At 11pm on 31 January 2020, the UK officially ceased to be a Member State of the EU. This marked a major milestone in a process that started on 23 June 2016, when a majority of the UK’s population voted to leave the EU. It follows approval by the UK and EU Parliaments of a draft treaty which sets out arrangements for the UK’s transition out of the EU (Withdrawal Agreement).
A transition period has now begun, which will last until the end of 2020. During this time EU law continues to apply in the UK, and the UK remains able to trade with the EU as part of the single market. Free movement of people will also continue.
One of the UK government’s priorities is now to negotiate the details of the country’s future relationship with the EU after 2020, including securing a free trade deal. This would allow the UK to continue to trade with the EU without tariffs or quotas. The implications of Brexit for companies with investments in the UK will depend on whether such a deal can be concluded and what the nature of this deal is.
If a deal cannot be agreed then the consequences are uncertain, but it is likely that elements of the future relationship that are agreed by the end of 2020 will form the basis of a temporary set of rules, even though the UK Government has ruled out extending the transition period.
There will probably be no clarity as to what will happen until towards the end of 2020 and the adage “plan for the worst, hope for the best” continues to apply. No-deal guidance therefore remains relevant. Where a limited set of rules is not adopted, the UK will trade with the EU after the end of 2020 on WTO terms.
EU law, which is currently in effect in the UK, covers a wide range of areas such as financial services and trade. To the extent it is not affected by the deal the UK agrees with the EU, the body of EU law in force at the end of 2020 will be imported into UK law (with necessary amendments) under the European Union (Withdrawal) Act 2018, and the UK legislation made to implement EU law will be retained, with suitable amendments: this will be called “retained EU law”.
In the event that a deal with the EU cannot be agreed, these measures will ensure a sense of continuity for businesses after the end of the transition period.
Preparing for the UK’s transition out of the EU
While Brexit presents opportunities for business who wish to trade with, or invest in, the UK, there are many challenges associated with the UK leaving the EU, such as the need for businesses to navigate a new political and regulatory environment.
For example, in M&A, the European Commission will continue to provide a “one-stop-shop” for merger clearance in respect of transactions impacting the EU27 and the UK until the end of December 2020.
However, after 2020, approval by both the European Commission and the UK’s Competition and Markets Authority may be required for those transactions that meet the relevant jurisdictional thresholds, increasing the work and timeline associated with a deal and adding another layer of uncertainty.
There are a number of practical steps that companies with investments in the UK can take to prepare for the period after the UK’s transition from the EU, including:
- reviewing supply chains and/or moving business operations to or from the UK to manage the impact of any possible tariffs and quotas that may be imposed post-Brexit;
- reviewing contracts continuing after December 2020 to ensure the correct UK or EU law is referenced;
- determining whether any potential litigation action will be disrupted by Brexit and developing strategies to avoid such disruption;
- considering any potential investment treaty claims;
- determining whether any corporate transactions are affected by Brexit in terms of transaction structure, deal value, required regulatory approvals or otherwise;
- reviewing the location of all key personnel and company policies relating to the mobility of employees; and
- keeping abreast of developments in the UK in relation to Brexit and related issues, such as financial services and foreign investment controls.