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4-07-2016

Following the shock Brexit vote, Francs Coulson considers some of the legal and employment issues that will need to be addressed during the exit planning, and highlights the question of the future position of a distressed or insolvent company with branches across Europe but Centre of Main Interest in the UK. 

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Moon Beever enjoys excellent relationships with colleagues in the EU and across the world to help service our clients’ international needs, including with our partners in ShawnCoulson in Brussels and Washington DC. We have received many messages from our colleagues worldwide assuring us that the UK is still loved despite the vote. However, clearly it is a momentous decision and many factors will have to be kept under review as the effects unfold over the next several years.

Legally - The UK has to give notice to leave under Article 50 and Prime Minister David Cameron, who indicated his resignation the day after the referendum, has said he will leave that to his successor to do. So the timing won’t even start until at least October.

There are now calls for this process to be initiated as soon as possible by some within the EU and this country. At present, the timing can’t be known and it is a case of watch that space. There is now possible talk of whether the UK would have a final say and a second referendum once the deal with the EU is known. This is not unprecedented in EU law but it raises another issue of whether an Article 50 notice can be rescinded.

Once the button is pressed we have two years to leave and only the other 27 counties can extend that. So if notice is given too soon then we could be out without having negotiated any trade deals with either the EU or any third party countries.

Law Society President Jonathan Smithers said: “It’s clear that there is an enormous amount of work to do in the coming months and years to establish the terms of withdrawal from the EU and scope necessary changes to domestic law. The UK will also need to resolve issues relating to its trading relationship with other parts of the world, specifically in terms of international trade agreements. Amid all the uncertainty it’s important to emphasise there is no immediate change to anyone’s legal rights or obligations.”

It will take a lot of work to clarify which domestic laws come from the EU, given there is a great deal of misunderstanding about that. For example, most of our consumer credit laws were enacted prior to the 2008 EU directive.

Also, thought will have to be given to which directly effective EU regulation we wish to retain, thus requiring new domestic legislation to retain it; and which EU-sourced legislation people want to lose, requiring the repeal of adoptive domestic legislation.

What does seem certain is that thought will have to be given to the amount of administrative and legal burden and unravelling that will be desirable or required. Now that the referendum has come to pass, we all know that there will be an adjustment period as the powers that be adjust to having greater financial and legal autonomy.

Hopefully, any shocks to the British property market will be short lived. Longer term the agreements negotiated regarding the financial institutions will determine whether this is good or bad for the UK , though there is little incentive to EU nations which will compete with London for a share of the market to give the UK an easy ride.

Employment - As members of the EU, UK citizens have the right to live, work and retire anywhere in the EU. Retirees even have the right to live anywhere in the EU, while still receiving their UK state pension. The EU sustains millions of jobs. A report by the Centre for Economics and Business Research, released in October 2015, suggested 3.1 million British jobs were linked to the UK’s exports to the EU.

Freedom to travel is one of the most exercised benefits of EU membership, with an estimated 31 million visits to EU member countries by Britons in 2014 alone. As well as the easy and affordable travel throughout the EU, UK citizens also have access to emergency healthcare throughout the EU. People travelling outside of the EU are also entitled to consular protection from any EU embassy, in the absence of a UK embassy.

The EU has greatly contributed to the improvement of working conditions and protection of workers’ rights in the UK and throughout the EU, though that may have been of greater need in other countries. Employee rights that have stemmed from the EU include:

  • the European Working Time Directive, which entitles workers to 20 days annual paid leave, a limit to weekly working hours, a minimum of 11 hours rest out of every 24 hours and at least 24 hours of uninterrupted rest in a seven-day period
  • anti-discrimination laws were brought into effect by the EU, making it illegal to discriminate against someone based on their sex, age, disability, ethnic or racial origin, religion, belief or sexual orientation
  • since the 1970s, 13 pieces of legislation have been adopted in an effort to promote the equal treatment of men and women in the workplace, including equal treatment when applying for a job and in the workplace, protection of pregnant workers and breastfeeding mothers, maternity leave and parental leave
  • and the Transfer of Undertakings (Protection of Employment) Regulations 2006 was implemented by the EU to protect the rights of employees in the event of a business transfer, including mergers, and service provision changes.

Realistically, in leaving the EU, our employment laws are unlikely to change, though it opens the door for “tweaks” to be made in the future. Perhaps we should have more faith in our own protection of workers’ rights. After all the Equal Pay Act was in 1970, before we joined the EEC.

Recognition of our legal judgments or office holders – one of the main areas in which there has been a considerable degree of regulation has been in the recognition of judgments for enforcement and insolvency office holders in the EU. While it is perhaps the case that bankruptcy tourism will come to an end, what will the position be for a distressed or insolvent company with branches across Europe but its COMI (Centre of Main Interest) is in the UK?

As part of the exit negotiations, will it be in the forefront of the minds of those negotiating to consider such matters or will there be an unsatisfactory failure to resolve these issues with the inevitable consequence of a reliance upon the Hague Convention which offers considerably less ease for recognition than the EU Regulations? Will it be the case that UNCITRAL (United Nations Commission on International Trade law) could become more important and hence perhaps adopted and put into force by more countries?

There are many considerations for the exit planning and we should have ample time in order to do so.

No matter what personal thoughts might be on the result, the political landscape has changed and the UK professions have the skill and expertise to make this work if the politicians are able to fulfil their promises to negotiate a more favourable position in the world market for this country.

Frances Coulson (fcoulson@moonbeever.com)
Senior Partner, Head of Insolvency & Litigation

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information contained here.

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