The referendum campaign is set to dominate public discussion over the next four months. We look at the issues businesses need to consider in the event of the UK voting to leave the EU.

Detailed assessments or scenario planning are made difficult by the lack of a blueprint for what would follow the UK’s exit from the EU. What seems clear is that a vote to leave would cause great political, legal and economic uncertainty for the UK. It is widely expected that it could trigger the resignation of David Cameron as Prime Minister of the UK, and a further Scottish independence referendum also seems a likely consequence. A UK vote to leave could have unsettling consequences for the EU too.

What should companies do before the referendum?Extensive contingency planning may turn out to be unnecessary, as most current predictions are that, although it may be close, the result of the vote will be in favour of remaining in the EU. Many of the potential issues that would be thrown up by the UK leaving the EU would not crystallise immediately following the referendum. Negotiations on the withdrawal arrangements under Article 50 of the Treaty on the European Union could take two or more years – and achieving a new settlement could potentially take much longer, so there will be time to plan for the future once the referendum result is known. Despite this, there are good reasons for businesses to consider the impact now, rather than waiting for the referendum result. For example:

> Media pressure or the expectations of investors, regulators and other stakeholders may require companies to form a view in the run up to the referendum on whether there are material risks to their company’s business, and to have a communications plan.

> Companies that expect employees to be affected by job cuts or relocations may feel duty bound to discuss these consequences with their work force.

> Boards may even feel that they have a responsibility to their company or to employees (especially those in the UK who have the right to vote) to engage in the campaign process – whether by speaking publicly about their evaluation of the impact of Brexit or by directly supporting one of the campaigns. Consumer facing businesses are likely to be wary of taking sides, and companies (and individuals) considering supporting

EU referendum – risk assessment overview

either side in the campaign need to ensure compliance with the legal rules on campaign expenditure and on making contributions to political organisations.

> Sterling has already fallen sharply since the beginning of 2016 in response to uncertainties about the UK’s future in the EU, and there could be increased currency and capital markets volatility before the referendum and immediately upon a vote to leave. Businesses may wish to take steps to hedge themselves or to complete transactions before the referendum date. Alternatively they may wish to defer planned commitments until after the referendum.

> If the UK votes to leave, the next step would presumably be for the UK to try to draw up a roadmap for negotiations with the EU. Business may have a role in helping to define goals in this negotiation process. The time for setting these may be limited.

How do we analyse the risks?Naturally the impact of the UK leaving the EU would be different for every company and would depend on the sector and type of their business, and where their headquarters, operations, supply chain and customers are based. Assessing the potential impact involves detailed analysis on an activity by activity basis (for both core business streams and support operations, such as data centres). There has been much commentary on the different exit scenarios (like Norway, Switzerland, Turkey or Canada) but the Norwegian model is highly unlikely to be followed since it would not give the UK the freedom that is one of the primary goals of those who hope to leave. A bespoke agreement under which some current arrangements might be preserved is possible, but for risk assessment purposes the most prudent course may be to assume a “clean break” without even transitional provisions to cushion the effects of change. In this scenario, the UK might leave the EU in 2018 without having established any special relationship with the EU. It would then be completely outside the EU’s single market and also may not benefit from free trade agreements with third countries, such as South Korea, at least until new agreements have been negotiated.

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Businesses seeking to measure the impact of the UK leaving the EU will need to consider not only the consequences of the change in the legal status of the UK but also the political implications and consequential impacts on the economies of those places where it does business.Examples of specific issues to consider include:

> How dependent is the business on the ability to move employees from the UK to other parts of the EU and vice versa?

> How much of the business involves movement of goods between the UK and the rest of the EU and vice versa? What kinds of goods?

> Assuming WTO tariffs have to be applied to the export and import of goods between the UK and the rest of the EU, what would the impact be on exit?

> Where are the key hubs in our supply chain? Will the supply chain reliability/efficiency be affected by the imposition of tariffs or delayed by custom checks?

> Do we supply parts for products being manufactured in other member states? If so, would the UK leaving the EU impact upon the ease and cost of distributing our goods to the end producer?

> How much of the business involves provision of services from the UK to other parts of the EU and vice versa?

> Do services we provide depend on the existence of a passport and is the UK the home state for passporting purposes?

> Would we need to relocate staff and operations to somewhere else in the EU to continue providing services? Would we be able to use an existing authorised entity to do so or would we need to apply for new authorisations?

> How dependent is the business on the ability to move capital and make payments cross-border between the UK and the rest of the EU?

> How dependent is the business on the ability to transfer data from the UK to other parts of the EU or vice versa? How easily could we reorganise our data centres to remain compliant with EU data sovereignty rules?

> Is the business reliant upon any EU protection not replicated at UK level? eg EU trademark, design or patent protections. Can we replicate those protections through other means/registrations?

> Would we lose potentially significant remedies and protections, such as the ability to appeal against discrimination in the allocation of public procurement contracts?

> How dependent is the business on EU grants or subsidies?

> Will the prospect of inward investment into the UK be reduced? > What EU sector regulation is the business currently subject to, and how does the position of businesses established in third countries compare with the position of EU established businesses under that regulation?

> If the UK leaves the EU, will there be a change in the way our business/sector is regulated in the UK? Will there be a change in the way it is regulated elsewhere?

> To what extent does the business raise finance or access the capital markets in the UK (in the case of non-UK businesses) or elsewhere in the EU (in the case of UK businesses)?

> Do we have suppliers, customers or other contractual counterparties whose businesses would be severely affected?

> Does the business have operations in a sensitive sector which could be impacted if discrimination on grounds such as national interest were possible as a result of the UK no longer being part of the EU/EEA?

> Do we need to review our contracts to understand how they might be affected? Is there a risk of disputes over definitions – for example, will a reference to “the European Union” in a contract that was intended to include the UK no longer be construed as applying to the UK after it leaves the EU?

> Would force majeure provisions be triggered? > If we have establishments in, or trade with, any third countries under the terms of EU free trade agreements, would we still be able to do so? What barriers would we face if the UK was no longer covered by those agreements?

> How much would changes in the economic performance or prospects of the UK or of other member states (either individually or the EU as a whole) affect our prospects?

> How might the business benefit from the UK leaving the EU or from the consequential actions of other businesses or changes to the competitive environment?

> Do we have anything to gain by the possibility of regulatory change in the UK or would it be necessary to continue to comply with EU laws and standards in order for us to continue to access EU markets?

> What would be the impact of possible increased divergence in law and regulation between the EU and the UK?

> Would the likely future direction of EU policy and regulation be altered by the loss of British influence?

> How much time and resource would we have to devote to understanding and managing the legal and commercial consequences of the UK leaving the EU?

Lucy FergussonPartner, LondonTel: +44 20 7456 3386lucy.fergusson@linklaters.com

Christopher BellamyChairman, Global Competition PracticeTel: +44 20 7456 3457christopher.bellamy@linklaters.com

Bernd MeyringPartner, BrusselsTel: +32 2 505 03 32bernd.meyring@linklaters.com

March 2016This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. © Linklaters LLP. All Rights reserved 2016