Impact of Brexit on corporate

UK company law

Now that the implementation period has ended, what is the impact on UK company law?

Although the UK Companies Act 2006 (CA 2006) and related secondary legislation is influenced by European legislation, there are no current proposals for a significant review or amendment in the short term and the amendments to UK company law that came into effect at the end of the implementation period are intended principally to remove any provisions solely derived from European legislation which are no longer required.

The EU and UK Trade and Cooperation Agreement (TCA) includes a number of provisions relating to cross-border trade in services and investments which are aimed at securing continued market access across a broad range of sectors, as well as a number of obligations to support new and continued foreign direct investment. These include obligations on market access (to ensure service suppliers and investors do not face limitations such as economic needs tests, restrictions on corporate form and foreign equity caps), on local presence (to ensure cross-border trade is not inhibited by establishment requirements) and on senior management and boards of directors (to prevent nationality restrictions on senior personnel). However, there are a number of detailed exceptions to these provisions and obligations (set out in Annexes to the TCA), and so, for example, UK investors proposing to invest in EU businesses and UK businesses owning or running operations in EU member states (or proposing to do so) should discuss with their advisers the relevant requirements in that EU member state.

The changes to UK company law which came into effect at the end of the implementation period are intended to preserve the existing company law framework as far as possible, and include (amongst other things):

• Amending the term “regulated market" in a number of places in the CA 2006 to refer instead to “UK regulated market or EU regulated market" or, where appropriate, solely to “UK regulated market".
• Amending the information required under the CA 2006 to be filed by UK companies appointing corporate directors/secretaries incorporated in the EEA so that this is aligned with the information required to be filed in respect of appointing non-EEA incorporated corporate directors/secretaries.
• Amending the Overseas Companies Regulations 2009 so that all overseas companies, whether incorporated in the EEA or not, have the same registration, filing and disclosure requirements. This means that EEA companies which have a UK registered branch or place of business now need to provide more information than was previously the case, and also have to include additional information on their customer-facing materials (e.g. head office location and amount of share capital, where applicable).
• Revoking the Companies (Cross-Border Mergers) Regulations 2007 as the UK no longer has access to the cross-border mergers regime.

Companies House guidance on the new information filing requirements for impacted entities can be accessed here.

Audit, accounting and corporate reporting

Now that the implementation period has ended, what is the impact on accounting and corporate reporting for UK companies?

The UK Government published updated guidance, “Accounting for UK companies from 1 January 2021”, in December 2020 on the changes required to the corporate reporting regime from 2021. It notes that these changes will only affect a small number of companies.

A number of amendments have been made to the CA 2006 provisions (and relevant secondary legislation) relating to preparation and filing of accounts, including limiting the scope of certain exemptions. Changes have also been made to the legislation which effectively mirrors these provisions for limited liability partnerships.

Key changes include (amongst other things):

• Removal of the exemption from producing accounts that previously applied to UK dormant subsidiaries of certain EEA parent undertakings - such subsidiaries are now required to prepare and file accounts annually with Companies House.
• Removal of the exemption for UK companies from producing a non-financial information statement that was previously available if the UK company was included in the consolidated annual report of an EEA parent company.
• Removal of the exemption from the requirement to produce group accounts that previously applied in certain circumstances to UK parent companies with an immediate EEA parent company.
• Introduction of the requirement for UK companies to use “UK adopted IAS” (international accounting standards) instead of “EU adopted IAS” for financial years beginning on or after IP completion day (see the following Q&A in relation to impact on accounting standards generally; see also the Q&A on continuing obligations of Official List/AIM companies).

The changes generally only apply in respect of financial years beginning on or after IP completion day, with financial years beginning before IP completion day being subject to the previous rules. However, there are transitional provisions for those companies whose financial year straddles IP completion day – see further the Q&A below “Now that the implementation period has ended will UK companies have to apply different accounting standards?”.

