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Speculating a 'yes' vote

16 December 2017

I do not envy those entitled to vote

Seven hundred years after the Scots’ victory against the English at Bannockburn, the Scottish people are again due to determine whether or not they move to independence. Although the outcome of the vote remains uncertain, let us imagine for a moment that those in favour of independence win the day. What might that mean for company secretaries of Scottish companies or company secretaries of groups with Scottish subsidiaries?

One early project would undoubtedly include a review of corporate documentation, in particular any that relies on the definition of the United Kingdom including Scotland within contractual arrangements. However, with some commentators speculating on the impact a ‘Yes’ vote might have on the ability of Scottish businesses to attract new investment, even suggesting that the uncertainty created might lead existing businesses to move elsewhere in the UK, it is possible that some company secretaries could find themselves implementing more radical changes.

It is a requirement of company law that a Scottish company’s registered office is in Scotland. With no provision enabling a Scottish company to be re-registered as, say, an English company, simply changing the registered office would not be a valid mechanism for changing a company’s home nation. Re-domiciling a company can be achieved through the insertion of a new holding company or, for companies registered in an EEA member state, through a cross-border merger. However, Scotland’s future status within the EEA is not certain, meaning that the latter may not be an option.

The scope of an independent Scottish parliament to alter the statutory framework would also be influenced by whether or not Scotland became an EEA or EU member state. EU directives prescribe much of what can and/or must be incorporated within home state legislation. EU membership would place a restraint on the extent to which Scotland could alter competition regulation, disclosure and transparency requirements, accounting practices, company law, employment rights, among other business-related statutes and could therefore limit the degree to which Scottish legislation might start to diverge from its current position.

Conversely, an independent Scotland outside of the EU would have more freedom to adopt legislation that might then move further away from the current regime. Although wholesale changes in company and business law would no doubt be unlikely to take place immediately, it is inconceivable that Scottish legislation and regulation would remain identical to that applicable to the rest of the United Kingdom in the longer term. One can easily imagine the Scottish parliament wishing to make its mark early on the country’s legislative landscape, no doubt generating a whole host of work for company secretaries in the process.

UK regulators such as the FCA, Competition Commission and Takeover Panel, will remain with the United Kingdom. So for listed companies and businesses regulated in other ways, other changes in the regulatory environment might quickly become apparent as an independent Scotland would have to establish its own regulators.

Scotland already has its own legal system distinct from that which applies elsewhere in the UK, its own bank notes and a unique national identity. Notwithstanding such differences, trading across internal UK borders feels no different from an English company trading within England. It will feel all together very odd if trading with a Scottish company brings with it a foreign exchange risk.

There remains uncertainty as to how Scottish independence would work in practice and no one knows for sure whether Scotland will be better off ‘in’ or ‘out’. I certainly do not envy those entitled to vote on 18 September. It is a once-in-a-lifetime decision for the Scottish people to make but one which many company secretaries may find comes with a long list of changes for them to implement.

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