Aided by thoughts from lawyers throughout Asia and Australia, we delve into what Brexit may mean for In-House Community members, giving insight on employment, taxation, insurance, finance, investment and more.
By Chris Thomson
 At this point, most comments on Brexit appear to be hypotheticals, simply because no one even knows when Britain will implement article 50, let alone all of its implications. There has, however, been plenty of speculation based on others’ relationships with the EU, such as those of Norway and Switzerland. And then there are issues that were at the forefront of the minds of leave voters, such as tighter restrictions on immigration, which will presumably impact the UK’s relationship with the EU going forward and obviously take their toll on employment law.In the words of Eversheds Managing Partner, Asia Stephen Kitts, “There can be no doubt that there is turmoil right now and we’re in for interesting times”. Continuing, Kitts remarked that these interesting times “could last many years as there’s lots of economic and political uncertainty. One of the main factors is the longevity of the process both in respect of how quickly the UK decides it wants to move forward and then the negotiations, which will be complex and time consuming.”“Companies based in the UK need to look at their financing, exchange rate fluctuations, potential breach of financial covenants and disclosure obligations. Communication with their lenders will be imperative over the coming weeks and months.” he continued. Mark Curtis, Head of Simmons & Simmons’ Corporate and Commercial International Practice Group also chimed in: “Brexit creates huge uncertainty for any business with operations or trade in the UK. We are seeing clients across all sectors reviewing the potential impact and have mobilised a large multi-disciplinary team to help them with their contingency planning. At the moment there are a lot of known unknowns and it will take some considerable time for clarity to emerge but we are recommending to clients that it is important to start planning now.” |
 Clyde & Co’s Sydney-based Partner Dean Carrigan said “Although the momentous, and unexpected vote by the UK electorate to leave the EU will have its principal impacts in the UK and Europe, the ramifications will be felt by the insurance market globally. Asia Pacific brokers and insurers, like their counterparts around the globe, will be affected by the significant uncertainty which arises as the UK moves towards an exit over the course of the next two years, and beyond. Global markets have calmed somewhat since the vote, although it is clear that a period of uncertainty will persist for at least the short to medium term. Brokers and insurers with operations in the UK and EU, and which have clients with operations in the UK and EU will need to carefully consider the implications arising from the vote.”Furthermore, Carrigan stated “In the immediate short term the significant doubt and uncertainty which exists is likely to cause an increase in the need for risk mitigation and insurance solutions in all aspects of business but in relation to international trade, multinational projects and the finance sectors having an EU/UK connection in particular. For forward thinking brokers and insurers, the current uncertainty presents significant business opportunities – especially to develop new services and risk/insurance products in order to support and provide guidance to clients who have already been, or are likely to be affected by the changes.”Also speaking from a sector-specific point of view, in their briefing paper entitled ‘The Great Brexit Debate’, law firm Dentons noted “The continuation of UK competition law and merger control — including the surrender of authority over pan-EU cases to the Commission — are likely to be conditions of any post-Brexit settlement with the EU”. |
 The paper also mentions that “A substantial body of EU law that affects construction businesses is already enshrined in UK law. These laws would be unlikely to change in the shorter term, but changes, for example to reduce perceived “red tape”, would be inevitable.”Stephenson Harwood Partner Paul Westover warns ““Be alert to the rapidly shifting landscape. The UK remains a member of the EU so, from a legal and compliance perspective, laws and regulations will not be changing in the immediate future but the decision of the referendum has led to great uncertainty in the political situation, both in the UK and the EU, the investment environment, a weakened currency and markets in the UK.”Mitigating this, Kitts pointed out that “Markets will adjust quickly. For example, the FTSE has already made up much of the ground it lost on 24 June”, as well as “The week of the referendum, the FTSE finished as it started”. In his mind, therefore, “Risk factors are built into markets, and things are likely to settle down quickly”, meaning that “In due course, there will be opportunities in the UK for Asian investors”. |
