Getting ready for Brexit

What lawyers should do now!

2017 EUROLEGAL CONFERENCE

PALMA DE MALLORCA – 22 APRIL 2017

11:30 am – 12:30 pm

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ObjectiveToday, we look at opportunities, to add value to our clients’ business and guard

them against the “known unknowns” - possibly even the “unknown unknowns”.

In this context, I distinguish between four categories:

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1. Immediately needed legal actions for

current agreements.

2. Actions to take with any future contracts

and other measures for the clients.

3. Actions to take once the exact terms of the

UK’s exit have been negotiated.

4. Actions to take once the negotiated results

have been implemented in UK laws

Content overviewThis presentation will deal with our current opportunities (and duties). Therefore

only the first two categories currently require action, in this presentation broken

down into various areas of laws. Here, I will focus on the aspects that are

common for all EU Member States - not only those aspects which will become

relevant for UK clients and UK colleagues :

1. Contracts

2. Commerce and trade law

3. Employment and immigration

4. Corporate law

5. M&A

6. Intellectual property

7. Finance (Banxit)

8. Data protection law

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1. Contracts

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Contracts (cont‘d)

a) Actions necessary: Review major contracts, e.g. Are termination

rights exercisable, in the event of new tariffs being imposed?

b) Boilerplate consequences: Scope needed for review of standard

term contracts and/or boilerplate clauses. Are any changes

necessary?

c) Clauses triggered: Will force majeure or material adverse change

clauses in key contracts be triggered?

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Contracts (cont‘d)

d) Renegotiation: Consider whether to amend or renegotiate contracts

with terms beyond March 2019 that are not clear on implications of

Brexit or do not provide sufficient protection against Brexit.

e) Express consequences of Brexit: Rather than relying on general

concepts, such as financial hardship, force majeure or MAC,

consider including express provisions that cover specific

consequences of Brexit.

f) Clarify references to “the EU”

g) Clarify references to “EU law”

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Contracts (cont‘d)

h) Service of process: If the Council Regulation (EC) No 1348/2000 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters ceases to apply in the UK, servicing of the plaintiff’s writs to a UK adversary will need more time and cause higher costs.

i) Initiation and enforcement of judgments: If the recast Brussels Regulation on recognition of judgments (EU)1215/2012 no longer applies to the UK, initiation of a lawsuit in the EU will be challenged by the then revived English “anti-suit injunction” and enforcement of judgments by UK courts in the EU will be subject to the national laws of the relevant EU Member State. Where this is potentially a significant issue, consider

i. including an agent for service clause in any contract over which the English courts have jurisdiction;

ii. taking local law advice on enforcement implications; and/oriii. using arbitration, with the appropriate UK/Member State’s city as the

seat.

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2. Commerce and trade law

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Commerce and trade law (cont’d)

a) Consider concluding contracts based on transnational law, e.g. sale of goods

based on transnational law such as the United Nations International Sale of

Goods (CISG – Vienna, 1980) or the Convention on the Limitation Period in

the International Sale of Goods (New York, 1974).

b) Commercial agent protection: Commercial Agents (Council Directive)

86/653/EEC allows for national laws (e.g. in Germany, Section 92c German

Commercial Code - HGB) to provide an exclusion of the agent’s

indemnification if acting outside the EEA.

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Commerce and trade law (cont’d)

c) Tariffs: Without a free trade agreement, tariffs will apply to UK goods

entering the EU post-Brexit ( and vice versa). Therefore, any future

contracts should stipulate who bears potential customs duties between

the UK and the EU (e.g. by using INCOTERMS) and how a further

weakening of the Pound is to be dealt with. It may also become

necessary to provide contractual compensation or indemnification in the

event of imposition of ‘import’ VAT when goods enter the EU from the UK

(and vice versa).

d) EU funding: Clients that benefit (directly or indirectly) from EU grants or

subsidies – e.g. for research – should shift the contractual obligation to

the contractual partner from or establish a subsidiary in an EU Member

State.

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3. Employment and Immigration

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a) Employment contract: Audit the client’s employees and their

contracts, including European expatriate arrangements,

anticipate skills and service gaps and identify any contract or

policy redraftings or necessary arrangements (e.g. concluding

fixed-term contracts instead of contracts for an indefinite term

or adapting bonus schemes if employers are likely to be

detrimentally affected by changes to trading conditions).

b) Expatriate workers’ immigration status: steps to be taken to

secure employees’ European expatriate arrangements.

Employment and immigration (cont’d)

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4. Corporate law

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a) International company groups: Brexit may necessitate a review and

potential revision of the corporate structures of the UK group members,

not least in light of ensuing tax implications. Company groups may bring

forward the envisaged steps of their UK subsidiary within a group-wide

restructuring by using current EU cross-border reliefs.

b) Deletion of UK companies: At least in counties following the seat principle

(versus foundation principle), UK Ltd., LLP and others will most likely be

deleted from the respective commercial registers of the EU country where

they have their seat. Appropriate measures have to be taken, based on

the respective local laws, using the current benefits of EU membership of

the UK, such as the European Merger Directive 2005/56/EC.

