From Our Members

As Brexit negotiations develop we hear from German-British Chamber members as they share their views and expertise.


Irwin Mitchell LLP: Engaging And Retaining EU Staff Post Brexit

Our clients are increasingly asking us for advice about how they can retain and support EU staff following the UK’s decision to leave the EU. We provide the answers to the most frequently asked questions.

Please note: The status and rights of EU citizens working in the UK is subject to on-going negotiations and may therefore change.

Are there any current restrictions on our ability to retain or engage staff from the EU?

No. Whilst the UK remains a member of the EU it is bound by the principles of the freedom of movement, which means that EU citizens can continue to work here without any restrictions.

Our departure from the EU formally began on 29 March 2017 when the UK served the ‘article 50’ notice. The UK has two years in which to agree a deal with the EU, although this can be extended if the remaining 27 EU countries agree. If this timetable is not amended, the UK will formally leave the EU at 11 pm on 29 March 2019.

Will we be able to continue to engage our existing EU staff if the UK exits the EU on 29 March 2019 without a deal?

If the UK leaves the EU without a deal, the UK will no longer be bound by EU law and, without any other agreement between the UK and the EU, the UK will be able to set its own immigration policy in respect to EU citizens. In a “no deal” scenario it is impossible to predict exactly what rules the Government would implement.

If the UK were to treat EU citizens the way they treat current non-EU citizens, this would mean that EU citizens would need a visa to continue to live and work here.

However, the Government has estimated that there are more than three million EU citizens and their families living in the UK. There is substantial political will to protect these individuals and it has not been suggested, even in a “cliff edge Brexit,” that the Government would withdraw the right to live and work in the UK of EU staff who have been living and working in the UK prior to Brexit.

Will we be able to continue to engage EU staff if the UK reaches an agreement with the EU?

It depends. The UK Government envisages the UK departure to be in two stages; the first stage being when the UK leaves the EU and moves to a transitional period, the second stage being after the final deal has been implemented. This creates three categories of EU staff:

  1. those who arrived prior to the UK leaving the EU; 
  2. those who arrive during the transitional period; and 
  3. those who arrive after the transitional period has ended. 

For those who arrive prior to the UK leaving the EU, a joint report from the negotiators of the EU and the UK, published on 8 December 2017, has set out the ‘common understanding’ that has been reached. This provides that, on the date the UK leaves the EU, EU citizens who reside in the UK (and their family members) will continue to benefit from existing EU free movement rights.

Reciprocal protections will be given to UK citizens living in the EU.

EU citizens arriving during the transitional period from 30 March 2019 to 31 December 2020 will be able to stay on the same terms but will need to register if they choose to stay for longer than 3 months.

The Government has not said how they will treat EU workers arriving after the end of the transitional period.

What steps can our EU staff take now to put them in a better position to continue to live and work here once we exit the EU?

EU staff who have lived and worked in the UK for at least five years can apply for ‘permanent residency’ provided they have exercised their treaty rights for a continuous period of five years during this time. This means that they must have been lawfully living in the UK to study, work (either on an employed or self employed basis) or have been economically self sufficient.

Whilst EU citizens currently automatically acquire permanent residency after five years of continuous residence in the UK, the Home Office provides a document certifying that the citizen has this right. Historically, few EU citizens living in the UK bothered to make this application (which costs £65 and requires answers to a very lengthy set of questions). This is because the application process is complex and EU staff and their family members have to account for every trip they have taken in and out of the UK to ensure that this does not breach the residency requirements. In addition, EU citizens who are self-sufficient or are here to study have to hold private medical insurance. It is very easy for applicants to make a mistake and some employers are obtaining legal advice for their staff to help them through the process.

A foreign national who has held permanent residency status for twelve months can also apply to naturalise as a British citizen. EU citizens who are married to a UK citizen can apply immediately for citizenship.

UK citizenship offers the best protection and, once this is obtained, individuals with dual UK and another EU citizenship cannot be deported or otherwise removed from the UK. Becoming a UK citizen can affect the citizenship that an individual already has. 

Has the Government given any indication of what rights EU citizens will enjoy post Brexit if a deal is reached?

Only for those already living in the UK by the end of the transitional period. In November 2017, the Government published a 'technical note' on EU citizens' rights and read in conjunction with the common understanding with the EU of 8 December 2017, we have a clear idea how the Government proposes to treat EU citizens already working or living in the UK.

