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Brexit: Risk Management, Corporate Structure & Funding

The UK left the EU on 31 January 2020. A transition period, during which EU laws continue to apply in the UK, is due to end on 31 December 2020. The UK/EU Withdrawal Agreement sets out transitional arrangements and negotiations for the future UK/EU relationship are ongoing.

As the end of the transition period approaches, businesses taking stock of their planning will be considering the key Brexit risks – both operational and strategic – and how to prioritise and mitigate those risks.

Sound governance principles, of course, require business leaders to establish clear lines of responsibility with regular reporting. Where the legal position is clear, the board should ensure the business takes the required operational steps. Where uncertainty remains, the risks and evolving legal position should be monitored and managed. Clear communication with stakeholders will be key.

Identifying risks and setting priorities

Key risks concern a business's intangible worth (for example, its IP portfolio); supply of goods and services; continued availability of human capital; access to finance and regulatory risk. The relevance and weighting of these risks will depend on the business.

Operational Mitigation

Where the legal position is known, the steps to take may already be clear. For example, to avoid business disruption and fines by identifying workers who need to obtain 'settled' or 'pre-settled status' and verify their status online, and updating the business' existing and standard contracts to address the new legal environment.

Where the legal position is unknown, risks should be audited and a decision taken whether to act now or once the position is clearer, depending on the significance and implications of non-compliance. For example:

  • If the business depends on EU funding such as research grants, EIB financing, explore other funding sources
  • Where the business relies on data flows from the EU, ensure that mechanisms are in place if necessary to continue those to continue
  • If a key supplier is likely to face import delays or escalating costs in the event of 'no deal', review the contract to identify potential exposure, ability to terminate and alternative supply arrangements

Strategic and structural mitigation

The board should keep the corporate structure of the business under review:

  • Does continued access to EU markets depend on having an EU presence? 
  • Is a switch to retaining local expertise, supply or market share required?
  • Are there risks in one area of the business which need ring-fencing from a liability perspective?
  • Has tax planning for the business been considered in light of Brexit, including in anticipation of future divergence and to mitigate any losses?

Contracts and assets may need assigning to other established or new group entities, and/or strategic acquisitions or disposals may be required. Also, consider whether there is potential for a new business partnership or joint venture in response to Brexit. Businesses contemplating M&A, joint ventures and reorganisations should work closely with their advisers to ensure Brexit transition risks are taken into account in integration planning, due diligence and negotiations.

Communication with stakeholders

Whatever the business identifies as its key Brexit risks and strategy, keeping the lines of communication open with key stakeholders - suppliers, customers, employees, shareholders, regulators and providers of finance - will be crucial. Stakeholder perspectives will be important, not only in identifying and managing the risks involved, but also to ensure the continued success of the business. Potential sensitivities should be carefully managed.

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