Covid Crisis: Are We Destined for a No-Deal Brexit?

22 Jun 2020

Brexit: a distant discussion forced into deadlock by a global pandemic.

Whilst the COVID pandemic is keeping the British government preoccupied, the end of the Brexit transition period looms ever-closer. With less than six months to go, it appears that the UK is not immune to a no-deal Brexit and the long-term impact this could have at a time when the world economy has scarcely been more fragile. Indeed, the health crisis has contributed to a dramatic decline in UK GDP due to restrictions on trade, a rise in unemployment rates, and reduced supply and demand, all of which have meant that British businesses have had to rapidly adjust, adapt and diversify.

A Softer Exit from the EU Single Market?

Fervent Brexiteers have argued that the COVID crisis could reduce the impact of a harder exit from the single market and EU customs union on 31 December 2020. UK Cabinet Minister, Michael Gove, for example, has departed significantly from his pre-pandemic announcement that extensive checks would be placed on goods entering the UK from the EU, accepting now that full checks at borders at the end of the transition period could be overly disruptive for businesses. The British government has accordingly introduced temporary, lighter border controls in an effort to ease the pressures compounding businesses during the global health crisis, a move which Adam Marshall, Director of the British Chambers of Commerce, has hailed as “crucial” for businesses coping with revenue losses and higher costs due to COVID-19.

Businesses have had to divert attention away from post-Brexit contingency planning towards post-Coronavirus survival. Dame Carolyn Fairbairn, Director of the Confederation of British Industry, last week commented that since businesses are fighting to survive the impacts of COVID-19, it is becoming increasingly clear that a free trade agreement with the EU is the only acceptable and sustainable outcome for the UK.

Relieving the Strain

Tensions between businesses and the UK Government have been high since the 2016 EU referendum due to the risks of long-term damage to the British economy. However, the launch of relief packages back in March has started to heal some of those rifts. Dame Fairbairn has expressed a sense of optimism at the increased understanding and inter-dependence between the Government and businesses in light of this shared struggle against a deadly virus and economic opponent.

And yet, wounds could easily reopen if the Government fails to ensure that the UK is able to recover from the health crisis and the chaos which may follow a no-deal departure. More than ever, British businesses are reliant on the Government to negotiate a fair deal, facilitate trade, make sure supply chains can operate, and to uphold rights and obligations associated with being a part of the Single Market and Customs Union.

Five Things to Remember, Come What May:

  1. Take Note of Regulations for EU-UK Trade

The EU’s introduction of GDPR (General Data Protection Regulations) set a new global benchmark for businesses. The stringent upholding of these regulations, even in the midst of a global pandemic, has sent out a clear signal around the globe that these regulations are here to stay. Without GDPR-compliant privacy programs which will protect their customer data, the EU market will remain impenetrable for UK and Israeli businesses. Those companies who want to futureproof their businesses with an ironclad privacy programme should seek professional advice on this often daunting task. Businesses should be mindful of the new EU “Platform to Business” or “P2B Regulation” which is due to come in to force on 12 July 2020. The new P2B Regulation sets out a new framework, which aims to promote fair and transparent trading practices between online platforms and marketplaces and the businesses which use them to access consumers. The UK is still subject to EU law until 2021, after which UK-based online platforms will remain subject to the P2B Regulation if their platform is used by EU-based traders and consumers.

  1. Consider Adding a Brexit Clause in your Contracts

Parties who may be unable to adhere to their contractual obligations should check their contracts for force majeure clauses and material adverse change clauses and seek legal advice on ways to limit potential disputes. They should also note any mandatory regulations imposed by the Government, which may affect compliance and result in necessary variation to contractual obligations and performance.

Both Brexit and the COVID crisis provide commercial challenges for businesses. For instance, port delays as a result of custom checks for goods travelling between the UK and EU could make it difficult for a UK supplier to comply with specific delivery terms that may have been agreed with an EU-based customer. Businesses may therefore consider whether a Brexit clause, should be included in existing and new contracts to mitigate legal disputes in the event that contractual obligations are unmet.

  1. Increased Attention to Safeguarding Employees

As the prospect of returning to the office draws closer, business owners and HR departments should consider implementing safeguarding measures in accordance with guidelines issued by Public Health England, the Department of Health & Social Care, the Foreign and Commonwealth Office and the World Health Organisation.

The UK Government has committed to protecting the rights of EU nationals and their families who wish to stay in the UK after Brexit. The EU Settlement Scheme requires EU nationals to register in order to preserve their rights under UK law, but there have been delays in processing these applications due to COVID-19.   It is important for employers to think about mitigating the effects immigration issues in practice in order reduce feelings of exclusion, marginalisation, unconscious bias and potential feelings of discrimination. Employers must ensure that they have policies and strategies in place to support their EU national employees to avoid claims of discrimination.

  1. Leverage Governmental Schemes to Bullet-Proof Your Finances

Brexit and COVID-19 are both good opportunities for businesses to make sure that their finances are in good shape, making this a top priority. John Atkinson, Head of Commercial Business at Hitachi Capital suggests that, in light of Brexit, “businesses should review their funding solutions and look at cash flow finance as a credible solution for boosting cash flow.” To expand into new markets, SMEs must have the right funding in place to support growth. The UK government’s new Future Fund is one example of such funding wherein the British Business Bank will provide matched financing to UK start-ups and scale-ups. The loans will automatically convert into equity on the company’s next qualifying funding round, or at the end of the loan if they are not repaid. Note that the funds can only be used for specific purposes and professional advice should be sought.

  1. Investor Landlords Should Hold Tight

Parties with control of premises should implement guidance on containment, delay and mitigation as issued by Department of Health & Social Care, Public Health England, and WHO.

Covid-19 has had a particular impact on commercial properties, where it is unlikely that rent cesser provisions, force majeure or frustration could be relied upon to reduce or extinguish rental liabilities for uneconomic premises. Property investors and owners should be reassured that the relatively finite timespan of the COVID-19 crisis and Brexit transition period means that declines in the property market should be limited.

Article written by: Rachel Kass