Further guidance on the impact of the end of the implementation period can be found in the joint letter on accounting and corporate reporting published by the Department for Business, Energy and Industrial Strategy (BEIS) and the Financial Reporting Council in February 2020 which can be accessed here. While this publication was drafted when a no-deal Brexit scenario was a possibility, the position under the TCA is not materially different and so it continues to provide useful guidance.

Guidance on how EEA companies and groups with a presence in the UK can comply with UK accounting and reporting requirements from 1 January 2021, published by BEIS, can be accessed here.

Now that the implementation period has ended, do UK companies have to apply different accounting standards?

UK companies could previously generally choose whether to produce their accounts using UK Generally Accepted Accounting Practices (UK GAAP) or International Financial Reporting Standards as endorsed and adopted by the EU (EU IFRS). However, where a UK company was admitted to trading on an EEA regulated market and produced consolidated accounts, it had to produce those consolidated accounts using EU IFRS.

For financial years beginning on or after IP completion day, UK companies instead, generally have the ability to choose between UK GAAP and International Financial Reporting Standards as endorsed and adopted by the UK (UK IFRS) (see further the Q&A “What is the relationship between EU IFRS and UK IFRS now that the implementation period has ended?" below). However, UK companies admitted to a UK regulated market are now required to use UK IFRS. Having said that, companies that have financial year ends which straddle IP completion day (or which ended prior to IP completion day but where the company does not file its accounts until after IP completion day) are also, in summary and subject to certain provisos, permitted a choice between using UK IFRS and EU IFRS. Guidance on this was published by the Financial Reporting Council in December 2020 and can be accessed here.

UK parent companies with a subsidiary in the EEA or with a presence in the EEA (for example, through a branch) should check the reporting requirements in the relevant EEA country.

Where a UK company is listed in the EEA it should discuss with its advisers what accounting standards it is (by virtue of its EEA listing) required to comply with and how these inter-relate with the UK requirements applicable to it.

See also the Q&A on continuing obligations of Official List/AIM companies below.

What is the relationship between EU IFRS and UK IFRS now that the implementation period has ended?

Existing EU IFRS was brought into UK law but frozen as at IP completion day. This means that any future adoptions, interpretations and amendments of EU IFRS by the EU will no longer automatically apply in the UK. Instead, the UK has its own framework for endorsement and adoption of new or amended UK IFRS. As a result, while both EU IFRS and UK IFRS are the same on 1 January 2021, there may be divergences in the future if the UK adopts or amends standards and the EU does not (or vice versa). In relation to UK IFRS, the new UK IFRS Endorsement Board (UKEB) is the body that will be responsible for endorsing and adopting new or amended IFRS issued by the IASB – its website can be accessed here.

In April 2019, in contemplation of a “no deal” Brexit, HM Treasury made a unilateral equivalence direction that, from exit day, the UK would recognise EU IFRS as equivalent to UK IFRS.

There is currently no specific EU equivalence decision relating to UK IFRS.

See also the Q&A on continuing obligations of Official List/AIM companies below.

Now that the implementation period has ended, what is the impact on the position of auditors?

The rules for auditing UK companies operating solely in the UK have not changed, however new Regulations address regulatory oversight and professional recognition of statutory auditors and third country auditors in the UK following the end of the implementation period. Key provisions include (amongst others):

