M&A and corporate law following a “hard Brexit”
It is looking increasingly likely that an agreement governing relations between the UK and the EU after 31 December 2020 will not be reached in time. This could cause some legal turbulence.
Many foreign investments in Poland don’t come directly from the European Union. So it could be said that from the end of this year, the UK will simply change its status from that of a member state to a third country, joining such jurisdictions as the United States, Japan, and China. But over the years, agreements have been concluded between Poland and these third countries governing various important issues for the process of foreign investment. And most assuredly Poland will not have such a bilateral agreement in place with the United Kingdom on 1 January 2021.
Some things will remain unchanged
With respect to the legal aspects of such investments, there is no indication that, at least in the near term, the attractiveness of English law will diminish for parties conducting mergers and acquisitions or raising funding for ventures.
Similarly, many formal aspects of such transactions will not change. For example, as is now the case, it will not be necessary to legalise documents prepared in the UK (particularly official documents or documents made before a notary), as the consular convention between the countries from 1967 will remain in force.
The UK will also remain a member of the OECD (as there are no indications that this will change), and thus transactions by British investors will generally continue to be excluded from application of Poland’s Act on Control of Certain Investments.
Some things will change
With the expiration of the transition period (at the end of the day on 31 December 2020), the United Kingdom will be treated by the remaining EU member states as a “third country.” On one hand, British lawmakers will no longer be bound by EU provisions unifying corporate law, and on the other hand, companies from the UK will no longer be deemed to be equivalent to certain types of companies functioning in the EU.
Similarly, branches of companies registered in the UK will become branches of companies from a third country, and thus EU member states will no longer be required to automatically recognise such branches. From the perspective of Polish law, the provision of the Business Law under which branches of business entities from third countries can be created and operated based on the principle of reciprocity will be crucial. Thus from the start of 2021 a gap may arise, at least temporarily, resulting in uncertainty as to the possibility for branches of British companies to operate in Poland (and vice versa).
At the end of the transition period, any European Company (societas Europæa) registered in the UK will automatically be converted into a “UK societas,” and will continue as such until it is liquidated or converted into a British public limited company (PLC). Clearly, it will no longer be possible to establish a new SE with its registered office in the UK, or to move the registered office of an SE to the UK.
Similarly, from 1 January 2021 it will no longer be possible to conduct cross-border corporate mergers with involvement of British companies based on the rules arising under the Cross-Border Mergers Directive.
A definitive, “hard” cut-off of the United Kingdom from the legal system of the European Union, unaccompanied by the introduction of alternative solutions, is not an event anyone desires or looks forward to. The practical consequences of a hard Brexit are hard to foresee. Fortunately, from the perspective of corporate law and M&A practice, these consequences essentially boil down to a change in legal status and the need for participants in commerce to adjust accordingly. It can thus be said that in this field there will be no revolution.
Maciej A. Szewczyk, attorney-at-law, M&A and Corporate practice, Common Law Desk, Wardyński & Partners