June 23, 2016 is a date that will go down in history for the UK as the day British citizens voted for a different future separate from the rest of the EU Member States. If Brexit goes ahead, it will mean that the treaties, regulations and directives that the European bodies have been approving since the 1950s will no longer apply to the UK. Without a doubt, one of the most notable aspects of Brexit is its impact on the markets and, naturally, the legal market.
We recently read a statistic that stated that fear of Brexit had already led to a 70% drop in the UK legal market, with major corporate mergers and acquisitions grinding to a halt. Following the referendum, the legal market continues to bear the impact. While the devaluation of the pound may provide an incentive for companies on the continent to look for opportunities in the British market, the uncertainty surrounding the detachment process has led to extreme caution. Only where a deal is highly advantageous and buyers can benefit from the devaluation of the pound against other currencies will investors take the plunge and acquire British companies. A prime example is the very recent purchase of UK-based chipmaker ARM Holdings by Japan’s SoftBank in a €32 billion deal, undoubtedly because the yen had already appreciated more than 30% year-on year against the pound.
Brexit also poses an obstacle to the legal debt refinancing market, particularly as regards the “return trips” to the UK to which many European companies have become accustomed, among them many Spanish companies, looking to lighten their debt. In recent years, La Seda de Barcelona, Metrovacesa, Codere, Orizonia or Cortefiel, among others, have been using the flexible refinancing mechanisms under English law, known as schemes of arrangement, to restructure their debt and impose refinancing plans approved in the UK on their creditors. The detachment of the UK from EU legislation will lead companies whose debt is about to mature to look at other neighboring countries with laws that offer identical or similar opportunities for debt refinancing. This could well be Spain, since our legal instruments for debt refinancing—clearly influenced by UK legislation—are stronger and more advanced following reforms in 2014 and 2015; more so than other Member States like Germany, France or Italy who have observed, with no small degree of envy, Spanish success stories in the debt refinancing of major companies. In this respect, and while Spanish law still leaves much room for improvement, Spain is at the legal forefront behind the UK. And the legal market knows this.
Lastly, there is a feeling that English law will be gradually marginalized as the yardstick for major corporate transactions and in the negotiation of crossborder contracts. The potential “discarding” of English law for these major transactions—where it has been omnipresent—would lead to other European legislations being chosen whose application is equally simple and enforceable. Clearly these legislations will have to meet a number of minimum requirements in order to be attractive. Fundamentally, rather than being anchored in tradition, they will need to offer advanced and flexible laws that can adapt to current and future needs. Such is the case that some European countries have already “shaken up” their legislation with a view to adapting to these new times and, who knows, perhaps even benefiting from the Brexit effect on the legal market. France is a case in point: last February it undertook a sweeping reform of its Civil Code (the Napoleonic Code dating from 1804) to make it more accessible, intelligible and modern. In fact, the French Ministry of Justice has acknowledged that one of the aims of the reform is to make French law more attractive from a political, cultural and economic standpoint, making it easier to apply to international contracts and enabling France to bring itself into line with the legislation of numerous foreign countries by creating a clear and efficient legal framework able to adapt to the issues of a constantly evolving global economy. The message is loud and clear.
Spain must not waste the opportunity afforded by the UK to fill this potential void in the legal market. Our challenge, and the challenge faced by lawyers, is to help Spain position its pawns—modern, advanced and flexible laws that motivate investors in their commercial transactions—on the European chessboard. The match will be long but if we play intelligently—and Spain is a country full of smart people—we may just place Brexit in legal check.
El Norte de Castilla
Juan Verdugo García (partner of the Madrid Restructuring and Insolvency practice)