It intends to introduce a new concept of 'settled status' which, once granted, will enable EU citizens and their families to continue to lawfully live and work in the UK post Brexit.

For those arriving after Brexit, the Government has not published any proposals.

What would happen if future EU citizens coming to the UK after Brexit are treated in the same way as non-EU country citizens are under the current rules?

EU citizens would need visas to live and work in the UK. Currently a skills charge of £1,000 per year per employee brought into the UK under Tier 2 of the points based system is imposed on employers who sponsor skilled workers from outside the EU.

Further Information

 

Sybille Steiner
Partner
T: +44 370 1500 100
W: www.IrwinMitchell.com

Disclaimer - This update is for general guidance only. Specific legal advice should be obtained in all cases. Irwin Mitchell LLP is authorised and regulated by the Solicitors Regulation Authority.

©Irwin Mitchell 2018. This material is the copyright of Irwin Mitchell LLP and is not to be reproduced in whole or in part without prior written consent.


CMS: Driving change in the Automotive Sector – is it facing a perfect storm?

• The media is awash with news of concern, decline and uncertainty in the automotive sector. Falling domestic demand and lack of clarity around Brexit are two key factors.
• Confusion over diesel taxation and wider air quality plans are impacting domestic demand at a time when unprecedented technological advances are leading to growth in demand for electrically operated vehicles with driverless cars on the domestic horizon.
• The lack of clarity surrounding Brexit could have a profound impact on the sector where much of the legal and regulatory framework derives from EU Regulations and Directives.
• Decreasing domestic demand and the prospect of exports faltering if a cohesive Brexit plan does not emerge imminently means Banks, OEMs (Original Equipment Manufacturers), Tier 1 and 2 suppliers and a range of distributors need to be increasingly alert and ready to deal with distress and at worst failures in the sector.

CMS: The once buoyant automotive sector is facing some challenges

The sector has recently hit the headlines and the news has often been gloomy:

• The Society for Manufacturers and Traders (SMMT) and other trade bodies including the European Automotive Manufacturers Association (ACEA) have voiced their concerns in recent months about the impact of Brexit and other factors affecting financial performance, growth and stability in the sector. The SMMT’s commentary has been widely disseminated in the UK media. This culminated in the SMMT’s January figures showing overall demand for new cars fell by 5.7% in 2017 with December representing the 9th consecutive month of decline when new registrations fell by 14.4%. On a positive note, demand for electric cars in 2017 reached a record high with approximately 120,000 Alternatively Fuelled Vehicles (AFVs) registered representing a 34.8% increase. Nonetheless, AFVs remain a small segment of the sector where by contrast sales of diesel vehicles, a longstanding feature of the UK market, fell by 17.1%, notwithstanding advances in clean diesel and reduced CO2 emissions.

• The accelerated dip in domestic demand for new vehicles coupled with a plunge in diesel sales is creating widespread concern in the industry. Performance in the automotive sector is regarded as a key indicator for the economy's health. Statistics vary but it is estimated that approximately 170,000 workers are employed in car factories or their supply chains in the UK with estimates of 800,000 jobs dependent on the automotive sector as a whole. These figures will not include the impact of distress or failure in the wider business community where key plants are situated.

• Much of the recent press coverage focuses on the fall in domestic demand for new cars, but does not flag the huge variable in percentage terms between cars manufactured in the UK destined for export (approximately 80%) and the number produced for the domestic market (approximately 20%). Whilst the export figures have largely held up, the impact of continued uncertainty surrounding Brexit must not be overlooked. As about 50% of new cars exports are to the EU, the lack of a cohesive Brexit plan raises questions over how long the current EU export figures can be sustained.

• Britain is the fourth largest producer of cars in Europe behind Germany, France and Spain. Jaguar Land Rover is Britain's largest car maker followed by Nissan (Sunderland) and BMW (which assembles the Mini in Cowley). Collectively these three manufacturers account for nearly ¾ of all British car production. Jaguar Land Rover invested (with significant Government support and taxpayer funding) in new diesel technology leading it to build a £500m engine factory near Wolverhampton. Notwithstanding this huge investment, ongoing anti-diesel messages from the Government coupled with increased tax on diesel vehicles has been blamed for a 30% collapse in demand.

