DG Justice Paints A Gloomy Picture Of Post-Brexit Impact On EU Company Legislation

The final outcome of Brexit is still uncertain for the time being but, assuming that there will be no room for negotiations between the City of London and the EU post-Brexit, once the UK departure occurs on 30 March 2019 at midnight (CET), the UK will become a "third country" for the purpose of EU rules and this will trigger a series of consequences for both UK and EU businesses.

In the sensitive context of an upcoming round of negotiations between the UK and the EU-27 Member States, the DG Justice and Consumers published a notice last week stressing that Brexit and the UK becoming a third country for the purpose of EU company legislation should have major implications on both UK-based companies and their EU-based branches. This notice to stakeholders may be found here: http://ec.europa.eu/newsroom/just/itemdetail.cfm?item_id=607669

Among the consequences on EU company law, the EU Commission has drawn the market's attention on the fact that:

UK incorporated companies will become third country companies and will no longer be automatically recognised by the EU-27 Member States in application of the Treaty on the Functioning of the European Union. In practical terms, this means that the legal personality and the limited liability of UK-domiciled companies having their central administration or principal place of business in one of the EU-27 might no longer be recognised in some Member States. Consequently, such companies might lose their legal standing in the EU and their shareholders might become personally liable for the company's debts. UK companies should proceed with an analysis of the EU-27 companies' laws in order to determine their own status and decide whether they are better off forming a subsidiary with legal personality.

In Luxembourg, the amended Law of 10 August 1915 relating to commercial companies (the 1915 Law) recognises that commercial companies established in third countries can establish a branch, their central administration or operations headquarters in Luxembourg. This is a separate issue from the freedom of establishment across the EU, but nevertheless incumbent on any business licence or sector-specific authorisation regime in Luxembourg. Foreign companies can also be a party to legal proceedings in the Grand Duchy.

UK companies' branches set up in the EU-27 Member States will become branches of third country companies The switch in the branch' status triggers a switch in the relevant applicable rules across the...