UK: Where Next For The Regulation Of Companies And Corporate Transactions In The UK?

Regulation of companies

The establishment and regulation of companies in the UK has, since the UK joined the EEC in 1973, remained primarily a matter for UK domestic law.

Successive EU Company Law Directives, often based on English law, have influenced the development of that law, laying down EU-wide minimum harmonisation standards in a range of areas. These include the validity of company obligations, the formation of public limited liability companies and their capital requirements, foreign branches, single member companies, mergers and divisions, takeovers, accounting and audit requirements.

These Directives have been incorporated into successive UK Companies Acts, most recently the Companies Act 2006. That legislation, which followed a long review of company law in the UK, will almost certainly remain the cornerstone of UK corporate legislation following Brexit. The extent to which divergence between UK corporate law and corporate law in EU member states may occur over time will, of course, depend on multiple factors, including the terms of any renegotiation. EU corporate law requirements must, for example, be applied by EEA member states.

While the establishment and regulation of companies remains primarily a matter for domestic law, EU law has created two distinct legal entities which are intended to facilitate closer business relationships across member states. These are:

• the European Economic Interest Grouping (EEIG), a partnership-like entity with independent legal personality which must have members based in at least two countries; and
• the Societas Europaea (SE), a European public limited company which must involve companies from at least two different member states.

Both EEIGs and SEs can be registered in any EU/EEA member state, including the UK. The status of these entities will require special consideration following Brexit. There are currently several hundred EEIGs and SEs registered in the UK (and several thousand across the EU/EEA).

Regulation of corporate transactions

There are two main areas where EU law provides for the regulation of UK corporate transactions.

The first relates to public company takeovers. Here, the Directive on Takeover Bids, which provides for minimum harmonisation of public company takeovers across the EU/EEA, has been incorporated into UK domestic regulation through changes to the UK Takeover Code and to the Companies Act 2006. However, much of the detail in these rules preceded implementation and remains UK-specific. Brexit is, therefore, unlikely to have a material effect on much of the detail of these rules.

In contrast, the regime for EU cross-border mergers established by the EU Cross-Border Mergers Directive, while now incorporated into UK law through secondary legislation, had no predecessor UK equivalent. The Directive allows a private or public company in one EU/EEA member state, including the UK, to merge with a company in another member state, provided certain steps are followed and certain conditions are satisfied. Although the Directive increases the choices available where a UK company wants to combine with a company from another EU/EEA state, there have been relatively few such mergers. The lengthy timetable and the procedural steps involved mean that a cross-border merger is not often the first choice of structure. Whether it will remain an option at all, following Brexit, remains to be seen.

Capital markets issuers

The EU Prospectus Directive enables an issuer of securities to "passport" its prospectus offering those securities to other EU/EEA member states. If the prospectus complies with the Directive's requirements and has been approved by the competent authority of an EU/EEA member state, the issuer can use it to raise capital across the EU/EEA without requiring further consents or approvals.

If post Brexit the UK is unable to agree with the EU any equivalent to the EU Prospectus legislation, a UK issuer wishing to make a pan-European public offering of its securities will need to apply for approval of its prospectus by the competent authority in an EU-regulated market, just as "third country issuers" currently do, and as was the case before "passporting" began in 2005. Conversely, the UK government might also require additional UK regulatory approval in respect of "EU approved" prospectuses which are used to market securities in the UK.

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