Sector Features and Challenges

• Aside from being a sector in the grips of profound change, the underlying characteristics of the automotive sector create a significant interdependency between the key players. In the early days, OEMs produced virtually everything necessary for the finished vehicle. As the complexity and number of parts increased, key components started being produced by independent suppliers or wholly owned subsidiaries of the OEMs. Over time those independent suppliers grew and subsidiaries were also sold off leading to the emergence of the current industry structure of OEMs, Tier 1 and Tier 2 suppliers and vehicle distributors.

• The importance of the supply chain and the interdependence of key players on one another cannot be over-estimated, not least when the sector faces unprecedented challenge and change. An ACEA publication in May 2017 estimated that most cars now have about 30,000 parts, around 30 components and undergo over 100 process steps to become a finished product. In the course of its material journey a car may pass through 15 countries and cross borders multiple times. Ongoing disruption in the sector together with Brexit heightens the need to guard against supply chain breakdown.

• Technology presents both challenge and opportunity in the sector. OEMs are competing to produce energy-efficient vehicles that will meet the demands of tomorrow’s consumers. Old methods and products face the challenge of remaining relevant and competitive if they are to survive, meaning that the labour force must also be agile and open to change.

• Domestic economic factors remain important. Whereas a drop in the value of sterling helps keep automotive exports levels up, the flip side of the coin is margin erosion arising from the need to import increasingly expensive components to manufacture the finished product.

Brexit Implications

Brexit uncertainty continues to impact domestic demand for new cars and with it production output. With overseas demand remaining the driving force for UK car production, clarity on the nature of our future EU trading relationship and any transitional arrangements is vital for growth and productivity. The EU takes more than 50% of UK car production and multinationals such as Honda, Nissan and Toyota have specifically located in Britain to produce cars for mainland Europe with the benefit of customs-free access to the Single Market. Confirmation that the current trading relationship will not be substantially disturbed is of particular significance to businesses operating in the transnational value chain. Any reduction in tariff-free trade not only impacts price and competitiveness, but also raises the prospect of disruption leading to supply chain breakdown.

The voice of business has been championed from various corners including the CBI, European Chambers of Commerce and prominent trade bodies. Consistent and repeated messages include:

• The need for a regulatory framework which enables growth and keeps the administrative burden to a necessary minimum. In practice this would mean a framework which closely aligns or retains the principal features of the current regime to enable the UK to stay competitive.

• Free movement which allows continued access to the right talent so that the UK can source from abroad when the necessary skills set and expertise are not available here (and vice versa).

• Tariff-free trade with the EU and other countries around the world. This is vital for the automotive sector given the significance and interdependency of the transnational value chain.

• Continued participation in European research & development projects, initiatives and programmes. This is regarded as vital for the industrial and manufacturing sectors, not least the automotive sector where new technology continues to disrupt and challenge old ways and products.


Viewed from a legal perspective the messages from business raise a number of important legal issues where clarity on the post-Brexit position is vital – open issues include:

• The regulatory framework for vehicle type approval is EU governed. How will any changes impact our significant car exports to Europe?

• EU Directives and Regulations cover important aspects including vehicle emissions, technical standards, product safety and compliance. How this will be dealt with or replicated in the post-Brexit era is vital for OEMs.

• Distribution systems are governed by EU competition rules with substantial case law on price collusion and anti-competitive behaviour – what will this look like in the post-Brexit era?

• With the current web of EU legislation, how will barriers to trade in the form of tariffs be avoided and free access to the right talent be enabled in the future?

Sector specific issues to consider

A chain is only as strong as its weakest link

• OEMs and suppliers tend to enter into long-term relationships, not least because of the interdependence and complex nature of the relationship. Just-in-time stock delivery arrangements mean smooth running is essential. Any delay or failure to deliver crucial parts is likely to leave the OEM or Tier 1 supplier with little or no time to source elsewhere. In a worst-case scenario it can lead to supply chain failure and substantial losses being incurred.

• Litigation in the aftermath may feel like rearranging the deck chairs on the Titanic when the ship is already sinking. Preserving an open and transparent relationship with appropriate contractual back up is essential and should assist in spotting problems early and dealing with them in a timely manner.

• OEMs may be willing to support suppliers with difficulties on terms. For example, by having the ability to monitor, access and if necessary intervene should delivery be in jeopardy. In a worst-case scenario an OEM may be prepared to support a supplier in administration providing suitable terms are agreed with the administrator, which may include the ability to pierce the moratorium in order to access and take finished parts in appropriate cases. A similar position may be adopted between a supplier and a sub-supplier in financial difficulties. Liability to deliver to the OEM typically sits with the Tier 1 supplier so it may be necessary for them to also offer concessions and support to the Tier 2 supplier on appropriate terms to ensure the Tier 1 supplier meets their own contractual obligations.

