Brexit Checklist: Legal implications for your business
26 November 2019
As Brexit draws closer, businesses should check what implications Brexit may have on their operations. From a corporate law perspective, the following are some issues that may arise as a consequence of the United Kingdom being no longer in the EU, and specifically not being an EEA member country.
1. Customs Duties
Customs duties, aside from the actual change in tariffs that may be applicable to your business in dealing with the UK post Brexit, there is the practical matter of dealing with the change in regime and this will likely incur additional costs but critically will involve firms having to ensure that they have necessary systems and resources in place to deal with any new administrative procedures required. Government and business associations have been stressing the point of being Brexit ready, and while many firms have implemented their Brexit plans, some have delayed, awaiting the actual event and detail.
2. Regulatory Approval
Regulatory approval is something that has been discussed right from the off in relation to Brexit. The critical point is that for activities that are authorised and then passported either from Ireland to the UK or vice versa, passporting will likely no longer automatically apply. If a business needs authorisation for their business activities into the UK, that previously relied on passporting, they will likely need a new authorisation in the UK post Brexit. The Transition Period should facilitate getting this done.
3. Legal Contracts
Legal contracts. Parties should review contracts which they have in place involving UK companies where for example, there may be representations and undertakings given about group companies which include UK companies which currently work on the basis that these are within the EU. These contracts need to be reviewed to see what, if any, changes are necessary to reflect the fact that those UK companies will be outside the EU – certainly as regards complying with EU Directives and imposed obligations.
There may be clauses referring to a defined territory including for example the EU and the parties intend that reference to the EU to include the UK. An amendment will be required to clarify that going forward.
Similarly, parties may have opted for English law as the governing law and the English courts to have jurisdiction, but it should no longer automatically be assumed by Irish parties that this remains the appropriate basis. It is prudent for an Irish party to contend that the Irish courts are a preferable choice to the English courts given that it will be the only common law system within the EU after Brexit.
EU legislation facilitates an effective system for enforcement of foreign judgements throughout the EU. Judgements by an English court will not automatically provide the same protections in this regard post Brexit.
Businesses should be aware of the implications of moving personal data to the UK post Brexit. To date this has been covered by EU legislation as being transfers within the EU. In a NO DEAL scenario, a specific agreement in compliance with the EU GDPR will be necessary for an Irish person or business to move personal data to the UK. In a scenario of any agreed withdrawal arrangement, the transfer of personal data to and from the UK will most likely be dealt with therein so that no action will immediately be required to change procedures. However, that needs to be checked and confirmed as Brexit rolls out.
5. Specific Companies Act 2014 Issues
- EEA Resident Direction: The Companies Act 2014 requires that an Irish company have at least one director resident in the EEA. In instances where the Irish company is a subsidiary of a UK company, the UK resident directors suffice for this purpose. That will no longer be the case following Brexit. (Section 137 of the Companies Act).
- Filings of group financial statements/no individual company financial statements filed: Pursuant to Section 357 of the Companies Act 2014, a company can avoid filing individual financial statements if it has a parent guarantee given by a company which is an EEA company and files group accounts. This exemption will no longer apply if that parent is a UK company. Any Irish companies which have to date relied on a parent guarantee from a UK company need to bear in mind the non-suitability of a UK parent guarantee in relation to the required filing on its next ARD.
- Changing a Year End: Companies generally are restricted from changing their year end to once every five years but there is an exception where the company is a subsidiary or parent of an EEA company. If however, that parent or subsidiary company (as the case may be) is in the UK, then this exception will be lost once the UK ceases to be a member of the EEA.
- Branch Operations: Irish requirements for branches and their filing obligations differ depending on whether the company, which has the branch is an EEA or non-EEA company. Additional filing obligations will be applicable for branches of non-EEA companies (Section 1304 of the Companies Act). Any companies affected by this change by being branches of UK companies, need to ensure that they are complying with the additional obligations.
6. Mergers and Restructurings
- To date, many mergers between Irish and UK companies rely on the Cross-Border Mergers Directive (EU Directive 2017/1132) (“CBM Regulations”) where the CBM Regulations have been the popular basis for effecting corporate restructuring, enabling the transferring company to simply be dissolved at the end of the transaction without the need for a liquidation. Obviously any of these currently in process, need to be considered in the context of what is happening with Brexit and in the future, any proposed restructurings should be considered in the context of the UK no longer being an EEA member for the purposes of the CBM Regulations. The details agreed in the UK’s Withdrawal Agreement and/or during the transition period may impact on this.
- The relief available from stamp duty on restructurings as stated in the provisions of Section 80 of the Stamp Duty Consolidation Act, 1999 has helpfully been extended under the Irish Withdrawal Act 2019, in Section 63 of that Act, which extends Section 80 to include not only EEA companies but also expressly UK companies so that restructurings involving UK companies can still qualify for the relief under Section 80 as before.
For further information please contact Eileen Grace or another member of the Brexit Team at Eugene F Collins.