Brexit – What are the Consequences
On 1st of January 2021, we entered the post-Brexit period and the consequences for business have started to be implemented or are slowly becoming more apparent. Some aspects are clearer than others as negotiations have not yet finalised on a series of issues and industries, notably on the services side. The following is not presented as a comprehensive list of changes, instead, its aim is to hopefully bring some greater clarity to a few areas and questions. More developments will soon come as negotiations between the UK and EU continue.
Manufacturing and goods
The Trade and Cooperation Agreement (TCA) between EU and UK was agreed and signed on the 24th of December 2020. A sigh a relief was heard from the business community, not only as a result of its contents, some of which still needs unravelling and understanding but also because it shows that the parties were willing to negotiate and agree to compromise in certain areas. Long may this attitude continue in respect of the services sector, not least in financial services, research & development and others.
The importers and exporters, distributors, and manufacturer of goods are all affected by significant changes to the regime post-Brexit. These changes include:
- compliance requirements
- import and export licences
- tariffs for countries where no deal is yet in place with the UK
- labelling of goods
- potential new VAT rules
- customs procedures
- new approvals for medical devices
- the CE (Conformité Européenne) marking has been replaced by UKCA (UK Conformity Assessed)
There is no reason to think that the UK Employment legislation that has been driven by the intensive EU jurisdiction will change its standards. If anything, the current climate will most probably condemn any lenience towards undermining employees’ rights such as those brought in by Transfer of Undertakings (Protection of Employment).
(“TUPE”) regulations, equal pay or maternity rights. However, over the medium-to-long term we might see some changes brought in, perhaps on the working time directive. The UK employment market has always been more dynamic and flexible than the EU counterpart and it might be that this will be reflected in the legislation that governs it.
The free movement of people has now ended. The UK government has now implemented changes to immigration and brought new rules in force.
EU or EEA and Swiss nationals who could apply under the EU Settlement Scheme can continue to apply to the Scheme until 30 June 2021. Otherwise, all other EU nationals that will come to work into the UK will need a work visa.
For more in-depth information regarding the new regime for sponsoring workers in the UK please refer to our article on Sponsoring Skilled Workers and Intra-Company Workers.
IP and Data Protection
From 1st of January 2021, any EU registered trademarks will cease to cover the UK and vice-versa. The UK will however grant UK registrations to the owners of EU registered rights that will keep the initial registration date and fillings. It seems that no fees will be charged for these new UK rights when they are created, but for renewal only.
For pending EU trademarks that by 1st of January were not yet registered there will be a 9 month period during which the owners will be able to apply to the UK to register such trademark. This will be a new applications process and payment of a fee will be necessary.
Regarding the Data Protection, following Brexit, the UK now has its own data protection regime. The main piece of legislation is a version of the General Data Protection Regulation 2016 which has been amended to reflect the UK’s position following Brexit (the UK GDPR). This must be read with reference to the UK’s Data Protection 2018. The Information Commissioner’s Office (“ICO”) has already stipulated that it will have the independence to review this.
To read more about this please see: Data Protection – Do you need a representative?.
The UK is the 6th largest world economy and its services sector represents over 70% of its GDP. The financial services sector is particularly strong and London one of the major global financial centres.
The passporting regime has now ended and, with proposals for some kind of “enhanced equivalence” seemingly dropped during the talks, we entered a three-year period of temporary permissions regime or TPR. Further extensive negotiations in this respect will be undertaken between UK and EU, with a Memorandum of Understanding over a future framework for equivalence decisions due by March 2021. In any event, it seems unlikely that London’s prime position as a global financial services hub will be undermined.
Consumer Credit deserves a mention even though as Brexit goes, not much has changed. The pre-contractual information is also known as SECCI (Standard European Consumer Credit Information) – and businesses have until the end of May 2021 to implement the changes.
We will also expect some changes to the UK Consumer Credit, so attention should be paid on this front over the short to medium term.
The application of Companies Act 2006 remains a matter of UK domestic law and is in general not affected post-Brexit.
Any UK companies that have established a subsidiary or branch in an EU member state will have to comply with any local rules regarding reporting and accounting. This requirement was in certain aspects already there before Brexit for any established legal entity with legal personality.
On the other side of the coin, an EU established company that has a UK registered branch or place of business will have to provide Companies House with additional information that previously they were exempt from such as:
- where the company is incorporated
- where its registered or principal place of business is
- what are the objects of the company’s business
- what is the issued share capital of the company
- what is the company’s accounting period
One significant and especially important consequence will be that the limited liability status of a UK registered company might not be recognised in an EU country. Specifically, this might occur in case their place of business or management will be in that EU country. That country’s company law will apply, and it could be that the limited liability will not be applicable. The shareholders could be personally liable, which would be a complete game changer, therefore, great attention must be paid and specific advice must be sought.
As the majority of corporate M&A transactions that are either domestic or cross-border are usually governed by private contractual amendments, post-Brexit these will not change significantly. Attention should be given to competition issues and clearances that need to be obtained and dispute resolution issues mentioned, below.
In the context of companies, insolvency is another area where changes apply. Any insolvency proceedings that will be opened from now on will not be automatically recognised in EU countries. Cross border insolvency proceedings may need to be started in any EU member states where the cross-border element is applicable. The cost often associated with such insolvency proceedings is likely to increase.
Court decision enforcement and dispute resolution
As yet there is no established agreement between the UK and EU regarding court proceedings and the enforcement of court decisions. Therefore, the common law rules established by the Hague Convention will apply when and where it is relevant as the Recast Brussels Regulation and the Lugano Convention of 2007 will no longer apply.
In practical terms this will affect proceedings started now, from 1st of January 2021 when the transition period ended. Questions as to the jurisdiction, enforcement of judgements will be asked. How can a UK court decision be implemented in an EU country on a party that is registered in EU, resides in EU or has assets in EU only and not in UK? Choice of law clauses will have to be thought out very carefully in cross-border contracts of this nature.