Brexit update: Small businesses, Scottish independence and EU membership, and insolvency law

Brexit and Small Businesses

On 29th March 2021, the UK Federation of Small Businesses (FSB) published new research on the international trading environment facing small businesses in the UK following Brexit.

The research is based on a survey of 1483 UK small businesses carried out from 1st to 15th March 2021, of which 207 were importers and/or exporters, and found that 23% of exporters surveyed had temporarily stopped selling to the EU and 4% had decided to stop selling  permanently to the EU, following the introduction of new UK-EU trading rules which took effect following the end of the post-Brexit transition period on 31st December 2020.

The survey also found that small UK importers had been hit hard, with 17% temporarily suspending purchases from the EU and another 6% making use of EU or Northern Ireland warehousing space.

The survey reported that 70% of the importers and/or exporters surveyed had suffered shipment delays when moving goods around the EU in recent weeks but that, interestingly, more than 55% of the importers and/or exporters surveyed had sought professional advice to help them with new paperwork pertaining to EU business activity, often to assist management of customs declarations, rules of origin paperwork and altered value added tax (VAT) obligations.

Commenting on the survey, FSB Chairman, Mike Cherry, is quoted in the FSB’s press release of 29th March 2021 as saying that “three months on from the end of the transition period, what we hoped would prove to be teething problems are in danger of becoming permanent, systemic ones. While larger firms have the resources and bandwidth to overcome them regardless, smaller traders are struggling …”.

In the light of the survey, the FSB’s press release makes clear that the FSB is urging the UK Government to:

  • Increase the threshold at which tariffs and taxes for imports and exports kick-in to £1000;
  • Closely monitor the roll-out of the SME Brexit Support Fund, ensuring small businesses are aware that they can apply for funding to access a range of trading advice, training and technology, and not exclusively that relating to customs and intermediaries; and
  • Strike ambitious new free trade agreements (FTA), which include dedicated small business chapters, with fast-growing economies around d the world, including the US.

The small business sector in the UK has faced particular challenges as a result of Brexit and will no doubt continue to deserve close attention in the future.

Brexit and Scotland

On 29th March 2021, the Institute for Government (IoG), a respected UK-based think tank, published a research paper entitled “Scottish independence: EU membership and the Anglo-Scottish border”, in which it examined the proposals of the Scottish National Party (the ruling party in the Scottish Devolved Administration) for Scotland to apply to join the EU as a fully independent nation following independence from the United Kingdom (should that occur).

The conclusions set out in the Summary section of the research paper do not make for easy reading, whichever side of the Scottish independence debate one happens to be on, and suggest that an application for membership of the EU by an independent Scotland would have major consequences for England, Wales and Northern Ireland as well as for Scotland.

The IoG’s conclusions in its research paper may be summed up as follows (using the research paper’s own words):-

