Issue Impact
Choice of jurisdiction clauses and recognition of judgments of UK courts - uncertainty as to whether they will continue to be effective as between the UK and EU jurisdictions’ courts There should be minimal impact in relation to choice of English governing law provisions. What the position will be in relation to contractual choice of jurisdiction is more unclear until the results of negotiations are known. However, there are several international conventions to which the UK is or could become a signatory which would alleviate the uncertainty. Alternatively, parties may want to consider opting for international arbitration, which would negate enforcement-related issues precipitated by Brexit.
Bail-in clause to comply with Article 55 of the EU Bank Resolution and Recovery Directive to be inserted into English law governed finance documents if the UK is not part of the European Economic Area Finance parties may require immediate amendment of finance documents since a lack of bail-in clause will make debt participations less attractive to EEA lenders if there is no bail-in clause. However, whether this Article 55 requirement will be triggered in relation to the UK remains to be seen and is subject to the UK’s position on departure of the EU.
Loss of automatic recognition of UK insolvency proceedings in EU member states under the Recast EU Insolvency Regulation The UK has adopted the UNCITRAL Model Law on Cross Border Insolvency Proceedings but it is not as comprehensive as the Recast EU Insolvency Regulation and has only been adopted in a limited number of EU member states. In the absence of the Recast EU Insolvency Regulation, UK office holders would rely on EU member states’ domestic rules on private international law.
Possible activation of increased costs provisions in finance documentation Lenders may seek to recover costs incurred if compliance with UK and EU regulation imposes additional costs.
Legal and regulatory uncertainty – commercial, economic, financial and political uncertainty Although there will be an impact on the financial landscape both for the UK and the EU, there is a broad consensus that in most cases it should not necessitate far-reaching legal or contractual changes. In many ways, amending finance documentation will be secondary to dealing with issues of market volatility and legal and regulatory reciprocity in the short to medium term.
What action can you take now? How can CMS help?

Consider insertion of Loan Market Association form of bail-in clause into English law governed finance documents when created or amended.

We can assist in drafting the relevant documentation.

Check whether Brexit may give rise to events of default under finance documentation (e.g. material adverse change, financial covenants).

We can advise on the interpretation of relevant clauses and how the commercial implications of Brexit that you have identified may impact on your continued compliance with your contractual obligations.

Assess Brexit impact on ongoing contract negotiations and transactions and on existing contract/deal terms.

Advise on contractual issues, including considering the type of jurisdiction clause and whether to replace with an arbitration clause.

Review internal policy on Brexit impacts re contract terms.

Various industry bodies are expected to issue amendments to their standard forms and guidance as the results of negotiations become clearer. We can advise on implementing these suggested amendments and guidance.