Referendum on Scottish independence

01 Jul 2014 | Newsletter/briefing

In view of the forthcoming referendum on Scottish independence scheduled for 18 September 2014, we have put together a list of some practical considerations for our clients to consider. The legal issues underlying a number of these considerations are explored in greater depth in our separate note on the potential impact of the referendum.

Measures can be put in place now to help navigate some of the issues that might follow a "yes" vote, but there is no "one size fits all" approach to contingency planning. The precise scope and nature of contingency plans will depend on the type of business and exposure to the potential issues surrounding Scottish independence. Any contingency plans should be proportionate and focussed on material risks, and the list below should be considered with this in mind.

1. Maintain focus on subsidiaries, JVs, branches and/or assets (including receivables) in Scotland. Any contingency plan should be re-evaluated and tested in light of changing circumstances.

2. Undertake due diligence to identify contracts that have Scottish counterparties, are governed by Scots law or where there is some performance in Scotland. These should include material commercial contracts and financing arrangements (both external and intra-group).

3. As part of this diligence process, consider whether, in the event of Scottish independence and consequential changes to Scotland’s currency, identified material contracts are likely to be susceptible to redenomination or vulnerable to the impact of capital and exchange controls and whether any amendment to those contracts is desirable or feasible to mitigate this risk. Points to focus on include:

  • governing law and jurisdiction clauses
  • definition of "pound sterling", "sterling" and similar terms
  • place of payment and performance
  • place of residence or incorporation of counterparty
  • location of counterparty’s assets
  • counterparty’s exposures and pressure points (for example, the possible impact of currency or exchange controls on that counterparty)

4. Consider what ‘day 1’ actions might be taken were Scotland to vote in favour of independence. Whilst it would inevitably take some time for the practical impact of such a vote to become clear, there may be benefits in having a project team fully briefed and ready to go.

5. Check the location of cash, for example cash held at a Scottish branch of a bank. This might also extend to investment and custodian arrangements; where do third parties hold assets on your behalf?

6. Ensure that relevant business units are aware of the legal risks relating to redenomination in particular and the importance of governing law and jurisdiction clauses.

7. Consider more targeted due diligence and more bespoke provisions if an acquisition is contemplated. For example:

  • the level of exposure the target has to Scotland and to Scots law
  • how the material contracts of the target might be affected by a vote in favour of independence
  • focus on currency risk if contracts are vulnerable to re-denomination in a sterling exit scenario
  • consider using MAC, force majeure or deferred consideration provisions in order to address potential completion risk

8. Communicate with customers, suppliers, group companies, employees and other stakeholders. A communication plan should be implemented and tested, and incorporate arrangements to allow meetings or calls to be held at very short notice in response to developing events. Ensure that staff know what they can and cannot say in response to customers’ or regulators’ enquiries about your readiness for Scottish independence.

9. Don’t wait until it is too late. Contingency plans should be made early and the situation should be closely monitored. You should not assume that contingency plans will remain the same and they should be updated as the situation changes.

Contacts

Paul Dickson (partner)


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