Lawyer Welcomes Latest Guidance
On 8 March 2021, the European Commission published updated guidance for stakeholders (“Updated Guidance”) on the impact of Brexit on company law. The Updated Guidance replaces the Notice to Stakeholders dated 3 July 2020 and highlights various consequences of the end of the transition period particularly for companies incorporated in the UK which have their central administration or principal place of business in the EU.
The UK became a “third country” as a result of its withdrawal from the European Union at 11.00pm on 31 January 2020. However, EU law continued to apply to and in the UK until the end of the implementation period on 31 December 2020. After intense negotiations, the Trade and Cooperation Agreement (the “TCA”) between the EU and the UK was signed on 30 December 2020 and applies provisionally from 1 January 2021. While the guidance has been updated following the agreement of the TCA, the position has not changed substantively as a result of it.
EU company law no longer applies to the UK and, as the Updated Guidance provides, the TCA does not alter the legal effects of this. In summary:
- UK incorporated companies are third country companies and Member States are not obliged to recognise their legal personality and limited liability. This could impact UK companies with a central administration or principal place of business in an EU Member State as they might not have legal standing in the EU and shareholders might be personally liable for the company’s debts. The position will depend on the national law of the individual Member States or international treaties.
- Branches of UK companies located in the EU will be branches of third country companies to which associated rules will apply.
- EU company law no longer applies to the UK and so stakeholders will not be able to rely on EU rules when dealing with a UK company.
- EU cross-border merger rules no longer apply to the UK. This means that any cross-border mergers that were not completed by the end of the transition period will need to be carried out in accordance with national rules for mergers with third country companies.
- EU rules on shareholder rights and engagement no longer apply to companies whose registered office is in the UK or which are only listed on a stock exchange in the UK. Equally Commission Recommendations addressing the independence of board members and remuneration of directors no longer apply to UK companies or companies which are only listed on a UK stock exchange.
- The Takeover Directive (Directive 2004/25/EC) no longer applies to securities traded in the UK. Any takeover that was pending at the end of the transition period will be governed by national rules.
- From the end of the transition period, the UK no longer exchanges company information via the business registers interconnection system (BRIS) and UK business registers are no longer accessible through the European e-Justice Portal.
- European Companies (SEs) which had their registered office in the UK at the end of the transition period no longer have the same status and will be treated by Member States on the same basis as other UK incorporated companies. This will not impact SEs that were formed by a UK company but had their registered office in the EU at the end of the transition period. UK incorporated companies are no longer able to form SEs.
- European Economic Interest Groupings (EEIGs) and European Cooperative Societies (SCEs) registered in the UK at the end of the transition period will no longer have the same status. UK incorporated companies, UK bodies and natural persons who carry out services only in the UK will no longer belong to an EEIG.
Bryan Bletso, Corporate partner at Irwin Mitchell, said:
“The updated guidance hasn’t changed substantively since the notice in July last year and is in line with what we would have expected. We welcome this updated guidance though as it is helpful in bringing further clarity to the position of UK entities in the EU.”