Warning signs and a pattern of events which may spell trouble

Signs of stress may include some or all of the following:

• Defaults under finance documents and other covenant breaches.

• A transfer from the bank's good book to their impaired loans team.

• Requests to fund additional working capital requirements.

• Increased bad debt levels.

• Late payments leading to litigation or Statutory Demands being served.

• Inability to respond to technological changes, losing market share & relevance.

• Inability to respond to changes in consumer buying habits.

• Worsening relationship between suppliers and OEMs.

• Over-reliance on one product which loses market share.

• Too many competitors in a marketplace where only the fittest will survive.

Stakeholders who may influence a sequence of events

Typically, one or a combination of the following will impact on the outcome:

• Banks and other key trading partners – are they willing to support and exercise forbearance?

• Employees & unions - job losses will often loom so the attitude of employees and the impact of union intervention may be crucial.

• Government – in large-scale situations there will be public pressure to support the struggling business. How might the government respond in specific cases and more widely? For example, in the past a scrappage scheme was introduced to incentivise and stimulate new car sales whilst getting older vehicles with higher emissions off the road.

• Pension Fund Deficits – many large businesses in the sector will have numerous employees. Are there pension fund deficits and if so what is the plan for addressing them?

• Opportunity Funds often feature where a larger business is in financial difficulties. They will be looking to either acquire bank debt and control the future destiny of the business or to acquire its business and assets potentially through an administration free of debt and liabilities.

Final thoughts

The challenges facing the automotive sector show no sign of abating. Businesses need a level of certainty and predictability which is sorely lacking on Brexit. Many will have contingency plans in place which could have adverse implications for future productivity in the UK if implemented. Those plans may well include timelines for execution. Wider challenges and disruption in the sector seem set to continue as domestic demand tumbles month on month and consumers increasingly look to energy-efficient vehicles using new technology.

Further Information

 

 

Patricia Godfrey
Partner
T: +44 20 73 67 3000

Patricia Godfrey is a partner in the Restructuring and Insolvency team at CMS Cameron McKenna Nabarro Olswang in London. Patricia advises boards, corporates and other stakeholders and has developed a particular expertise advising on cross-border situations involving complex structures across a range of jurisdictions. She is also Chair of the German British-Chamber of Industry & Commerce in the UK.

Disclaimer - This update is for general guidance only. Specific legal advice should be obtained in all cases. CMS Cameron McKenna Nabarro Olswang LLP is authorised and regulated by the Solicitors Regulation Authority.

©CMS Cameron McKenna Nabarro Olswang LLP 2018. This material is the copyright of CMS Cameron McKenna Nabarro Olswang LLP and is not to be reproduced in whole or in part without prior written consent.


Buse Heberer Fromm: Post BREXIT: How will EU-Judgments be enforced in the UK?

Among the many not yet answered questions related to the Brexit, one is of particular importance for businesses: how will judgments of other EU countries be enforced in the UK, and vice versa, after March 2019.

Today, the UK and 27 other countries within the European Union have a very sophisticated and efficient system of mutual recognition and enforcement of foreign judgments in place, laid down in the Recast Brussels Regulation (EU 1215/2012). 

Buse Herberer Fromm: What happens if a “hard” Brexit happens with no negotiated solution?

Judgments handed down by a court of one member state which has competence according to the provisions on international jurisdiction will automatically be enforced by the judicial authorities of any other EU member state. No specific recognition proceedings are necessary. The Recast Brussels Regulation also contains extensive rules on the determination of the competent courts and ways to choose the venue in a contract. Similarly, the EU-Regulation 1896/2006 provides a simplified procedure for obtaining a European Order for Payment between companies in different member states of the EU. It is applicable to undisputed amounts owed by a company located in a member state different from the creditor’s country (EU-Regulation 1896/2006 is not applicable in Denmark, though).

With the Brexit taking effect end of March 2019, the UK will, however, automatically leave these systems and a solution for this situation will have to be negotiated between the UK and the European Union. But what happens if a “hard” Brexit happens with no negotiated solution?