• New powers for the Secretary of State to determine the equivalence of the audit regulatory frameworks of “third countries” (which include EEA member states and countries outside the EEA) and the adequacy of their competent authorities, as well as to set out the framework for future determinations of equivalence and adequacy.
• Arrangements in relation to the equivalence of audit regulatory frameworks, and the adequacy of audit competent authorities, in EEA member states and Gibraltar indefinitely. For example, on November 9, 2020, BEIS announced regulations to grant audit equivalence to the EEA States and approve as adequate their audit competent authorities.
• Granting of equivalency/adequacy status under UK law to third country audit regulatory frameworks/audit competent authorities where these have been granted equivalence/adequacy status by the European Commission prior to the end of the implementation period. For example, The Independent Regulatory Board of Auditors of South Africa has been granted provisional approval as an approved third country competent authority until April 30, 2026, reflecting a European Commission decision made in April 2020.
• Recognition of EEA auditors and EEA audit firms as being eligible for appointment as statutory auditors of UK companies.
• Powers for the Financial Reporting Council to adopt International Standards on Auditing, supplementing their previous powers to set standards in the UK.
• An exemption from audit for subsidiaries with a UK parent, where that subsidiary is included in the UK parent's consolidated accounts and those accounts are drawn up in accordance with the EU Accounting Directive or in accordance with UK international accounting standards.
• Insertion of transitional provisions to ensure that the audit exemption previously available to subsidiaries of UK and EEA parent undertakings continues to be available to those subsidiaries where their financial years have already begun. The exemption ceases to apply for subsidiaries of EEA parent undertakings for financial years beginning on or after IP completion day.

Further guidance on the position of UK auditors published by BEIS can be accessed here and guidance on the position of EEA auditors operating in the UK from 1 January, 2020 can be accessed here.

UK registered European Economic Interest Groupings (EEIGs) and Societas Europaea (SEs)

Now that the implementation period has ended, will there be any impact on UK registered EEIGs?

EEIGs were introduced to help businesses in EU member states establish and maintain links with businesses in other member states. Key requirements of the EEIG Regulation include that an EEIG must be registered in a member state and that all of its members must have their registered or statutory office and their central administration in the EU. As a result it is no longer possible to register a new EEIG in the UK. 

At the end of the implementation period EEIGs that were registered in the UK immediately before IP completion day were automatically converted into a new corporate form (a UK Economic Interest Grouping (UKEIG)). This is intended to ensure that UKEIGs can continue to operate effectively – however, the UKEIG is intended as a temporary stage, giving entities time to take appropriate action, rather than a long-term corporate choice. Unlike members of an EEIG, members of a UKEIG do not need to have their registered or statutory office and central administration in a member state. Companies House guidance for UKEIGs can be accessed here.

It should also be noted that, under UK law, certain requirements now apply to EEIGs registered in a member state and which have establishments registered in the UK. UK members of an EEIG registered in a member state should consider with their advisers whether there are any implications for them or the EEIG as a result of the implementation period ending.

Now that the implementation period has ended, will there be any impact on UK registered SEs?

An SE is a European public limited company which can be created and registered in any member state in a number of different ways, including by:

• Merging two or more existing public limited companies from at least two different member states.
• Converting a public limited company which has, for at least two years, had a subsidiary in another member state.

Now that the implementation period has ended, key points to be aware of include (amongst others) the following:

• It is no longer be possible to register new SEs in the UK.
• SEs registered in other member states are able to continue to trade in the UK. However, such European-based SEs have lost the benefit of previous simplifications to the applicable rules and so, for example, now need to register their UK branches with Companies House and file accounts.
• At the end of the implementation period, UK registered SEs that did not put alternative arrangements in place were automatically converted into a public limited company (referred to as a UK Societas). The intention is that a UK Societas will be a temporary stage for UK registered SEs rather than a long-term corporate choice, allowing them to take appropriate action of their own.

Further guidance for UK Societas can be found in the Companies House guidance which can be accessed here.

Continuing obligations of companies with shares admitted to the Official List/AIM

Now that the implementation period has ended, will there be any impact on the key continuing obligations of companies with shares admitted to the Official List?

The key continuing obligations of companies with shares admitted to the Official List derive from the Listing Rules, the DTRs and MAR (see the separate Q&A below in relation to MAR).

Brexit-related changes to the Listing Rules and DTRs were intended to ensure consistency with the revised legal framework and make other changes necessary to correct deficiencies and ensure the ongoing smooth operation of the rules. Implications for key continuing obligations of UK listed issuers under the Listing Rules and DTRs were also considered by the FCA in Primary Market Bulletin 22 (PMB 22) (published in March 2019).*

The impact of the end of the implementation period on the continuing obligations of companies with shares admitted to the Official List is limited, in particular for companies that are only traded in the UK. However, some of the key changes to be aware of include those noted below.

