EU Referendum Results: It’s going to be Brexit

United Kingdom in Europe Brexit Concept ImageOn 23 June 2016 a 52% majority of the British people voted  in favour of leaving the European Union. It seems likely that the immediate effect of the Brexit vote will be a degree of turmoil in the financial markets, involving, for instance a devaluation of Sterling against the Euro and of the Euro against the USD.

This would affect all companies trading across the relevant borders, and may, for UK companies involve sudden price increases for imports, where contracts allow for that. It is also likely to lead to an increased demand for the services of UK and cross-border turnaround and restructuring professionals, after a long period of record low numbers of business failures.

It should be assumed that such vote will result into the UK submitting a termination notice pursuant to Article 50 of the Treaty on European Union to the European Council shortly. Such termination notice will start a two year period (“Sunset Period”) of negotiating an agreement on the details of the withdrawal (“Withdrawal Agreement”); it is likely that alongside of negotiating the Withdrawal Agreement the UK and the EU will negotiate one or more additional agreements in respect of the details of the future relationship between the UK and the EU.

If the Sunset Period is not extended by unanimous agreement of all  Member States of the EU and if no Withdrawal Agreement is entered into within such two years, then the UK will automatically cease to be a Member State of the EU.

During the Sunset Period there will be uncertainty not only in relation to the economic consequences of the Brexit but also in respect of the future regulation and legal rules for all sectors and industries.

We previously considered here the possible legal implications of a Brexit for restructuring and insolvency professionals. They face an uncertain future where their skills may be in greater demand than ever but they may have to work without the tools of their trade if the EC Regulation on Insolvency Proceedings 2000 and the Recast Insolvency Regulation which replaces it in 2017 cease to apply to cross border restructurings in the UK.

Brexit – What Next?


So after all the shouting, the half-truths and the speculation, there is a vote to leave. What does this mean for your business? What will your Board need to know today? Although no one knows today all the details of what will happen next, in our ‘Brexit – What Next?’ piece we have looked at some of the possible immediate business implications from the following perspectives:

  • Employment
  • Pensions
  • Commercial Contracts
  • Trade
  • Financial Services
  • Taxation

We will be running a series of Brexit events over the coming weeks so please subscribe to our blog to keep yourself up to date with all things Brexit as and when they happen.

Russian Retailers Run into Trouble

winter view from the heightThere has been a significant increase in insolvencies in the construction, real estate, retail and wholesale sectors of the Russian economy, according to the statistics in the Competition Development Bulletin “Concentration on the Russian Markets: Trends in the Period of Recession” published in December 2015 by the Analytical Centre of the Government of the Russian Federation.

Based on information provided by the analytical company Nielsen (published by the Russian business newspaper Kommersant), in the 1st quarter of 2016 the index of consumer trust was the lowest during the last 11 years and:

  • 61% of the respondents refused to purchase new clothes;
  • 45% decided to postpone purchase of new consumer electronics; and
  • 52% started consuming cheaper food products.

Consequently, the crisis affected a lot of previously famous brands. The Finnish clothes retailer Seppala, the Dutch clothes manufacturer and retailer Mexx, the consumer electronics retailer White Wind Digital and the decorating materials supplier Starik Khottabych (both of Russian origin) closed in Russia due to losses.

In 2015, the Russian sport retailer Sportmaster, Adidas and Reebok, announced they would open 50% less new shops than had been planned.  According to experts the Spanish company Inditex, being a leader of the Russian clothes retail sector (such brands as Zara, Oysho, Massimo Dutti, Bershka, Pull and Bear, Zara Home, Stradivarius, Uterque and Lefties) was planning to reduce its portfolio in Russia and close the less successful and profitable projects.  In 2014 Zara closed its main shop located in the centre of Moscow at Tverskaya Street. In May 16, 2016, Alfa Bank filed a claim with the Moscow City Commercial Court to start the insolvency of Russia’s biggest and oldest shoes retailer, Carlo Pazolini.

