Corporate Law: Brexit Impact

Corporate Law and Brexit

• Existing Economic Interest Groupings (EEIG), European Companies (Societas Europaea - SE), or European Cooperative Societies (Societas Cooperativa Europaea - SCE) in the UK will need to convert into UK legal forms or transfer their seat to an EU or EEA Member State.
• A 'hard Brexit' would end freedom of establishment for companies under Article 49, 54 TFEU, with repercussions for corporate mobility and citizenship.

Consequences of Lack of Freedom of Establishment for Corporate Mobility

• The CJEU has interpreted Article 49, 54 TFEU very broadly with respect to corporate mobility.
• In Sevic, it was held that freedom of establishment includes the right to effect a cross-border merger ('freedom to merge').
• Cross-border mergers are regulated for limited-liability companies, which is relevant for other legal entities under Article 54 TFEU like partnerships, limited partnerships, cooperatives, foundations.
• The CJEU has indicated in the Cartesio case and VALE case that cross-border transfers of seat (cross-border conversions) are protected by EU (TFEU).

Social Security

• Social Security Coordination Regulations' scope has been historically extended.
• Self-employed people were only added in 1981 due to a lack of explicit legislative authority, but that was fixed in 2009.
• Now, Article 48 TFEU includes 'employed and self-employed migrant workers', which can is a bit odd since self-employed people are usually distinguished from workers.
• Other TFEU provisions like freedom of establishment and services may apply to self-employed people in the internal market.
• Regulation (EC) 883/2004 no longer requires a unified vote to amend as ordinary legislative procedure with Council majority applies; however the right to veto was modified only and not abolished.
• A Member State may request for the European Council to make a decision, known as the alarm or brake procedure, which needs unanimous agreement.
• Article 352 TFEU still applies for economically non-active persons, so unanimity is needed.
• TFEU provisions show Member States' reluctance to cede social security competence to the EU.
• The EU possesses limited authorities for harmonising social security, concerning treating men and women equally, non-binding cooperation between Member States through the Open Method of Coordination (OMC), and the European Pillar of Social Rights, which covers 'Social protection and inclusion'.

Contracting Parties to the EEA Agreement

• European Community (now the EU), its Member States, Iceland, Norway, and Liechtenstein are contracting parties to the EEA Agreement.
• Article 2 (c) EEA has more info on the EU and its member states.
• The EEA Agreement was concluded and signed by the European Community (now the Union) and its Member States.
• Member States are therefore Contracting Parties to the EEA Agreement in their own right, alongside the EU, which is shown in the accession clause under Article 128 EEA.
• Also, Article 128 EEA states that when a European State becomes a member of the Union, it shall apply to also become a party to the EEA Agreement.
• This 'dual participation' represents how competence is divided between the Union and the Member States under the EU Treaties.
• When the EU alone concludes and signs international agreements where it has exclusive competence, the EU and the Member States become party to treaties if the subject matter falls into areas where the Union and the Member States share competence.
• The EEA Agreement is a mixed agreement procedural consequence, subject to national ratification procedures in all EU Member States for their conclusion and entry into force.
• Article 128 EEA also states that any European State becoming a member of EFTA may become a party to the EEA Agreement.
• Switzerland can apply to become a party to the EEA Agreement at any time, but has not.
• EU or EFTA Members must be a Member State to become a party to the EEA Agreement.
• Under Article 56 of the EFTA Convention, any State may accede to the Convention when the Council decides to approve its accession under any terms.
• The Council may negotiate any arrangement among Member States, State, union of States or org. that makes an association with such rights and obligation etc. that Agreement must be accepted by all.
• Any State that joins the Convention can be a party to free trade agreements between Member States on one hand and third states, unions of states organizations.

Traditional International Agreement

• The EFTA Convention can best be described as a traditional inter-governmental international agreement.
• Unlike the prior EEC Treaty, it does not set up independent institutions or entail transfer of mandate to intl. organizations.
• Per the Convention, Member States possess equal rights and for decisions to be made, unanimous vote is needed, and this serves as a political instrument between Govs.
• It doens't create rights/obligations for private parties.

