What would a hard Brexit mean for company law?
On June 23, the UK voted in favour of leaving the European Union. The Leave campaign won 51.9% of the votes across the UK, while Remain won 48.1% of the votes. Many aspects relating to the exit procedures or the legal and economic consequences of Brexit are unclear or unknown. The impact of Brexit on the UK company law and on the future development of the EU company law is equally uncertain. Although the details of the UK’s future relationship with the EU are likely to remain uncertain for several years, three main scenarios have emerged as potential Brexit models.
The ‘Norwegian model’ has the least severe consequences for the continuation of the existing UK-EU relations. Under this model, the UK would leave the EU but join the European Free Trade Association (EFTA) and the European Economic Area (EEA). It would retain access to the single market, in exchange for accepting the principles of free movement of goods, services, capital and persons. The EU company law framework would continue to apply, as EU legislation having EEA relevance. The main downsides of this model are UK’s loss of voice in the EU law making process, and a continuing obligation to contribute financially to EU’s budget.
The ‘Swiss model’ is a compromise between a soft and a hard Brexit. Under this model, the UK would leave the EU and join EFTA but not the EEA. The Swiss Model would allow access to the single market only in the sectors agreed upon with the EU. The UK would be required to comply with the EU-derived corporate laws and regulations only to the extent that such instruments are relevant to the limited areas of access to the single market. Similarly to the Norwegian model, the UK would lose its decision-making rights as regards EU law, and will have to contribute to the EU budget (albeit a smaller amount than under the Norwegian model).
The more radical option, often referred to as a ‘hard’ or ‘clean’ Brexit, would involve a total exit from the EU and the single market. It is likely that, in the short term, the UK would continue to trade with the EU within the framework of the World Trade Organisation (WTO). In the longer term, it could seek a customs union (the ‘Turkish option’), or seek to negotiate a new, bespoke free trade agreement (the ‘Canadian option’). The hard Brexit model would allow the UK extensive freedom to adjust its company law regime in order to make it more attractive for foreign businesses, as compared to the EU regime. The UK could pursue a deregulatory agenda in areas often considered burdensome for business. A recent study by the British Chamber of Commerce found that among the EU instruments that impose the highest financial costs on businesses are the Working Time Directive, the Pollution Directive, the Data Protection Directive and the Directive on the Sale of Consumer Goods. In corporate law, the UK could create a simplified, more attractive regime by derogating from legal provisions that it opposed or considered cumbersome.
For example, the UK could abolish the requirement for shares to have a nominal value, the minimum share capital for public companies, the prohibition on the giving of financial assistance by public companies, or the prospectus form and content requirements imposed by the Prospectus Directive. The UK would also be freed from the obligation to implement the proposed Directive for improving the gender balance in the boards of listed companies, which sets a quantitative objective of at least 40% representation for each gender among non-executive directors by 2020. In other areas where the UK has been supportive of EU developments, such as the Shareholder Rights Directive II, or the Fourth Money Laundering Directive, the UK and EU laws are likely to remain aligned. Such deregulatory measures will render the UK more attractive to businesses focused on the UK domestic market or on non-EU countries. Businesses trading with the EU would continue to be bound by EU requirements (for example in areas such as consumer protection, or for the purpose of financial services passports) and thus may have to comply with two potentially divergent sets of rules.
The Norwegian and Swiss models have the least impact on the future trajectory of the UK and EU corporate law and governance. They are, however, the least likely to be adopted. On the UK side, restricting the freedom of movement of persons by controlling immigration was a key issue on the Leave agenda, and remains a priority for the new Government. On the EU side, the leaders of the EU Member States have recently dismissed any prospect of the EU retaining access to the single market without also accepting free movement of persons.
The impact of a hard Brexit on the future of the UK and EU company law and governance is difficult to predict. Two aspects that are likely to be affected by a hard Brexit are the freedom of establishment of companies and the companies’ obligation to oversee and disclose their risks associated with Brexit. Overall, commentators appear to agree that fundamental corporate law revisions are unlikely to be a political priority post Brexit. The UK company law has recently undergone an extensive update and recodification process, resulting in the Companies Act 2006. Moreover, the current law enjoys a positive international reputation for stability and effectiveness, which the UK will seek to maintain post-Brexit.
 See Article 77 and Annex XXII of the EEA Agreement.
 It is estimated that the UK’s contribution to the EU budget would fall by about 59% under the Swill Model and by around 17% under the Norwegian Model. See Gavin Thompson and Daniel Harari, “The Economic Impact of EU Membership on the UK” House of Commons Library (2013) pp 25-26.
 In an official statement in the House of Commons, David Davies, Secretary of State for Exiting the European Union, declared that the UK aims to “create an immigration system that allows us to control numbers and encourage the brightest and the best to come to this country.” (“Exiting the European Union: Ministerial Statement”, 5 September 2016). Similarly, in her speech at the 2016 Conservative Party conference, the Prime Minister Theresa May stated: “But let me be clear. We are not leaving the European Union only to give up control of immigration again. And we are not leaving only to return to the jurisdiction of the European Court of Justice.” (Theresa May, “Britain after Brexit: A Vision of a Global Britain”, 2 October 2016).
 “In the future, we hope to have the UK as a close partner of the EU and we look forward to the UK stating its intentions in this respect. Any agreement, which will be concluded with the UK as a third country, will have to be based on a balance of rights and obligations. Access to the Single Market requires acceptance of all four freedoms.” (the European Council and the Council of the European Union, “Informal meeting at 27: Statement”, 29 June 2016).