23/11/2018

Five months to Brexit: avoiding a "no deal" crisis

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This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies. 

As the clock ticks down to 29 March 2019, it remains uncertain whether the UK will enter a transitional arrangement with the EU lasting until end 2020 or exit the EU with "no deal". Businesses therefore need to implement strategies to address the risk of a "no deal" Brexit.

Brexit Assurance

From a risk management perspective, businesses need to carry out a Brexit assurance process to ensure all Brexit-related "no deal" risks have been identified.  This will include:

  • Conducting an audit of "no deal" implications to pinpoint risks and opportunities.
  • Evaluating and prioritising audit conclusions to create a Brexit readiness plan.
  • Implementing strategies and monitoring developments to mitigate risks and seize opportunities.

Each business will need to identify its actual risks and solutions, which will depend on how the business is structured, how it operates and the details of its supply chains.  Some of the key legal issues that will need to be considered to prevent a Brexit-related "no deal" crisis are outlined below. 

Ensure service continuity

A key concern for most businesses will be ensuring that they are legally permitted to continue to supply services, or can continue to be supplied with the services, in the same markets after Brexit.  To maintain continuity it may be necessary to establish a new legal presence or make use of an existing business footprint in the EU or UK.  See "White paper: Continuity Clauses: a guide for Airmic members" for a discussion of the steps that UK and EEA insurers are taking to address the loss of their passporting rights. 

Know your supply chain

In a "no deal" scenario borders to trade may be erected, causing goods going to and from the EU to become subject to new customs duties and taxes and other import and export formalities.  If your business is dependent on cross-border trade, it will therefore be important to ensure that key elements of the supply chain are proactively addressing this risk, and possibly that alternative suppliers are identified and/or key goods sufficiently stockpiled. 

Prepare your contracts

Brexit planning is likely to identify specific aspects of existing contracts that need to be risk assessed, amended or migrated to a different entity.  There will also be implications for new contracts being negotiated before Brexit to continue after Brexit. Contractual issues that may need to be addressed include:

  • References to EU territory.
  • References to EU legislation.
  • Contracts which currently comply with EU law but which may become incompatible without amendment once the UK becomes a third country. 

Engage with your workforce

The ease with which EU citizens can come to live and work in the UK, and vice versa, is likely to be a significant concern for employers, employees and expatriates.  Employers will need to ensure that they understand the immigration status of their migrant workforces and are prepared to address a potential shortfall.  Employees should be reassured that they will be kept informed and supported as the negotiations develop. 

Protect your IP rights

The UK Government has indicated that it intends to recognise EU-wide IP rights which are being used to protect IP in the UK.  However, depending on how confident you are in the administrative process of creating equivalent UK rights being effective in time, it may be prudent to obtain protective, additional/replacement UK registrations to be guaranteed protection.

For more information, please contact Paul Butcher, Brexit Director (paul.butcher@hsf.com) or Tom Henderson, Senior Associate (tom.henderson@hsf.com) at Herbert Smith Freehills LLP