Exit and Entry

• Article 127 EEA; [e]ach Contracting Party may withdraw from this Agreement provided it gives at least twelve months' notice in writing to the other Contracting Parties'.
• The procedural steps when a Contracting Party withdraw from the EEA Agreement are not listed, and Article 127 EEA states that '[i]mmediately after the notification of the intended withdrawal, the other Contracting Parties shall convene a diplomatic conference in order to envisage the necessary modifications to bring to the Agreement'.
• Legal consequences of failing to notify a withdrawal from the EEA Agreement are unclear.
• Under Article 126 EEA, if Member State withdraws from the EU without formal steps being taken vis-á-vis the Contracting Parties to the EEA Agreement, the territories of that Member State would not be included in the EEA.
• Complete silence from UK Gov. and Contracting Parties to the EEA on when to notify the intended withdrawal from the EEA Agreement.
• Article 128 EEA does not list detailed procedural steps if a State wants to become a party to the EEA Agreement/ other provisions (State in question must be a EU/ EFTA Member etc.
• Article 128 (2) EEA states that '[t]he terms and conditions for such participation shall be the subject of an agreement between the Contracting Parties and the applicant State. That agreement shall be submitted for ratification or approval by all Contracting Parties in accordance with their own procedures.'

Taking Back Control: Paradoxes and Dynamics

• In 1973 when the UK joined, the EU already went through its first change from the traditional however very collaborative interstate system under the Treaty of Rome.
• It had been a decade since the European Court of Justice (ECJ, or the Court of Justice of the European Union, CJEU) founded in its early case law that once a state had voluntarily signed up to the Treaties, it was now subject to the CJEU interpretation of what these obligations were.
• The Members States' courts were bound to recognize and use such 'direct effect' of EU norms empowered (some) individuals and firms against own state and shifted control upwards and downwards.
• There were limitations established by Court, but move sets the EU a part in its approach to sovereignty.
• EU legal theory has explored the need to revisit reigning legal paradigms thru discussions of supranationality and constitutional plural-ism.
• It can be argued that the EU's constitutional DNA whereby its powers are for purpose and function, leads to pre-emption of choices thru the course of politics within states.
• This could be seen as falling under acceptable balance of cooperation and cost of reducing natl control, under EU competence expansion.
• Disaggregation of control into law and politics realms; While the CJEU's interpretation of law's restrictions made exit harder, political control and control.
• 'Brexit moment' is the building block of politics, debate, and manipulation, while being the explanation to theories.
• Also depends on theory to examine the integration process, thinking of supremacy given to intergovernmentalism, to assuming state-centricism, to acknowledging limitations to notions of power.
• We import insights of areas like accommadating secessionist demands in multi national democracies, leading to political questions that can lead to legal debates.
• 'Brexit' issue on 'control' is critical for the future of Europe as Brexit may be to British except. and therefore Britain's problem, or a deeper malaise thru EU like French and Dutch constitutional treaty a decade prior.
• Scholars should pay attn. when re-examining British member ship in the EU and their finishing in withdrawal, when developments either stabilized or upset balancing the EU cooperation/ tech. of control used by actors in is political array.
• Teleology and implicit centralizing bias assessments should assess ways where EU's sustainability has been decided on balances between cooperation/ control imperatives over time.
• The mantra must heed against unravelling its equilibrium
• Not just who stays and goes, but the essence and

Flexibility and the EU27

• Concerns are allowing the UK diverge would create State competition/ wrong signals.
• The entire EU Project is a process of convergence between its members. Convergence arguments were neither new/ novelty and don't occur in Brexit vacuum and influences talks between Member States as to future and their interacting w/ new converged third country of the UK.
• UK promptd flexibility debate; UK used differentiated integration, UK was noticeable State proponent.
• Theories have arised on distinctions mech's UK introduced.

EU27 Embrace Differentiated Integration?

• UK seeking flexibility by leaving may precipitate theories replacement/ convergence after Brexit negotiations.
• Chapter focus = Brexit motivation behind EU embracing integration and viability of EU's options for achieving by discussing legal mechanisms available.

Embrace Brexit

• Shift inside the EU with process of the UK leaving.
• Focus on UK/ not create a State through regulation relaxation, form a neighboring haven thru encouraging tax rate reductions,.encouraging close alignment.
• Appears the level of flexibility to UK not enough, leading the UK to now receive opt out flexibility wishes to prevent opportunity/ successful scope.
• Government better respond with a close aligned persumption not divergence.

Explore the ramifications of Brexit on corporate law, focusing on the conversion of EEIGs, SEs, and SCEs. Understand the end of freedom of establishment under Article 49, 54 TFEU. Learn about the implications for corporate mobility and cross-border mergers as interpreted by the CJEU.