter the Code. A substantive change is that the shared jurisdiction of certain takeovers with other regulators will end.

The Takeover Panel (Panel) has published its response statement (RS 2018/2) which summarises the final proposed changes to the Code when the UK leaves the EU, following its consultation on them (PCP 2018/2). On 4 April 2019, the Panel published Instrument 2019/3 with the final changes.

The UK Government has also published The Takeovers (Amendment) (EU Exit) Regulations 2019 (and an explanatory memorandum) with changes to Part 28 of the Companies Act 2006 (2006 Act) which deals with takeovers.

These changes are necessary as the EU Takeovers Directive will cease to apply in the UK when the UK exits the EU and are being made to ensure that the UK takeovers regime operates effectively after exit.

See Brexit: impact on UK takeovers regime for more information.

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.

In its technical paper “Structuring your business if there’s no Brexit deal”, the UK government has stated that, in the event of  a no-deal Brexit, 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.

Corporate entities

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 and those provisions will continue as UK law after Brexit.

If the UK leaves the EU in March 2019, with a transition period, then the UK will continue to implement EU Directives, such as the Shareholder Rights Directive II (SRD II), into UK law. (See EU Shareholder Rights Directive II for more information.) It is, however, unclear to what extent the UK government would seek to update the Act to reflect further amendments to those directives if the UK leaves with no transition period.

European company

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 that popular. These companies are subject to certain EU-wide laws.

In the event of a no-deal Brexit, 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, 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.

See Brexit: impact on corporates if there is no deal for the implications for legal entities operating across a UK-EU border or which are in the form of a European specific entity.

See also Brexit: impact on corporates if there is no deal.

Minority investments and shareholders’ agreements

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.

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.