Corporate law (cont’d)

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Corporate law (cont’d)

c) Brexit-free transfer of business to other EU states: One way to

avoid Brexit effects, such as tariffs will be to (i) establish a

subsidiary or to merge into an already existing company or (ii)

spin-off into a company, all in a preferred EU Member State.

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5. M&A

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a) For DD: All issues which are possibly or likely to be affected by Brexit.

b) Pre-merger control: Must the merger clearance process be conducted in

the UK as well as in Brussels (end of the one-stop-shop-principle)?

c) Foreign investment rules: The current UK public interest and national

security test may become more restrictive.

d) MAC clauses: Did the outcome of the Brexit referendum and its probable

effects, at least uncertainties, trigger current MAC clauses of pending

deals? Future SPAs should specify whether, and to what extent, Brexit

represents a material adverse change and affecting the SPA.

M&A (cont‘d)

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M&A (cont‘d)

e) Limitation of seller’s liability: Consider stipulating that the seller

bears no liability if a breach of guarantees is caused by

circumstances arising from Brexit.

f) Covenants:

i. Purchaser’s side: Consider stipulating appropriate covenants

dealing with any conceivable Brexit effects.

ii. Seller’s side: The same applies to earn-out neutralisation or

acceleration rules and similar forward-looking arrangements.

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M&A (cont‘d)

g) Choice of law: Parties may more often consider choosing non-

English law, as it is unclear what is to be understood if the parties

choose “English Law”, whereas non-UK law of other EU member

states will not have to change.

h) Authorized agent for legal proceedings to be implemented in the

SPA, since the Regulation on the service of document

1393/2007/EC) will cease to apply.

i) Post-merger integration: Current plans for the envisaged results

of an acquisition or merger may need to be revisited and adapted

to account for possible Brexit effects (e.g. realisation of

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6. Intellectual property

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a) EU IP unification: Brand owners will have to evaluate and revise their

registered IP portfolios, considering that the UK will no longer be part of

the widely unified EU IP regime. Existing commercial arrangements will

have to be checked and reviewed to ensure that rights licensed include

the relevant rights in the UK if defined terms are related to EU rights.

b) Detachment from unification: For future agreements, consider

contractual protections anticipating that the UK may no longer be part of

the unitary IP rules.

c) Customs protection: Consider protecting your client in contracting with a

UK party by imposing a right to detain, seize and destroy goods

suspected of infringing against intellectual property rights as

appropriate, based on the standards of EU Regulation.

Intellectual property (cont’d)

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7. Finance (Banxit)

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Preparation of separation: Prepare your client for a reduced availability and

increased costs of finance because of the changing post-Brexit regulatory

landscape, e.g. through loss of the ability to ‘passport’ prospectuses. As

preventive measures, the following alternatives should be particularly

considered:

a) establish a subsidiary in the EEA and take advantage of its full

passporting rights; or

b) establish branches in each country where they wish to do business

locally, and hope to rely on grandfathering being available for these

branches when the UK leaves the EEA; or

c) transfer the respective business parts (asset deal) to another financial

institution in an EU Member State.

Finance (cont’d)

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8. Data protection law

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a) Map data flows of the client – where does data reside/where is

data processed?

b) If the UK is to be treated as a third country without “adequate” data

protection rules, transfers of personal data from the EU to the UK

will be subject to additional restrictions.

c) Consider using EU model clauses or serving relationships from a

different EU group company if key customers/partners of the client

are in the EU/EEA.

Data protection law (cont‘d)

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9. Insolvency

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A UK insolvency process would no

longer benefit from automatic

recognition in EU Member State, so

that the UK insolvency office holder

would need to apply for such

recognition under the relevant local

law. Similarly, an EU insolvency

process would no longer benefit from

automatic recognition in the UK.

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10. Other areas of law and specific sectorsMany other areas of law offer opportunities to add value to our clients’ legal

position and make dealing with UK parties “future-proof”. Areas Like: Product

safety, antitrust, sector regulation (e.g. financial services, life sciences,

automotive, aviation etc.), TUPE, consumer law (including distance selling),

competition law, temporary workers protection, late payment protection,

public procurement, environment.

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Q&A

Schadbach Rechtsanwälte

Rechtsanwalt Kai Schadbach, LL.M.

Schadbach Rechtsanwälte

Gervinusstr. 15

60322 Frankfurt am Main

Tel.: +49 69 / 95 92 90 98 21

schadbach@schadbach.de

www.schadbach.de

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