The Government has published draft regulations addressing certain areas of company and corporate law if the UK leaves the European Union (EU) without the two sides entering into transitional or implementation arrangements (a so-called “no-deal Brexit”). This could be on 29 March 2019, when the UK is scheduled to leave the EU, or alternatively at the end of any “transition” period if no final implementation arrangements are concluded.
The changes are set out in seven separate sets of regulations which relate to merger control, accounts and reports, auditors, takeovers, European companies (SEs), European Economic Interest Groupings (EEIGs) and general corporate matters. Together, they would create a position following a no-deal Brexit as set out below.
It is worth noting that whether the regulations come into force, and (if so) in what respects, will depend heavily on whether the UK and the EU can agree the final form of a withdrawal agreement and (if they do) the content of that agreement.
- Merger control. The UK and EU merger control regimes would be completely separated. After exit day, the UK Competition and Markets Authority (CMA) would be the sole competition authority responsible for examining the UK aspects of mergers.The principal consequence is that the current “one stop shop” regime, under which a merger falling within both the EU Merger Regulation (EUMR) and the UK merger control regime is investigated by the European Commission (EC) alone, would end. Instead, where a merger falls within both regimes, the parties would need to obtain clearance from both the EC and (if they decide to notify the merger voluntarily in the UK) the CMA.This is very important for planned mergers that may fall within both regimes. If the EC clears a merger before exit day, the CMA will not subsequently investigate it. However, if the EC has not given clearance before exit day, a merger that meets the UK thresholds would fall within the UK’s regime, even if the clearance process under the EU regime has reached its most advanced stages. In these cases, the CMA has advised merger parties to engage with it at an early stage.
- Cross-border mergers. The cross-border mergers regime would be abolished entirely in the UK, making cross-border mergers involving a UK company impossible. Any organisation planning a cross-border merger with a UK company would need to ensure the entire procedure (including all court approvals) is completed before exit day, or else the merger may not be effective.
- Takeovers. As we noted last week, draft takeover regulations would make minor changes to incorporate certain parts of the EU takeovers regime properly into UK law. We explain more about these changes, as well as proposed changes to the UK Takeover Code, below.
- Accounts and reports. Broadly speaking, a company whose group is headed by a parent established in the European Economic Area (EEA) would no longer be treated any differently from one whose group is headed by a non-EEA parent. This would entail two key changes.First, dormant subsidiaries within an EEA group would no longer be able to exempt themselves from producing individual accounts.Second (and perhaps more significantly), an intermediate holding company with an immediate EEA parent would need to start producing group accounts unless its parent produces group accounts equivalent to those required by the Companies Act 2006. (Currently, intermediate companies do not have to produce group accounts if their immediate EEA parent produces group accounts under EU accounting requirements.)This effect of this would be to tie the exemption to UK, rather than EU, accounting requirements or standards deemed equivalent. However, as UK requirements are already modelled on EU standards, it seems likely that the UK would deem existing EEA accounting regimes equivalent, at least as they stand on exit day.This proposed change should not affect an intermediate holding company whose immediate parent prepares group accounts under international accounting standards (IAS) (or standards deemed equivalent to IAS).
- Auditors. The Government and the Financial Reporting Council would have the power to decide whether audit frameworks outside the UK are “equivalent” for the purposes of UK law, rather than the EC. Importantly, all EEA audit frameworks would be deemed equivalent for a transitional period ending on 31 December 2020. In addition, all frameworks currently recognised by the EC as “equivalent” would automatically be granted equivalence. This includes Abu Dhabi and Dubai IFC, Australia, Canada, the Channel Islands, China, the Isle of Man, Japan, South Africa, Switzerland, Turkey and (until 31 July 2022) the United States.
- Other company filings. Non-UK entities registered in the EEA would be treated in the same way as entities registered outside the EEA or the UK, and would need to provide the same information to Companies House. This would increase the filing burden on EEA entities with an establishment in the UK, particularly in relation to accounts and reports.
- Disclosure of protected information. At the moment, the residential address and date of birth of directors and persons with significant control are not publicly available, but Companies House can disclose the information to public authorities and credit reference agencies in the EEA, provided certain conditions are met. After exit day, Companies House would continue to be able to disclose to EEA public authorities, but not to credit reference agencies outside the UK.
- European companies. It would no longer be possible to form or register a European company (or SE) in the UK. Every SE registered in the UK on exit day would convert automatically into a “United Kingdom Societas”, a new corporate entity similar to an SE. This would be a “temporary stage”. A UK Societas could convert into a public limited company at any time after exit day.
- European Economic Interest Groupings (EEIGs). Similarly, it would no longer be possible to form or register a European Economic Interest Group (EEIG) in the UK. Every EEIG registered in the UK on exit day would convert automatically into a “UK Economic Interest Grouping” (or “UKEIG”), a new corporate entity similar to an EEIG. Again, this would be a “temporary stage” until the UKEIG identifies and moves to a more suitable domestic structure.