As the country recovers from the shock outcome of last Thursday’s Referendum, the question which Restructuring professionals must now consider is “what does Brexit mean for me?”. The truth is that nobody really knows. The Referendum decision is not legally binding on the UK Government and the process of the UK leaving the EU will only start once the UK has served formal notice on the EU pursuant to Article 50 of the Treaty on the European Union. This will start a two year negotiation period to effect Brexit. In the meantime, the UK remains a member of the EU and EU law continues to apply.
So, in some respects it is very much business as usual for now, but on the basis that David Cameron’s successor will give notice to leave the EU, we recommend that clients start considering the consequences of Brexit now. Preparation for those consequences may include looking at the following:
Contract Reviews – Many contracts refer to an array of EU laws, regulators and territories which should be reviewed to determine how Brexit may/will impact. Can the contract be varied to mitigate the impact of Brexit? What is the potential impact on the contract price being linked to Sterling, the Euro or the Dollar? Does the governing law clause need amending? Will Brexit result in a breach of contract? Whilst unlikely, can force majeure or material adverse effect clauses be relied upon? How can the contract be future-proofed?
Financing and security reviews – Brexit caused turmoil in the markets initially and led to a reduction in the UK’s credit score rating and a significant devaluing of sterling. Before the Referendum, warnings of a post Brexit recession were rife. Is your business/customer at risk of breaching its financial covenants as a consequence of Brexit? Do those facilities and security need to be reviewed and changes made to protect the position?
Vulnerability to Brexit – Brexit is going to impact some more than others. How much do you or your clients/customers trade with other EU countries? How will your supply chain be affected? Do you currently benefit from EU funding? Is the tax efficiency of your business based on EU law? Does your business benefit from EU emission allowances? Will you need a licence or other authorisation to trade in the EU?
Public Policy – The UK will have to review where domestic legislation may need to be amended to take account of Brexit. It will be important to businesses to understand what changes are likely to be coming down the line. Many of the legal changes will be driven by policy decisions made in London and/or Brussels in particular. Keeping on top of these Policy decisions may allow businesses to position themselves to benefit from or at least mitigate the effects of legislative change. Do you need to engage with public policy professionals to assist in lobbying for changes which will have a positive impact on your business?
International Trade Arrangements – To what extent does your business involve the supply of goods between the UK and other EU member states? How will your business be impacted by the potential imposition of tariffs and other trade barriers restricting the free movement of goods post-Brexit?
Immigration and employment– What nationality are your employees? How will your ability to recruit/second employees be affected and will any parts of your business have to be downsized?
Communication – To what extent do you need to make any public statements or disclosures in relation to the impact of Brexit on your business. What is your strategy for communicating the impact of Brexit with your staff?
Other issues will arise as the full impact of Brexit unravels over the coming weeks and months. Squire Patton Boggs are ideally placed to help, given our global footprint (including 15 offices across the EU), our Public Policy practice in Brussels and the expertise we have in many areas of your business and those you will be advising which may be affected. We look forward to partnering with you in order to facilitate the inevitable changes Brexit will bring.