The dust has settled and the cheering and shouting have died down. The reporters have all gone home and the TV cameras have turned in another direction. Most people won’t think about it again for many months.
No, I’m not talking about the Olympics. I’m talking about Brexit. And unlike the Olympics, which are over, you may not want to stop thinking about Brexit just because the initial predictions of Armageddon and chaos haven’t come to pass.
To be clear, the vote for Brexit was technically non-binding. The official mechanism for the U.K. to leave the EU is invocation of Article 50 of the Lisbon Treaty. Article 50 hasn’t been invoked yet, but it’s not likely that Parliament will just ignore the will of the people. In fact, the European Union already looks ready to bid the U.K. farewell.
In terms of the actual “exit”, it will likely take until at least 2018 before any separation becomes final. However, there may be landmines looming in your contracts in the meantime. Companies will need to revisit their contracts and may need to clarify various positions impacted by Brexit.
So Brexit is very likely to happen, and to impact you. The waters may be calm right now, but the storm is still coming—even if it’s not clear exactly when.
Here are 3 things you should do now to start preparing for Brexit that will come in handy no matter when the next outcomes of this momentous vote take place.
Review Contract Terms
Review your existing contract terms immediately because some may be impacted by Brexit. For instance, will Force Majeure or Material Adverse Change provisions be triggered by Brexit leading to contract terminations? Will a Choice of Law provision indicating “English Law” become ambiguous because it was previously understood to mean English law including the applicable EU regulations?
In other cases, parties to a contract may argue that the contract has become incapable of being performed. Consider contracts containing provisions that rely on the free movement of employees within the European Union impacted by the need for visas and other travel regulations. If you have such contracts, will they be invalidated by Brexit (or will your counterparty use Brexit as a lever to terminate or seek concessions)?
Get ahead of your troublesome terms and seek to amend them now, if possible, and to mitigate the exposures you can’t change.
Do The Math on Financial Triggers
Changes in the financial markets and currency fluctuations as a result of Brexit may be so severe they could trigger credit rating audits or termination clauses. Despite the “surprise” of the Brexit vote, there were some companies that began to hedge their bets by negotiating their contracts to include clauses for re-pricing or switching currency based on financial thresholds.
Having the flexibility to pivot quickly and react to events like this are critical to protecting your commercial relationships in a volatile global market. You need to know if the range of likely financial movements from Brexit could activate audits, terminations, or other impacts on your business. Work with your finance team to understand where you could be exposed, and use the time you have to inoculate your business against this foreseeable risk.
Build a Central Contract Repository
Did you read the first two points and wonder how you could possibly identify the affected contracts? If so, you need a central contract repository.
Having a central repository with powerful search capabilities will make it easier to quickly assess which of your contracts may be affected by Brexit. A CLM system like Apttus Contract Management allows you to search for affected contracts by clauses and terms, to mass amend affected contracts, and to handle changes in language entirely from Microsoft Word while seamlessly connected to the CLM application.
Getting your repository ready will take time, so the time to get started is now. Give us a call to learn more about how Apttus Contract Management can prepare you for Brexit.