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What a "hard" Brexit would mean for Austrian businesses

June 18, 2018

3 areas in the focus: in-court litigation, insolvencies and data protection

A “hard” Brexit would not only result in a massive increase in costs and work as far as customs are concerned: According to WU Vienna professor Georg Kodek, Academic Director of the WU Executive Academy's Master of Legal Studies (European Business Law), it would also entail severe disadvantages for Austrian businesses when it comes to lawsuits and bankruptcies. Hence, he urges domestic companies to take a particularly careful look at the consequences they may suffer with regard to the following 3 areas: in-court litigation, insolvency proceedings and data protection.

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A "hard" Brexit will have influence on in-court litigation, insolvency proceedings and data protection. Businesses should prepare themselves in these areas. Photo © CC0 Licence

It is not yet clear whether the Brexit negotiations between Great Britain and the European Union will fail or whether there will continue to be a customs union. The negotiations are due to be completed by this October, and, if everything goes according to schedule, Great Britain will cease to be a member of the European Union on March 30, 2019.

 

At any rate, a hard Brexit would have massive consequences for Austrian companies doing business in or with the UK as Georg Kodek explains. He is not only the Head of WU Vienna's Business Law Group but also a judge of the Austrian Supreme Court of Justice (OGH).

 

Great Britain is one of Austria's ten most important trading and economic partners. The value of bilateral trade in goods and services amounts to approximately 11 billion Euro. 250 Austrian companies have invested a total of some 7 billion Euro in Great Britain and employ 37,000 people there.

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Great Britain is one of the top-ten trading partners of Austria - many domestic businesses have money invested and people employed on the island. Photo © CC0 Licence

The problem areas: in-court litigation, insolvency proceedings and data protection

According to Georg Kodek, a hard Brexit would have severe disadvantages for Austrian businesses and consumers:

 

  1. When it comes to in-court litigation: Lawsuits arising from, for instance, business disputes would become much more of a financial burden for Austrian companies. Currently, EU law determines where a case will be heard, and court rulings are binding throughout the EU. Following a hard Brexit, a verdict returned by a court in one member state would still be binding across the union—but this would no longer apply to Great Britain. Hence, another lawsuit would have to be filed on British territory, and the services of British lawyers, legal advisers and perhaps even interpreters would have to be enlisted. This would cost the businesses involved a lot of money.

     

  2. When it comes to insolvency proceedings: The European Insolvency Regulation provides a set of common rules governing insolvency proceedings within the EU. An Austrian company can become legally debt-free by being granted discharge of residual debt. This discharge also applies to money owed to creditors based in other EU member states. After a hard Brexit, however, Austrian businesses would have to continue to pay their British creditors—or there would have to be separate insolvency proceedings on British territory, which would again cost money.

     

  3. When it comes to data protection: Great Britain would no longer be subject to the EU's General Data Protection Regulation (GDPR). Hence, businesses and consumers passing on their data to British companies and organizations would cease to be protected by it. Here too, there would be legal uncertainty until the establishment of national rules and regulations for data protection in Great Britain.

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With a "hard" Brexit, the GDPR would become obsolete and consumer data would not be protected any longer. Photo © CC0 Licence

Be prepared for the worst-case scenario

As a result of the considerable degree of legal uncertainty and the financial burden that a hard Brexit is likely to entail, many companies, and particularly SMEs, are reluctant to do business in or with Great Britain.

Prof. Georg Kodek

  • Academic Director Master of Legal Studies (European Business Law)

Austrian companies should prepare for the worst case, keeping in mind that the negotiations between the EU and Great Britain may end in a hard Brexit. It is certainly a good idea to think through possible economic and legal consequences and scenarios. I hope that negotiators will be sensible enough to agree on a soft Brexit, i.e. one that will see Great Britain and the EU put bilateral agreements in place to extend the rules and regulations currently governing their relations.

Brexit and many other topics are part of the Master of Legal Studies (European Business Law). For more information about the program, click here.

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