In the event that the UK and the EU do not reach any compromise on the matter, the national rules in each of the European member states on the recognition of foreign judgments will apply, just the same way as if the applicant were an overseas company (e.g., from the US). The statutory provisions for such exequatur procedures vary from country to country but, for example, in Germany and France they consist of a test of international regularity which will be the case if (a) the judgment was handed down by a judge who had jurisdiction over the dispute and (2) it does not contravene the public order of the country where it is to be enforced. There may be more requirements for recognition of foreign judgments in other countries. All criteria for recognition are determined by the national laws of the country where recognition is sought for.

The UK might look out for alternative solutions which do not require the unanimous consent of the remaining countries of the European Union. In 2005, the EU and – so far Mexico and Singapore – agreed on the Hague Convention on choice-of-court agreements. The UK is currently not an autonomous member of this Convention but only as part of the EU. However, after leaving the European Union, the UK might apply for acceding the Hague Convention directly and thus benefit from the regulations of this Convention which is, however, only applicable to contracts where the contractual parties chose an exclusive place of jurisdiction of one of the Contracting States.

The UK could also become a member of the Lugano Convention on the recognition and enforcement of judgments from one member state in another member state. The Lugano Convention is applicable between the EFTA-states (European Free Trade Association) and can be considered as a predecessor of the Brussels Convention. However, adhesion to either EFTA or the Lugano Convention directly will require the consent of the other members, mainly identical with the members with the countries of the European Union. Thus, the UK will only be able to make use of this alternative by way of negotiations.

It goes without saying that any result achieved through negotiations between the “parties” (UK and EU) is better than no agreement at all. The EU Council already made a proposal suggesting that at least all judgments handed down before the UK’s withdrawal (end of March 2019) shall continue to be enforceable in accordance with the current rules (Directives of the EU Council on the Brexit-negotiations, published on 11 May 2017). But, again, also this small achievement is subject to mutual consent.

Mutual recognition and enforceability of judgments is of high value for businesses in a globalised world. Indirectly, it even determines payment behaviours of companies and individuals. Thus, this topic should be given some priority in the Brexit negotiations.

As a practical advice, existing contracts between EU companies and UK companies should be reviewed in due course with regard to jurisdiction and choice-of-law clauses. Obviously, it is too early to determine effective jurisdiction clauses under the post-Brexit regime. However, parties to existing and new business contracts should consider arbitration clauses as an alternative to jurisdiction before public courts. Recognition and enforcement of arbitral awards is not related to the membership to the European Union. It is governed by the New York Arbitration Convention. The vast majority of the member countries of the United Nations (154 out of 193 member countries) have adopted the New York Arbitration Convention, including the UK and all other EU member states. Thus, the UK’s withdrawal from the EU will have no impact on the enforceability of arbitral awards.

Further Information

Dr. Thomas Rinne
Rechtsanwalt
T: +49 69 989 7235-0
E: frankfurt(@)buse.de

Disclaimer - This update is for general guidance only. Specific legal advice should be obtained in all cases. 

©Buse Heberer Fromm · Rechtsanwälte · Steuerberater PartG mbB 2017. This material is the copyright of Buse Heberer Fromm · Rechtsanwälte · Steuerberater PartG mbB and is not to be reproduced in whole or in part without prior written consent.


ebl miller rosenfalck: Reverse Cross Border Mergers – in a Brexit context

A recent High Court decision has confirmed that it is now possible to restructure European and UK operations by way of reverse merger of a UK parent company by absorption by a subsidiary based in another EU member state. This mechanism which derives from the EU cross border merger directive of limited liability companies (2005/56/EC) had not until this decision been permitted under English law.

ebl miller rosenfalck : Reverse Cross Border Mergers

Reverse Cross Border Mergers – in a Brexit context

In the context of Brexit (and pending what legislative changes are made following the invoking of article 50 to leave the EU) corporates will have a window of opportunity to restructure their operations by taking advantage of this mechanism (whilst still in force) to absorb UK companies into another EU jurisdiction or the other way round.

Further Information

ebl miller rosenfalck
T: +44 (0)20 7553 9930
E: info@millerrosenfalck.com

 

Disclaimer - This update is for general guidance only. Specific legal advice should be obtained in all cases. Specific legal advice should be obtained in all cases. ebl miller rosenfalck is authorised and regulated by the Solicitors Regulation Authority.   

©ebl miller rosenfalck 2017. This material is the copyright of ebl miller rosenfalck and is not to be reproduced in whole or in part without prior written consent.