Brexit and cross-border business operations
Amongst the UK Government's myriad "no deal" technical notices is the one dated 12 October 2018 and entitled : "Structuring your business if there's no Brexit deal".
The 8 page notice in question gives some useful information concerning the structuring of cross- border mergers and acquisitions in the event of a "no deal" Brexit and also describes the UK specific legal entities which will replace some specialist forms of EU corporate vehicle in the UK, including the European Economic Interest Grouping and the so-called European "Societas Europaea" ( a form of European Public Limited Liability Company) which, where they have been registered before "exit day" (29th March 2019 at 11pm UK time), will be replaced by the UK Economic Interest Grouping and the UK Societas respectively.
All the guidance in the notice seems quite clear and logical and unexceptional until one comes to a small two sentence paragraph on page 5 of the notice, which states as follows:-
"UK companies and limited liability partnerships that have their central administration or principal place of business in certain EU member states may no longer have their limited liability recognised. This is the case in certain jurisdictions that operate the "real seat" principle of incorporation."
Wow! Can it really be the case that a UK-incorporated limited company which has its "real seat" ( ie its management and control centre) elsewhere in the European Union in jurisdictions which operate the "real seat" principle of incorporation ( such as France or Germany) be at risk of not having its limited liability of shareholders not recognised by the courts of those jurisdictions? It is possible that there is indeed such a risk and the limited liability principle will not be recognised there.
In a judgement of the European Court of Justice ("the ECJ") dated 5 November 2002 in the case referred from the German courts in the matter of "Uberseering NV and Nordic Construction Company Baumanagement GmbH" ( Case C-208/00), the ECJ appears to have held that it was contrary to the freedom of establishment principle of EU law for an EU member state to deny legal personality and limited liability (and standing to sue or be sued in courts) to a company formed in an EU member stare which moves its central place of administration to another EU member state.
The concern is that following a "no deal" Brexit, the UK 's new status as "third country" will cause the "real seat" principle to be re-applied in jurisdictions such as France or Germany to UK - incorporated companies which are managed and controlled from France or Germany with the consequent denial of limited liability.
This could have serious implications for international business and at the very least leads to the obvious conclusion that particular care should be taken over structuring UK-EU cross- border business operations in the event of a "no deal" Brexit.
This unfortunate situation may produce new work for professional advisors but does not seem good either for the UK or Europe.
