Back to the future – but no idea when

What Brexit could mean for the Anglo-European restructuring industry.

What happens now?

On 23 June 2016, the UK voted to leave the European Union. The nature of the UK’s relationship with the EU and the rest of the world, post-Brexit (if and when Brexit happens), is uncertain. So what do we know?

Actually, we do know several things:

  • Legally speaking, the referendum result has no immediate effect. It is only advisory. The UK continues to be a member of the EU and is still bound by the EU Treaties and subject to the jurisdiction of the Court of Justice of the European Union.
  • The only legal mechanism for withdrawal is that set out in Article 50 of the Treaty on the European Union (TEU). This requires the UK to issue a formal notice to the European Council (an “Article 50” notice) which will then trigger a two-year period. At the end of that period the UK will automatically stop being an EU Member State whether or not a withdrawal agreement has been reached. It is up to the UK when and if it notifies the European Council of its decision to leave; no timeframe for notification is provided under Article 50.
  • Given the current political situation in the UK and the possibility that the act of triggering Article 50 will have to be brought before Parliament and debated, it may be that an Article 50 notice will not be served until the Autumn at the earliest – and possibly even later. However, the remaining 27 Member States, the European Commission and the European Parliament may be unprepared to engage in informal negotiations until notice has been given. Thus, the UK can expect to come under growing pressure to serve notice sooner rather than later.

So where does that leave us? The UK has its own legal system which is enforced by its own independent court systems. However, a great deal of law which currently applies in the UK is derived from EU law in two ways:

  • Directly, without the need for any domestic implementing legislation, in the form of EU Regulations; and
  • Indirectly, in the form of EU Directives which have to be implemented by Member States through domestic implementing legislation.

If Brexit requires a repeal of the European Communities Act (ECA), then secondary legislation which is incorporated into UK law by the ECA would be likely to fall away. However, any primary legislation (which has been implemented through a freestanding UK statute to incorporate EU rules into UK law) would still stand. This would cause inconsistencies and gaps in the UK’s legislation which would need to be addressed in the transition period. Post-Brexit, the UK will need to decide how much, if any, EU law it wishes to retain. There is a range of possibilities from a clean break through to mirroring EU law in UK law.

One of the key unknowns when looking at the impact of a Brexit on restructuring and insolvency laws, is what sort of relationship the UK will have with the rest of the EU once its divorce has become final. Will the UK join the EEA? Will it become a member of EFTA but otherwise negotiate bilateral agreements with Member States? Or will it go it alone, negotiating a bespoke solution with each jurisdiction?

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