  • “Scotland’s path back to EU membership would run via Westminster” – in other words, the EU would likely have to be convinced that Scottish independence has been truly accepted by the UK Parliament and institutions before the EU would seriously entertain an application for Scottish membership of the EU.
  • “Scotland’s path back to EU membership could take the best part of a decade” – this reflects the IoG’s view that each of the two sets of negotiations in question – the first with the UK Government for independence and the second with the EU for EU membership – would be complex and time-consuming.
  • “As an EU member, Scotland and its citizens would regain all the rights and responsibilities of EU membership that were removed by Brexit” – On the plus side, this should mean that Scottish businesses would benefit from frictionless trade across the EU and that Scotland would gain representation within all the EU institutions (which, in the IoG’s view, “enable smaller member states to punch above their weight”). Less welcome from Scotland’s point of view, according to the IoG, might be that Scotland would be obliged to join the EU’s Common Fisheries Policy and would also lose the opportunity to develop its own post-Brexit agriculture policy.
  • “As a new member state of the EU, Scotland would have to commit to adopting the euro, at least in principle” – The IoG is also of the view that it is unlikely that Scotland would be able to negotiate all the same opt-outs that the UK had as a member state. On the other hand, Scotland might be able to delay adopting the euro for many years, if it so wished. In addition, Scotland might be able to opt out of membership of the Schengen zone, meaning (in the IoG’s view) that the Common Travel Area across the islands of Great Britain and Ireland could remain intact and passport controls be avoided.
  • “Scotland would probably be a net contributor to the EU budget” – This is because Scotland, in the IoG’s view, is likely to be regarded as a relatively wealthy EU member state.
  • “If Scotland joined the EU, a hard border on the island of Great Britain would be the inevitable result” – This is because the Anglo-Scottish border, in the IoG’s view, would become a new customs and regulatory frontier for the EU.
  • “Businesses operating across the Anglo-Scottish border would face new barriers to trade” – The IoG is thinking in this regard of non-tariff trade barriers , whether from customs processes or regulatory checks on goods such as animal and plant products or otherwise.
  • “Scotland exports substantially more to the rest of the UK than to the EU so barriers to trade could be costly to the Scottish economy” – The IoG points out that currently Scottish business trades around three times as much across the Anglo-Scottish border as it does with the EU.
  • “Scotland could seek a looser relationship with the EU than full membership – but no model would grant frictionless access to both EU and UK markets, so long as the UK-EU relationship were governed by the TCA [ie the UK- EU Trade and Cooperation Agreement of December 2020]”-  Membership of the European Economic Area (EEA) is suggested as a possible alternative, which would grant an independent Scotland success to the EU single market, while keeping it out of EU customs union. There are other types of association agreement which might be available too.

The IoG concludes that there are “no easy solutions” to some of the problems that Scottish membership of the EU would cause in terms of Scotland’s relationship with the rest of the UK. On the other hand, as one knows, “where there is a will, there is a way”.

Brexit has unleashed many consequences for the UK as well as for the EU and time will tell where they may lead.

Brexit and UK Insolvency Law

An article (entitled “Brexit: A deal that leaves recognition of UK insolvency procedures uncertain”) by barristers, Mark Phillips QC and Paul Fradley, in the Spring 2021 “Digest” publication of their South Square Chambers, highlights the uncertainties to UK insolvency law caused by Brexit. This situation is in part because the UK-EU Trade and Cooperation Agreement of December 2020 did not cover the insolvency law related issues in question and, therefore, with effect from the end of the UK-EU post-Brexit transition period on 31st December 2020, the UK has left the scope of the EU’s Insolvency Regulation (EU Regulation 2015/848). As a result, it is unclear to what extent UK insolvency proceedings, and the decisions of the UK courts on insolvency matters, will be recognised within the EU – this issue may be of particular importance where the UK insolvency proceedings or decisions concern debtors based in the EU.

As things stand at present, the laws of individual EU Member States would have to be checked to see how they would regard UK insolvency proceedings and decisions.

From the perspective of applicants seeking recognition of EU-based insolvency proceedings and decisions by the UK courts, the position may be a little clearer. This is because, by the UK’s Cross-Border Insolvency Regulations 2006 (SI 1030/2006), the UK implemented  into UK domestic law in 2006 the UNCITRAL Model Law on Cross-Border Insolvency (the Model Law), which enables UK courts to grant recognition and assistance to aid foreign insolvency procedures and decisions falling within the scope of the Model Law.

According to the authors of the article in “Digest”, two measures that would help alleviate much of the difficulty caused by “the current hard Brexit in insolvency cooperation” would be the UK’s accession to the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters 2007 (for which the UK has applied but to which application the EU has yet to agree) and the EU’s implementation of the Model Law.

It is difficult to see how the interests of individuals and businesses in the UK and the EU can be improved by the current uncertainties in cross-border insolvency law and it is to be hoped that politicians in both jurisdictions will rise to the occasion to resolve these known unknowns.

Disclaimer: Nothing in the Legal Insights section and this blog is intended to provide legal or other professional advice and, if readers are interested, they should consider taking separate legal or other professional advice accordingly.
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Disclaimer: Nothing in the Legal Insights section and this blog is intended to provide legal or other professional advice and, if readers are interested, they should consider taking separate legal or other professional advice accordingly.

David Glass

Specialist in Business & Corporate, Commercial Contracts
& Insolvency & Corporate Recovery

E: [email protected]
T: +44 (0)845 257 9449