Application of DTRs - “home member state"

The majority of the DTRs (DTRs 4 – 6) previously applied (subject to limited exceptions) to companies admitted to a regulated market and which had the UK as their home member state, although DTR5 also applied (and continues to apply) to UK incorporated companies admitted to a prescribed market (this includes UK incorporated AIM companies). 

The concept of “home member state" has now been removed from the DTRs – as a result those provisions now apply (amongst others, and subject to limited exceptions) to all companies with shares admitted to a UK regulated market.

This is of particular importance for companies which were not previously subject to the relevant DTR provisions because they had a home member state other than the UK and/or companies which are subject to both the UK and European rules now that the implementation period has ended (for example, because they are admitted to a relevant European market in addition to having a UK listing) – in the latter case, as noted by the FCA in PMB 22 (linked to above), dual notification obligations may arise (among other things). Such companies should consider with their advisers the impact on their continuing obligations, including any material divergences between the requirements of the applicable UK and European rules.

Companies that previously had the UK as their home member state and that are within the scope of both the UK and European regimes should also identify their “new" home member state (for European purposes). ESMA has addressed this point in relation to the EU TD via an update of its Transparency Directive Q&A.

Reporting/audit standards

DTR4 has been amended to require consolidated annual financial information to be prepared in accordance with UK IFRS (as opposed to EU IFRS), however:

• Transitional provisions mean that this requirement only applies in respect of financial years beginning on or after IP completion day.
• An exception also applies to companies incorporated outside the UK which can continue to prepare their information in accordance with EU IFRS/equivalent standards** (see further the DTR4 section of the FCA's page on equivalence of non-UK regimes).

See also “What is the relationship between EU IFRS and UK IFRS now that the implementation period has ended?" above in relation to UK IFRS more generally.

Companies that have an EEA auditor also need to consider the revised requirements of DTR4 which now require EEA auditors of non-UK incorporated companies to be registered as third country auditors (in the same way as is the case for non-EEA auditors). Again, transitional provisions mean that this requirement only applies in respect of financial years beginning on or after IP completion day. The FCA reminded third country (including EEA) issuers of this in PMB 33, pointing out that listed issuers with an EEA auditor will need to ensure that their auditor is registered with the FCA as a “third country auditor” in time for publication of financial statements for financial years beginning on or after January 1, 2021. Failure to do so will mean that the financial statements will not be audited for the purpose of compliance with DTR4.1.7R.

See also the section on audit, accounting and corporate reporting above in relation to reporting standards and audit requirements applicable to UK incorporated companies more generally.

Free float

Previously, the Listing Rules required 25 per cent of shares to be held in public hands in one or more EEA states (subject to certain exceptions). Following the end of the implementation period, this has been amended so that shares held in any jurisdiction can be counted towards the free float. Recommendations published by the UK Listing Review in March 2021 include more general potential changes to the rules on free float (for further information on the key recommendations made by the UK Listing Review please access our separate webinar here).

* While this PMB was published when a no-deal Brexit scenario was a possibility, the position has not been impacted by the TCA and so it continues to provide useful guidance.

** DTR4 previously permitted an EEA incorporated issuer to report in national GAAP rather than EU IFRS if it did not have to produce consolidated accounts. The relevant provision has now been amended to refer only to UK GAAP and, as a result, such issuers incorporated in the EEA (and not in the UK) are no longer permitted to report in accordance with their national GAAP. This is only relevant in a small number of cases, however EEA companies that have historically reported in national GAAP should discuss with their advisers how any reporting requirements in their jurisdiction of incorporation inter-relate with the requirements of DTR4.

Now that the implementation period has ended, is there any impact on the key continuing obligations of AIM companies?

