The exact nature of the legal and contractual challenges facing businesses will depend on their corporate structure, regulatory landscape and the provisions of the contracts and legal relationships they have with suppliers, customers and services providers. Delays in supply chains, changes to regulatory laws, or in tariffs, could have unforeseen financial or regulatory implications when understood in light of specific contractual obligations or a corporate structure that, for example, doesn’t have EU subsidiaries but only a UK branch structure.
This is before considering the potential for legal divergence from current EU regimes such as competition and State Aid laws, changes to intellectual property rights, and potential difficulties in enforcing contracts on current jurisdiction clauses.
Top tips for legal and contracts
- Check contract terms to assess risk of increased financial/regulatory liability, termination or claims related to changes in law, references to EU law, Material Adverse Change (MAC) clauses, force majeure, jurisdiction, territorial limitations and specific Brexit clauses. Update if appropriate.
- Confirm your suppliers/customers and other commercial partners are ready and whether contract liability is ‘back to backed’ for any unprepared third parties.
- Document agreements reached with any third parties on which you intend to rely to ensure evidence is gathered in the event any claims are required.
- Review your corporate structure and governance obligations and understand: your ‘real seat’ (i.e., the law of the country where the company has its management and control centre) risk, the third country rules and compliance processes for UK branches in the EU. If you intended to use the cross-border merger regime to restructure — have you tested other options where pre-31 December 2020 court dates can no longer be secured?
- Identify if Brexit related changes to company operating models alter the exposure for board directors in terms of managing their statutory duties as where changes might impact on corporate governance requirements, decision making processes and responsibilities within the group.
- Review your intellectual property (IP) rights and licences. Only those EU Trademarks (EUTM) applications completed prior to 31 December 2020 will be cloned to UK marks, so monitor ongoing applications and check for any renewal dates close to 31 December 2020. Identify if licences in or out of the business are sufficient, whether they need amending for territorial reasons and if they need to be extended to new UK Trade Marks (UKTM); check whether the licence requires registration and if you are involved in parallel trade, verify whether you require EEA-based IP rights holder’s permission to export goods to the EEA; Transfer EURid domains to an EU/EEA holder.
- Ensure Brexit diligence forms part of any corporate transactions involving companies with cross-border trade (UK/EU or expansion), including on financial impacts on valuation, inclusion of earnouts and MAC clauses.
How EY teams can support*
We can help by:
- Performing contract reviews to identify Brexit-impacted terms.
- Advising on and supporting contract renegotiations.
- Providing guidance on how existing IP protections might change and help identifying approaches to reduce risk.
- Assessing the impact of new UK legal regimes and regulations, including in relation to State Aid and competition law.
- Supporting any corporate restructuring and/or M&A activities.
* EY member firms do not practice law where not permitted by local law and regulations.