BREXIT – a subsidiary in England, risk or chance?

Nobody really knows when and how BREXIT will happen. What does that mean for businesses in practical terms? Many businesses with branches in England fear economic losses and are therefore wondering whether it is worthwhile continuing to operate their UK subsidiary. ZIMMERs will gladly assist with any legal problems and the implementation of all necessary formal steps, be they concerned with corporate, labour or tax law, that have to be considered and complied with before and during the closure of a subsidiary.
   
If you do not have a subsidiary in the UK yet it could be interesting to open a subsidiary in the UK, especially with regard to tax-related legal matters. We will be happy to help and advise you regarding the choice of the right form for your particular business and the entry in the British commercial register as well as with all further formal steps.

Helpful Links

Brexit and the Law – Law Society Report

https://www.lawsociety.org.uk/support-services/research-trends/brexit-and-the-law-report/

Guidance: Status of EU citizens in the UK: what you need to know

https://www.gov.uk/guidance/status-of-eu-nationals-in-the-uk-what-you-need-to-know

Possible legal effects of Brexit

The United Kingdom's withdrawal from the European Union is coming. Although the legal form of Brexit has not yet been determined, a date has already been set. The provisional date is 29 March 2019.

While there is still controversy about a possible transitional period until 31 December 2020 or possibly 2021, during which the UK would remain a member of the European Single Market and Customs Union but would have no political say, you should start thinking about the impact of Brexit on your relationship with the UK. This is likely to have an impact both on individuals and on businesses.

First of all, a trip to the UK in the future may cause more problems. While you have been able to travel with your identity card without any problems in the past, in the future you will probably need a passport, or in the worst case even a visa. In addition, statutory health insurance may no longer provide insurance cover, so you may need international health insurance. In addition, the free movement of workers will probably cease and the tuition fees EU foreigners, at present lower than for non-EU foreigners, may also increase significantly. But even more than private individuals, companies and service providers will feel the consequences of Brexit.

The United Kingdom is likely to remain an economically attractive market for companies, but the consequences of the Brexit will be particularly far-reaching in the area of company law. The freedom of establishment in the EU means that at the moment, for example, British capital market companies such as Ltd. can operate an administrative headquarters in Germany. And the European Company SE is also based on an EU regulation. If these regulations are abolished, legal losses and other problems are to be expected in these and various other cases.

Furthermore, existing contracts and future contracts will be affected by legal changes. Customs duties are threatening to make exporting to and from the UK more expensive, which would inevitably lead to price increases and, combined with potential further trade barriers, make it more difficult to trade and sell goods. As a result, existing contractual relationships may become unbalanced. Rapid changes in exchange rates due to a lack of confidence in the currencies after Brexit can therefore also disrupt contractual relationships, and the basis of contracts may no longer be applicable. In any case, however, you should, in case you did not do that already, renegotiate your contracts now in order to be able to react to changes.

Furthermore, the jurisdiction in London would be less attractive. While in the past London was chosen as the place of jurisdiction for language reasons alone, British judgments after the Brexit would be more difficult to enforce in the EU. They would first have to be rewritten and recognised. However, London would not be affected as the European enforceability of arbitral awards does not comply with EU law. But judicially recognised payment claims may no longer be so easily enforceable. While up to now a granted title has been enforceable in almost every EU country via the European order for payment, this system would probably be dropped.

The financial sector in particular could also be hit hard by the Brexit. But the damage would probably be more on the British side. British banks and in particular clearing houses would have severely impeded access to the European financial market. The main financial location London would then be largely uninteresting for non-European foreign banks wishing to access the EU single market as well as for financial service providers from the European financial business. A strengthening of Frankfurt/Main as a financial location cannot therefore be ruled out.

All in all, nothing is certain as long as the United Kingdom and the European Union are still negotiating. However, in many areas, some serious changes are to be expected. It is advisable for you to deal early with the consequences for you personally and to find solutions so that Brexit does not catch you cold. We will be happy to assist you in these matters.

Enforcement Post Brexit
 
In the UK it is suggested that EU Regulations can be transposed into domestic law via the so-called “Great Repeal Bill” or The European Union (withdrawal) Bill. English courts will continue to apply an essentially similar regime post-Brexit. This would be applicable for the Rome I and II Regulations. In contrast, the Brussels I Recast Regulation depends upon reciprocity and sincere cooperation between member states. If the UK is not a member of the agreed scheme then transposing the Brussels I rules into UK domestic law is of no assistance. The ease of recognition and enforcement of judgments under the Brussels I (Recast) would be lost. It is possible that superseded international conventions, such as the Brussels Convention 1968 and the Lugano Convention 1988, might spring back to life and that also old judgment recognition conventions may revive in significance after Brexit. However, we encourage our clients to commence cross-border enforcement proceedings between the UK and Germany, as soon as possible, in order to benefit from the great degree of certainty that the Brussels I (Recast) Regulation provides.

BREXIT - Implications for the different areas of law

Since Prime Minister Theresa May triggered Article 50 of the Lisbon Treaty on 29 March 2017, beginning the formal process of negotiating the UK’s withdrawal from the European Union, the primary question is what impacts Brexit will have to contractual parties and different areas of law. It is already foreseeable that international performance may become more difficult and costly.

The general uncertainty posed by the pre-negotiation and political statements as well as Article 50 negotiations is a cause of volatility in forex markets. Furthermore, concrete changes to the infrastructure of import and export will most likely increase supply chain costs and changes to customs law may impose unforeseen costs such as trade tariffs.

However, it is difficult to predict what the exact implications of Brexit will be. It is likely that the potential implications will differ in the various areas of law. It is predicted that Brexit might have a high impact to the financial service sector and in the field of competition law whereas a medium impact is expected to occur in the areas of commercial, corporate, employment and insolvency law. A low impact is estimated to arise in the legal fields of arbitration, family and planning.

In the end, it can be said that the concrete level of impact will depend on the extent of EU law governing in the specific area of law as well as on the fact whether EU law has already been implemented into domestic law or not. To date, one does not know whether UK’s plan to introduce the “Great Repeal Bill” which will repeal the European Communities Act 1972 and incorporate EU law into domestic law can effectively be realised.

The Legal Consequences Following the “Brexit” Vote

On 23 June 2016 British voters by a majority of 51.9% voted in favour of the UK leaving the European Union (EU). In the face of potential uncertainties following from this result one must not forget that UK will remain a fully-fledged member of the EU for at least a further 24 months. Therefore all relevant European laws will still be effective and enforceable in the UK. The question of when "Brexit" will actually happen depends on when the UK government triggers the application under Article 50 of the Lisbon Treaty. Effectively this is a declaration to the European Council of the U.K.'s intention to exit the EU (see an extract of the relevant wording from the treaty below), following which future UK-EU relations will be negotiated. Although future developments cannot yet be predicted, we at ZIMMERs will be taking a close interest in "Brexit" and its consequences in order to advise you of the important changes in particular to employment, consumer protection, transport and customs law.

Article 50

1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

4. …

5. …

Further current information on “Brexit” can be found on the webpage of the Law Society here:
http://www.lawsociety.org.uk/support-services/brexit-and-the-legal-sector/