June 6, 2016

BREXIT – the view of international business

Unsurprisingly, according to a recent survey by Ipsos MORI, the vast majority of international companies who participated in the survey (78%) believe that a Brexit would be negative for them. Amongst those saying that the impact would be negative, more than half thought that it would be “very” negative.

In addition, the majority of respondents reckoned that the impact of a Brexit on likely future investments in the UK would most likely be negative.

It should be noted that if the UK votes to leave the EU nothing will change legally immediately. The UK will remain a member of the EU with two years to negotiate the terms of its exit. Given that the withdrawal of a member state is unprecedented we can only speculate as to what the terms of such an exit would be based on (with possible alternatives ranging from the UK emulating existing models such as Norway and Switzerland – perhaps unlikely – to the more likely option of the UK seeking a free trade agreement with the EU along the lines of those negotiated with Canada and South Korea which may, of course, take a long time to negotiate).  The key issue would be the extent as to which the UK would be able to access the European market (and vice versa), the conditions for doing so, and the extent to which the UK would be able to influence any legislation to which it would effectively be subject to continue to have access to that market.

Whilst it is possible that in the two year exit timetable, the UK could reach a constructive agreement with the EU which would allow most business activities to continue with little disruption, it is also possible that after two (or more) years of negotiation that is not achieved and that the UK’s access to the EU single market could be disrupted.

That said, how exactly a Brexit would impact on investor confidence and their appetite to enter the UK market or expand their presence in UK by establishing a branch or subsidiary or acquiring a business here (M&A) leaves much scope for debate.

On one hand, the UK legal framework for private M&A is not typically subject to much EU regulation and so a Brexit is unlikely to have a significant impact on the legal framework (save possibly for the competition regime and TUPE in the context of asset sales). However, following a Brexit the UK may not be able to take advantage of certain EU provisions which facilitate cross-border M&A transactions. In addition, the UK will lose the benefit of the EU’s “one-stop-shop” regime, whereby at present a proposed M&A can be reviewed by either the UK Competition and Markets Authority or the European Commission but not both. In future some deals may end up being reviewed by both authorities adding costs (in terms of resources and time) for the parties involved.

With regard to company law, the main piece of legislation in the UK is the Companies Act 2006. Some of its provisions are based on EU Directives but company law is mostly regulated by individual member states. Accordingly, it is unlikely that revision of company law would be a priority area for reform following a Brexit.

On the other hand, many smaller businesses say that they would welcome a likely decrease of regulatory burden given that EU law provides a framework for many rules affecting businesses in the UK. However, as many of these rules are there to protect UK businesses providing goods and services to other EU countries, the likelihood of a significant reduction in the regulatory burden may well be over-stated given that most EU rules are implemented through UK law and these rules will at least initially remain in place.  Other regulations implemented by the EU (a small number) have direct effect in the UK. Following a Brexit, the UK will need to decide whether to fill the vacuum with equivalent legislation. In the vast majority of cases, there is likely to be a very strong case towards maintaining the status quo to avoid significant disruption and harm to UK competitiveness.

Whatever your views are on the merits of Brexit it is clear that with only 3 weeks to go and with the opinion polls giving inconsistent results most businesses will welcome an end to the campaigning and a clear result on the 23rd June so that they can again start planning for the future.

For advice or assistance on corporate and commercial matters please contact John North or Irene Trubbiani Montagnac from our Corporate and Commercial team.

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