The UK Formally Departs from the EU
Following the UK’s formal departure from the EU on January 31st 2020, the time period for businesses and their advisers to act in addressing any Brexit-related contractual issues has been brought into focus. During the period February 1st, 2020 to December 31st, 2020 “Transition Period”, the existing UK-EU trading relationship will continue to operate, but thereafter (subject to any extension) EU rules will cease to apply in the way that they currently do to UK businesses.
It is anticipated that commercial agreements will, for the most part, be unaffected until the end of the Transition Period. However, it is crucial that businesses are protected against the potential commercial impacts on both existing and future contractual arrangements. The exact implications remain unclear, however, we could see issues arising around the imposition of tariffs, changes in exchange rates, assessment of territories, and the execution of termination rights.
To the extent that organizations have not yet completed (or begun) their Brexit review process, they need to get this done soon. Automated contract review software can help enterprises (and the professionals who serve them) complete this important work faster and more accurately.
Brexit: Ready or Not?
Speed of action could be critical as businesses may have little time to prepare once it is known exactly what form Brexit will take. Kira can be used to track some of the outcomes most likely to follow the expiry of the Transition Period, to give both advisors and in house counsel sufficient notice of how to move efficiently in advance of December 2020. As the transition approaches, businesses will look to source advice from external law firms, requiring lawyers and other professionals to be structured in their approach to minimizing the impact on the challenges that are stated above.
We suggest a three stage approach:
Stage 1: Risk Analysis
- Determine how many contracts will be impacted by Brexit - for example by getting Kira to extract the dispute resolution, governing law, exchange rate and force majeure clauses - and decide whether they will have to be amended in light of the anticipated regulatory change.
- Does the term of the contract exceed December 31st, 2020 (i.e. the projected end of the Transition Period)?
- Is there a non-EU party to the contract? Does the contract directly reference the European Union or EU law?
Stage 2: Fallback or Assignment?
- Consider whether there are any in-built contractual mechanisms to enable your team to either trigger a change to the underlying agreement, or assign it to another group company or a third party.
- Consider if your non-UK entity is exposed to termination by convenience or force majeure clause (e.g. triggered by the UK trading on WTO terms).
Stage 3: Amendment / Termination
- Determine how you can go about amending contracts that are impacted by Brexit.
- Consider if you will be able to terminate the contract, and if so set the wheels in motion to effect that termination in good time.
- Could a force majeure provision be triggered?
Brexit Risk Management: Case Study
Manual due diligence reviews are becoming increasingly impractical, and - in the UK - have become off-market: 11 of the top-12 law firms in the UK (as measured by revenue) now subscribe to Kira. As transaction timelines shorten and expectations for efficiency rise, law firms such as Kemp Little are leveraging contract review software to help clients prepare for Brexit.
Kemp Little used a combination of Kira’s built-in ’Smart Fields’ and its Quick Study feature to train Kira to find provisions that might be affected by Brexit, such as choice of law and jurisdiction. The Kemp Little lawyers reviewed findings, and were able to quickly and accurately provide their clients with a report identifying issues and recommending changes. Bolstered by Kira’s technology, Kemp Little now includes Brexit planning as a standard part of all relevant client consultations.
“It’s important for us to help our clients identify these hidden risks now, so they can make any necessary changes to their existing contractual relationships, and know what issues to keep in mind when entering into agreements going forward,” said Tania Williams, Partner, Commercial Technology.
The firm invested time up front training Kira to find information that they think will be critical, allowing them to efficiently help clients manage the known risks of Brexit.*
* Note: time spent on training may not be necessary any longer due to the availability of our built-in provisions.
How Kira will Ensure Businesses are Ready for Brexit: Smart Fields and Quick Study
Kira can quickly review large volumes of legacy contracts and highlight the information that should be reviewed and considered in the context of Brexit. It has two specific features that can assist with this: Smart Fields and Quick Study. These features enable organizations to immediately formulate a remediation plan to ensure that Brexit doesn’t interfere with an organization’s existing contracts.
Smart Fields are a set of existing built-in fields designed to locate relevant contractual concepts, including (without limitation) in the context of Brexit:
In Commercial Contracts:
- Dispute Resolution
- Exchange Rate/ Exchange Rate Risk
- Compliance with Law
- Governing Law
- Termination for Convenience
In Credit/Facilities Agreements:
- “Currency” Definition
- “EEA Financial Institution” Definition
- EEA Financial Institution Representation
- Bail-In Clause
- COMI (Centre of Main Interest)
- Increased Costs
- Value-Added Tax
- Eligible Assignees
Quick Study allows organizations to teach Kira to find new information it does not already know, or to enable the existing Smart Fields to be applied to new/bespoke document types.
With these two features, Kira is able to assist with the below challenges:
- Quickly and accurately preparing clients for the impact of an uncertain economic and regulatory climate;
- Locating high value contracts and clauses likely to be impacted by Brexit;
- Being able to efficiently locate commercial contracts and finance agreements that now have exchange rate or WTO tariff exposure;
- Quickly identifying whether British entities within a group structure are party to material contracts;
- Establishing the nature of potential dispute resolution procedures;
- Identifying effectively which agreements will need to be amended, assigned, terminated or abandoned;
- Pricing large-scale reviews in a cost-effective manner; and
- Preparing for an amendment and consent process that will need to be finalised before the end of the Transition Period.
Making Brexit plans can be a daunting task for even the most well-resourced organizations. Are you prepared? Join our webinar on Tuesday, March 10th at 2 pm GMT to ensure you’re taking our expert-recommended steps to get ahead.