Only relatively minor changes have been made to the AIM Rules. These include amendments to AIM Rule 19 which now requires UK incorporated AIM companies to produce financial information in accordance with UK IFRS (as opposed to EU IFRS) for financial years that begin on or after 1 January 2021 (European incorporated AIM companies continue to be required to report in EU IFRS and companies that are not incorporated in the UK or Europe continue to be able to report in accordance with the same standards as previously). See also “What is the relationship between EU IFRS and UK IFRS now that the implementation period has ended?" above in relation to UK IFRS more generally.

For the avoidance of doubt, the rules on disclosure of changes to significant shareholders under AIM Rule 17 (including the guidance notes that require companies which are not subject to DTR5 to use all reasonable endeavours to comply with AIM Rule 17) remain unchanged as does the recommendation (in the same guidance notes) that such companies include provisions in their constitutional documents in similar terms to DTR5.

See the separate Q&A below in relation to MAR.

Now that the implementation period has ended, is there any impact on the MAR Disclosure Requirements for companies with shares admitted to the Official List/AIM?

Key continuing obligations under EU MAR that, prior to IP completion day, were applicable to companies with shares admitted to the Official List/AIM included those relating to disclosure of inside information to the market, insider lists, and PDMR/PCA dealings (referred to in these Q&A as the MAR Disclosure Requirements).

EU MAR has been retained in UK law (UK MAR) with only limited amendments. The FCA has  discussed the obligations of issuers in the context of UK MAR in Primary Market Bulletin 21 (PMB 21) (published in February 2019) and in Primary Market Bulletin 32 (published in December 2020).*

UK MAR does not make any material changes to the substance of the MAR Disclosure Requirements,** although (as noted in PMB 32) it requires notification of delayed disclosure of inside information and PDMR/PCA dealings to be made to the FCA regardless of any additional obligation under EU MAR to notify an EU competent authority. Companies which are only traded in the UK and have historically made notification of delayed disclosure to (and whose PDMRs/PCAs have historically made notification of dealings to) the FCA should not experience any substantive change in their obligations. However, companies which are within the scope of the MAR Disclosure Requirements under both UK MAR and EU MAR (for example, because they are admitted to a relevant trading venue in Europe as well as in the UK) need to ensure they comply with reporting requirements under both regimes as discussed by the FCA in PMB 21. Companies which historically notified delayed disclosure of inside information to, or whose PDMRs/PCAs notified dealings to, a competent authority other than the FCA also need to consider the impact of being required to notify the FCA under UK MAR.

Where a company is within the scope of the MAR Disclosure Requirements under both UK MAR and EU MAR, or where notifications have historically been made to a competent authority other than the FCA, it should identify with its advisers any practical differences in the requirements of the relevant regulators regarding the content/submission of relevant notifications. 

* While these PMBs were published when a no-deal Brexit scenario was a possibility, the position has not been impacted by the TCA and so they continues to provide useful guidance.

** Although note that certain changes to EU MAR made by the SME Growth Markets Regulation, including minor changes to the MAR Disclosure Requirements, came into effect on 1 January 2021. As these changes came into force after the end of the implementation period they were not automatically onshored into UK MAR. However, the Financial Services Bill 2019-21 includes provisions that (if enacted in the form proposed) will in due course essentially onshore the changes made to the EU MAR Disclosure Requirements into UK MAR (other than additional relaxations being included in EU MAR in relation to insider lists for SME Growth Market issuers).

Prospectuses

Now that the implementation period has ended, will there be any impact on the contents of FCA approved prospectuses?

The EU Prospectus Regulation has been retained in UK law with only limited amendments, meaning that the content requirements for FCA approved prospectuses have not changed significantly. 

However, UK incorporated companies should note that, for financial years beginning after IP completion day, financial information contained in an FCA approved prospectus needs to be presented in UK IFRS rather than EU IFRS (although, as previously, companies incorporated outside the UK can continue to use EU IFRS/equivalent standards). See also “What is the relationship between EU IFRS and UK IFRS now that the implementation period has ended?" above in relation to UK IFRS more generally.