 Also on inherent risk, Carrigan divulged “In times of great uncertainty there is usually a flight to safety and quality. In the insurance sector this means developing structures and strategies to assist manage already identified and future unknown risks faced by clients. Nimble insurers with strong balance sheets, and brokers with an ability to identify risks arising from Brexit and how to effectively manage them will be very well placed to assist their clients.“It is early days so it’s very difficult to say with any degree of certainty. However, insurers which are able to capitalise on the uncertainty and support clients to navigate their business through the economic and contractual uncertainty that will arise as a result of Brexit should thrive. UK and EU based insurers will need to very carefully consider their own current structures from a regulatory, licensing and overall commercial perspective. It is possible that there will be consolidation, rationalisation and a reshaping of the insurance sector in the EU as insurers may wish to close and/or open offices, or reset their distribution models depending on how best they consider they should address the structural changes in the EU market. Longer term, there may well be an uptick in claims as a result of the likely ongoing market volatility and instability, the restructuring of business and the economic uncertainty which arises. So insurers need to now consider the longer term implications and respond accordingly in their policy terms and conditions. This may in some cases require a narrowing of cover and in other respects the need to consider broadening cover in light of new risks and exposures now faced by insureds.”On taxation, Dentons made the point that “In theory, a Brexit would free the UK government and its taxation authorities from the constraints of all EU tax legislation…but a UK government is not likely to rush out and put all EU tax legislation on a bonfire immediately”, adding later that “Brexit is probably more of a challenge to the attractiveness of real estate in England and Wales and, in particular, investors’ views of the market here, rather than to how real estate business is done within the jurisdiction”. They also noted more sector-specifically that “Brexit would be unlikely to have a major impact on UK corporate law”. Also focussing on a business sector, Carrigan said of insurance that “The UK insurance market will need to carefully consider its position and the way forward in relation to European business and as regards changes, and the likely withdrawal or modification of current EU insurance licensing pass porting arrangements. However and in the longer term, London’s long history and tradition of insurance innovation and as a global centre of excellence for insurance and reinsurance is unlikely to be significantly impacted, especially for specialist risks. Asia Pacific is a growth area for London and the Lloyd’s market. It is therefore entirely possible that in the circumstances, UK insurers will look to execute a meaningful pivot away from the EU towards Asian markets. That will provide enormous opportunities for brokers and intermediaries in the region.” Whereas according to Kitts, “Different sectors will see different results. For example, the food sector has EU subsidies. If they go, businesses in that sector will be worse off”, while “For financial services, London will stay strong and important”. |
 On when article 50 may be administered, Kitts believes “Good strategy is required, and the UK has plenty of opportunity to delay”. On currency, he commented “The pound initially suffered and we at Eversheds have already had calls from Hong Kong and China-based clients who want to know more about asset acquisitions because they sense there might be some bargains to be had. My advice to them was simply that it’s too early to tell if it is a good investment.” after which he proclaimed “Inevitably, people will pause investment decisions. They should, however, all be cognizant of the fact that the underlying UK economy remains, the world has not come to an end and robust companies will continue to carry on business.” concluding that “We need to wait and see what the EU’s relationship with the UK will be, and this may not be known for quite some time”.Echoing some of these sentiments, Westover claims “There may be investment opportunities that arise from this, depending on the appetite for risk, but also some investments will be cancelled or put on hold until there is more clarity as to what, if any, form Brexit will take”.One thing that can be known is “A Brexit will mean the UK loses the benefit of the EC Regulation on Insolvency Proceedings 2000 (the EIR) and, unless it comes to separate mutual recognition arrangements with other European jurisdictions (or the EU as an entity), it will lose this major global competitive advantage”, as Dentons said. Dentons also points out. “It is unlikely that the UK would be able to escape being bound by the EU Charter of Fundamental Rights in some way if it wanted to continue to trade with EU Member States on terms similar to those that it enjoys now” and that “If the UK were unable to agree an equivalent to the EU Prospectus legislation, a UK issuer would probably find it harder, and more expensive, to market its securities across Europe”. They did, however after the vote state that they were “confident that the UK and Europe will adapt and prosper in the new business environment”. This story will continue to develop as there are numerous uncertainties, and as Westover said, “Whilst these uncertainties work themselves through, a GC based in Asia, whose company has interests in Britain and the EU, will need to be considering the possibility of a number of different scenarios, from a full UK exit of EU without access to trade privileges to some form of watered down membership or other close relationship with the EU, so as to be prepared to respond to questions from the business team. These plans can be refined as it becomes clearer the type of relationship that will exist between the UK and the EU in the future. However, at the current time, the only thing that is certain is that there is plenty of uncertainty.” |