The UK left the EU on 31 January 2020 with the transition period ending on 31 December 2020. With certain exceptions and necessary amendments to reflect the UK’s position outside the EU, by way of the European Union (Withdrawal Agreement) Act 2020, the same rules and laws apply since the end of the transition period as before. The principal changes are referred to under relevant sections below.
We highlight here relevant rules for corporate transactions from 1 January 2021, after the transition period ended.
The material here does not constitute advice. Businesses contemplating a transaction should seek professional advice for the specific situation.
Undertaking corporate transactions post-Brexit
Common corporate (or business) transactions include raising bank or other finance, such as equity capital, and buying or selling a business or a business’s assets.
Some corporate transactions are directly subject to financial services laws and/or regulations – eg, the offering of a company’s shares on a public market, or mergers and acquisitions (M&A) involving public companies (takeovers).
Other transactions – eg, bank lending and private company M&A – proceed more in accordance with custom and market practice and private contractual arrangements, albeit within a framework of various business laws.
Capital markets transactions
Since the end of the transition period, continuity of the prospectus regime, transparency rules and listing rules in the UK’s primary markets is ensured by way of legislation. The effect of the Market Abuse Regime (MAR) is also replicated by legislation.
The UK’s primary markets regime applies to all issuers that:
- have securities admitted to trading, or have applied to admit securities to trading, on a UK regulated market or admitted to listing in the UK; or
- are making a public offer in the UK.
The FCA’s handbook has been updated to show the rules that apply from 1 January 2021. A guide to this may be found here.
Additionally, in Primary Market Bulletin 31, the FCA advised that issuers and advisers should continue to have regard to ESMA’s update of the CESR recommendations.
Implications
There is expected to be little impact from Brexit on issuers that are incorporated in the UK and admitted to trading in regulated markets in the UK.
Issuers with publicly traded securities on both an EU market and a regulated market in the UK will need to comply with prospectus, disclosure and listing rules on a cross-border basis, and report to the EU home state regulator and the UK regulator.
Issuers will not be able to passport prospectuses approved by a national competent authority in another EEA state. There are, however, grandfathering arrangements for prospectuses that have been passported into the UK before 1 January 2021.
Guidance on how third country issuers with prospectuses approved by the UK before its withdrawal from the EU should proceed after Brexit, is provided by the European Securities and Markets Authority (ESMA) in Questions and Answers Prospectuses.
An issuer which had the UK as its Transparency Directive (TD) home Member State before the withdrawal and is admitted to trading on one or several regulated markets in the EU27 or EEA, must choose and disclose a new home Member State under the TD. See ESMA’s Questions and Answers Transparency Directive.
The FCA will be carrying out technical assessments of the prospectus regimes of third countries, under the government’s Guidance Document for the UK’s Equivalence Framework for Financial Services
Market guidance
London Stock Exchange Market Notice N20/20 confirms proposed changes to the Exchange’s Primary Market Rulebooks that apply following the end of the Brexit transition period on 31 December 2020.
Brexit Implementation Assessment, refers to published amendments to its Primary Market Rulebooks in Market Notice N04/19, and includes material on loss of passporting rights as well as prospectuses for further issues.
AIM Notice 58, BREXIT: Amendments to the AIM Rulebooks links to the amended AIM Rules for Companies and AIM Rules for Nominated Advisers.
Public company takeovers
From 1 January 2021 the UK domestic takeover regime separates from the European takeover regime.
The Panel on Takeovers and Mergers (the Panel) is the UK’s supervisory authority for takeovers involving UK public companies.
Amendments to the Takeover Code (the Code) will come into effect including:
- the General Principles of the Code will be included in a new Schedule to the Companies Act
- the shared jurisdiction regime will end
The Takeover Panel’s Response Statement RS 2018/2 sets out amendments to the Takeover Code in relation to the withdrawal of the UK from the EU.
Corporate M&A
For merger reviews, the UK will no longer be part of the EU competition system. The UK’s Competition and Markets Authority (CMA) will have sole jurisdiction over investigating mergers and cases of anti-competitive conduct which affect the UK market. See government guidance.
Company law is, in the main, unaffected by EU law not applying. The status of and changes to regulation that can be relevant in M&A are addressed in government guidance, Brexit transition: new rules for 2021. This includes regulation on:
- the way businesses import and export goods
- the process for hiring people from the EU
- the way businesses provide services in EU markets
Other information of relevance includes on the points-based immigration system; data protection and transfer of personal data; employee protections; and on dispute resolution.
EU-funded programmes and State Aid
Many UK businesses have applied for, or received funding through, various targeted European Commission programmes. The UK continues to take part in all EU programmes for the rest of the 2014-2020 Multiannual Financial Framework (MFF).
UK organisations can continue to bid for new grant funding under the current MFF. See government guidance.
The UK’s policy on state aid and subsidies has not yet been defined.
Transaction risk
Since the end of the transition period, identifying and evaluating the commercial, financial, legal and regulatory and other risks associated with a transaction, are as important as ever.
Brexit - together with the impact of COVID-19 – may mean that due diligence and transaction risk assessment are more complex and/or take longer than planned.
Taking professional advice can help boost a business’s assessment of risk and its management.
Learning from good practice and shared expertise is also useful. Members of the Corporate Finance Faculty can refer to the library of best-practice guidelines.
The importance and practice of risk assessment is also frequently covered in Corporate Financier, the magazine for members of the Corporate Finance Faculty.