In Primary Market Bulletin 32 (published in December 2020) the FCA also provided some additional guidance on the approach to ESMA Q&A and ESMA Guidelines following the end of the implementation period. In particular, it notes (in relation to ESMA Guidelines on disclosure requirements under the Prospectus Regulation) that in a UK context issuers and advisors should continue to have regard to the ESMA CESR recommendations because the new ESMA Guidelines (contained in ESMA’s Final Report published in July 2020) had not become effective by the end of the implementation period.

Recommendations published by the UK Listing Review in March 2021 include the recommendation that HM Treasury should conduct a fundamental review of the UK prospectus regime generally (for further information on the key recommendations made by the UK Listing Review please access our separate webinar here).

Now that the implementation period has ended, is there any impact on the use of FCA approved prospectuses in Europe (and vice versa)?

Under Article 25 of the EU Prospectus Regulation, it was previously possible to follow a process that allowed a prospectus approved in the UK to be used in other member states and vice versa (commonly referred to as “passporting” the prospectus). As discussed in further detail below, this is no longer possible although there are certain transitional provisions that apply to prospectuses passported into the UK prior to IP completion day.

UK approach

It is no longer possible to passport a prospectus approved by the competent authority of a member state into the UK now that the implementation period has ended.

However, a prospectus (or prospectus supplement) that was approved in another member state and notified to the FCA under Article 25 of the EU Prospectus Regulation prior to the end of the implementation period will be treated as if it had been approved by the FCA and can continue to be used in the UK for the period of its validity, although if a supplement is required to such a prospectus it must be approved by the FCA. 

European approach

The use of UK approved prospectuses in Europe is considered by ESMA in an update of its Prospectus Regulation Q&A which notes that (a) a prospectus approved by the FCA cannot be passported into Europe on or after IP completion day and (b) a prospectus approved by the FCA and passported into Europe prior to IP completion day is no longer valid (for European purposes) from IP completion day.

As a result, companies need to be mindful that if they trigger a requirement to produce a prospectus in the UK and also in Europe the relevant document will need to comply with the contents requirements of both the UK and European regimes (albeit, as discussed above, differences between the contents requirements under the two regimes should be limited) and will also need to be approved by the FCA for UK purposes and by the relevant EEA competent authority for European purposes (in this context, where the UK was the company's previous home member state, it will need to identify its “new" home member state/competent authority for the purposes of the European rules – this is also addressed in the ESMA Q&A referred to above).

Where a company passported an FCA approved prospectus into Europe prior to the end of the implementation period, it is also important to keep in mind (per the ESMA Q&A referred to above) that this is no longer valid (for European purposes).

Takeover Code

Is there any change to the application of the UK Takeover Code now that the implementation period has ended?

The UK Takeover Code regulates offers for certain companies incorporated in the UK, Channel Islands or Isle of Man. 

Prior to IP completion day it also previously applied on a “shared jurisdiction" basis to (a) certain companies incorporated in the UK and admitted to trading on a regulated market elsewhere in Europe and (b) certain companies incorporated elsewhere in Europe and admitted to trading on a regulated market in the UK. As the name suggests, “shared jurisdiction" offers were regulated in part by the UK Takeover Panel and in part by the other relevant European regulator.

These shared jurisdiction provisions have now been removed from the UK Takeover Code. As a result, UK incorporated companies which were previously subject to the shared jurisdiction provisions are now subject to the entirety of the UK Takeover Code* and companies incorporated elsewhere in Europe which were previously subject to the shared jurisdiction provisions are no longer subject to the UK Takeover Code at all. Companies that were previously subject to the shared jurisdiction provisions should engage with their advisers to understand whether or not the UK Takeover Code (or any other takeover code or regulation) now applies to them.

Other than the removal of the shared jurisdiction provisions, the changes made to the UK Takeover Code in light of Brexit are relatively minor. 

* Provided that they are considered by the UK Takeover Panel to be centrally managed and controlled in the UK, Channel Islands or Isle of Man or are admitted to a trading on a relevant market in the UK, Channel Islands or Isle of Man – see section 3(a) of the introduction to the UK Takeover Code.