HARD BREXIT - The “impossible” scenario becoming more and more likely! What consequences will this have for Norwegian companies?

Prime Minister Boris Johnson seems determined to lead Britain out of the European Union with or without a deal on October 31st. Given the latest events, (no breakthroughs in talks between United Kingdom and EU, and the “suspension” of Parliament from September 11th to October 14th) the conclusion must be that the risk of United Kingdom leaving the EU without a withdrawal agreement (so-called "hard Brexit" or "no-deal Brexit") is vastly increasing.

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Even though at this late stage most Norwegian companies of any size should be prepared for such an outcome, we will mention some of the possible consequences that could arise, and that could have possibly gone “under the radar” for some.

The consequences of the United Kingdom leaving the EU without an opt-out agreement will of course vary depending on the area of business. In several areas international agreements apply, at least as a “back-up”, such as the WTO rules. Whereas in other areas special agreements have been made. However, if the United Kingdom leaves the EU without an agreement, there will also be areas where there is no special regulation (at least not at present).

Broadly speaking, from a business perspective, the situation will for instance mean that trading with British businesses will no longer be “protected” by EU rules on the free flow of goods and services, nor will Norwegian companies on several areas be able to provide services to the UK without prior approval from the relevant British authority.

From a legal perspective, one thing to bear in mind is that Norwegian legislation granting rights to persons residing in the EEA will no longer be applicable to persons residing in the United Kingdom.

First of all, this means that persons residing in the United Kingdom will not fulfill the residency requirement in Section 6-11, first paragraph of the Norwegian Private Limited Liability Company Act. This could be of particular importance to Norwegian companies with a CEO or board members residing in the United Kingdom. As it may be necessary to make changes to the board or the executive management to meet the requirements and comply with the Norwegian Public Limited Liability Company Act. Ultimately, failure to meet the residency requirement could result in the company being forced to dissolve. If the United Kingdom withdraws from the EU without a withdrawal agreement, transitional rules will apply until 1 January 2021. These transitional rules entail that citizens of the United Kingdom residing within the EU / EEA or the United Kingdom, and EU / EEA citizens residing in the United Kingdom, fulfill the residence requirement pursuant to the Norwegian Private Limited Liability Company Act section 6-11. The transitional rules also apply to the corresponding requirement in the Norwegian Public Limited Liability Company Act section 6-11. The transitional rules will thus give companies some time to adjust. It will be possible to apply for an exemption from the residency requirement after January 1, 2021, but it is uncertain if, and in what cases, this will be granted.

The same “problems” will arise when it comes to the appointment of auditors, since the Norwegian Auditors Act also includes requirements related to the residency of auditors, cf. the Auditors Act Section 3-6. Similar to the situation for the CEO and board members, it may therefore be necessary to change the company’s auditor after Brexit, if an exemption from these requirements are not granted.

A “hard Brexit” could also have tax consequences, as the Norwegian exemption model stipulates that companies must be established in the EEA. After the United Kingdom has withdrawn from the EU, this condition will no longer be met for companies established in the United Kingdom.

Norwegian businesses should therefore, if they have not already made all necessary contingency plans, clarify as soon as possible how a “hard-Brexit” could affect their business, and think about what measures must be taken if Britain really leaves the EU without a withdrawal agreement at the end of October.

However, let’s all hope that the worst case scenario of a “hard Brexit” does not take place after all...