BREXIT

June 24, 2016

You will all be aware that the UK electorate voted yesterday, by a margin of 52% to 48%, to leave the European Union. 

Following that vote, the UK Prime Minister, David Cameron, has announced today that he will step down in October when a new leader of the Conservative party (and, therefore, Prime Minister) will take office. 

The referendum does not itself trigger any legal consequences.  The actual timing for a UK exit from the EU is uncertain.  Whilst Mr. Cameron has indicated that the UK government will not invoke the mechanisms required under the Treaty of Lisbon to trigger negotiations leading to BREXIT until a new administration is in place, the presidents of the EU institutions, in a joint statement issued today, have said that they expect the UK to give effect to the vote "as soon as possible". 

We think it unlikely that the UK government will invoke the exit mechanisms under the Treaty of Lisbon until the end of 2016 at the earliest.  A departing state invoking those mechanisms will leave the EU, and the EU Treaties will cease to apply to that state, at the end of a two year period following the commencement of exit negotiations (save where that period is extended by unanimous vote of all member states), so it seems unlikely that the UK will actually leave the EU until the end of 2018 at the earliest.  This is the mechanism under what is known as Article 50.

There has been intense market activity since the likely result of the vote became clear in the early hours of this morning.  Sterling has fallen to a 30-year low against the Dollar, and the UK equities and bonds are volatile, with many UK listed banks and corporates suffering heavy sell-offs.  Whilst we expect market conditions to normalise soon, helped by a statement made by the Governor of the Bank of England earlier today (http://www.bbc.co.uk/news/business-36618560), most economists are forecasting a period of uncertainty for the UK economy.

Whilst no-one can predict the medium to long term implications of the vote and an eventual departure of the UK from the EU, we can be sure that the process of leaving, and the implementation of whatever interim arrangements that precede it, will give rise to multiple complex legal problems which were summarised in our client alert earlier this week.   (http://www.gibsondunn.com/publications/Pages/What-Happens-If-the-United-Kingdom-Votes-to-Leave-the-European-Union.aspx). 

The immediate consequence for those doing business in the UK is to understand the uncertainties that prevail.  On any given transaction, dispute or other project, a range of issues may arise, and it will be important to consider what, if anything, can be done to manage and allocate the risks that now exist.  A trajectory towards BREXIT gives rise to issues in many areas – including competition law, merger control, state aid, financial services passporting (and hence, investment funds formation and management), finance and derivatives, contracting generally, dispute resolution and enforcement, public procurement, employment and tax.

We have a partner working group in London (led by Nicholas Aleksander, Patrick Doris, Charlie Geffen, Stephen Gillespie and Ali Nikpay) that has been considering these issues for many months.  Please feel free to contact any member of the working group or any of the other London partners mentioned below.

© 2016 Gibson, Dunn & Crutcher LLP

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.