1. A Hard Brexit is Looming
On 21 March 2019, Theresa May had hoped to persuade the EU to delay the 29 March Brexit date to 30 June. Instead the EU leaders offered her two dates: A delay until 22 May if MPs approve her withdrawal deal in yet another vote, or a shorter delay until 12 April if they reject it.
Brexit was thus essentially delayed until 12 April. Nevertheless, time is ticking and apart from the serious implications on the UK’s economy and its population, a hard Brexit could have dire consequences on UK companies doing business in the EU.
The Austrian Parliament thus passed the “Brexit Accompanying Act 2019” (the “Brexit Act”) a couple of weeks ago in order to ease some of the effects on UK entities operating in Austria.
2. The Problem
The last couple of years have seen a sharp increase in the numbers of companies registered in the UK but having their administrative headquarters in Austria – i.e. the popular private limited company (Ltd.). These companies are recognised in Austria as UK companies according to the ECJ’s case law on the freedom of establishment[i].
The withdrawal agreement negotiated between the UK and the EU allows for a transitional period until 31 December 2020, in which Union law will still be applied in the UK. Accordingly, the EU will continue to treat the UK like a Member State.
In the absence of a Brexit deal, however, Union law will cease to apply to the UK once it has left the EU. And in this case, Section 10 of the Austrian Act on International Private Law (IPRG) would become applicable. Section 10 IPRG states that the law governing a legal entity is the law of the state in which the company has its administrative headquarters. A limited liability company established under UK law but having its administrative seat in Austria would thus not be recognized according to Austrian law.
The subsequent consequences are quite disconcerting.
Some scholars argue that the limited liability companies in question would have to be qualified as partnerships under civil law (Gesellschaft bürgerlichen Rechts or GesbR) rather than corporations. As a result, the shareholders, who were protected by the limited liability, would suddenly be subject to unlimited personal liability.
Furthermore, an Austrian GesbR does not have legal capacity. There is a serious risk for limited companies having their place of administration in Austria being struck from the companies register.
3. The Solution
The Austrian Brexit Act now allows for the same transitional period stipulated in the withdrawal agreement. This essentially means that parts of the withdrawal agreement have been moulded into Austrian national law.
Consequently, UK companies registered in the UK but having their administrative headquarters in Austria would have the opportunity until 31 December 2020 to continue operating in Austria, even if a hard Brexit should occur.
The Brexit Act grants these companies enough time to adapt and avoid losing their recognition by contributing their operations into an Austrian corporation, for example.
A cross-border merger or the relocation of the company’s statutory seat could also be viable options. The formation of a branch office in Austria is also possible.
However, each of these solutions requires careful preparation and time to execute. It is thus advisable to start acting now instead of waiting for Godot.