Although there are certain exceptions and some fashion brands like Furla are successfully increasing their presence in Russia, the main trend remains negative and more companies are turning to insolvency.

Case Study

A foreign investor provided a loan under promissory notes to two Russian companies affiliated to a Russian fashion house.  Payment was not made on time.  The foreign investor’s demands for payment were rejected by the fashion house. More than that, the two Russian companies filed for a voluntary liquidation without having properly informed all their creditors as required by Russian law.

According to the fashion house, the brands were registered in a foreign jurisdiction and owned by a Russian fashion designer who was one of the two shareholders in the two Russian companies.

On behalf of the foreign investor, we took the following steps:

  1. filed petitions with the state commercial court and stopped the voluntarily liquidation of the two Russian companies;
  2. started litigation against the two Russian companies to recover the debt;
  3. after the courts of first instance and appeal issued rulings in favour of the foreign investor and issued the writs of execution, the first stage of the Russian insolvency proceedings started and an arbitration manager was appointed by recommendation of the foreign investor.  The foreign investor was the major creditor of the two Russian companies;
  4. the arbitration manager found that the remaining assets of two Russian companies were insufficient to pay their creditors and the liquidation was started by the court;
  5. during the liquidation, having examined the commercial contracts, tax and accounting statements of the two Russian companies, the liquidator found that significant amounts have been loaned by those companies to a third company registered in another region of Russia which was also affiliated with the fashion house, and which was liquidated earlier so no documents were available;
  6. the liquidator’s inquiries with the tax authorities confirmed that the third company had never had significant assets and therefore never had the ability to repay the loans;
  7. the corporate decisions of two Russian companies to provide significant loans to the third company were approved by the two shareholders, one of those being the General Manager of both companies;
  8. under the Russian Federal Law on Insolvency, the liquidator filed claims against the General Manager accusing him of negligence and claiming joint and several liability for the two Russian companies’ debts;
  9. the courts of the first instance and of regional appeal held the General Manager was liable and ordered him to compensate the foreign investor for the loaned amounts; and
  10. realising that the next step would have been seizure of the shareholders’ assets in Russia and abroad (and we were preparing to obtain an injunction freezing the brands and to litigate in a foreign jurisdiction), the shareholders entered into negotiations to settle the dispute with the foreign investor.

The whole process lasted more than three years and incurred significant expense.

In the light of the current troubles in the Russian retail and fashion industry, we would make these general recommendations to lenders proposing to invest in the fashion business in Russia:

  1. as all brands and other valuable intellectual property are usually registered abroad, they need to be put in pledge by the foreign entity/person in favour of the lender;
  2. independent guarantees should be concluded with the owners of the Russian companies;
  3. legal due diligence, finance and tax audit of the target companies/borrowers are a must;
  4. all assets of the target companies (including) real estate assets should be pledged to the investor;
  5. rights under commercial contracts (supply, distribution, marketing, advertising, etc.) should be pledged to the investor.

Such precautions will significantly minimize the risk of losses in cases of the negative economic climate affecting the Russian borrower.

Pension Issues On Corporate and Personal Insolvency

uk-recessionUnless you have been hiding in an igloo in Antarctica for the last year you could not possibly have missed the media furore over the huge pension liabilities of eminent companies that have become insolvent. BHS, a venerable British retailer, is the most high profile after recently entering administration with an estimated pensions deficit of £571m.

Whilst a parliamentary committee investigates the relationship between former management, owners and other stakeholders potentially responsible for the BHS collapse, our colleagues, Kevin Burge and Felix Weston have published an article in Practical Law which provides a timely and very useful overview of the issues that must be considered in a company’s insolvency where there is an occupational pension scheme.

Given the current financial climate and number of spiralling pension scheme deficits, the pension scheme of a company is likely to be one of the company’s largest creditors. It is therefore critical that pensions issues are carefully assessed and managed before, during and after insolvency. The article provides a high level summary of the insolvency legislation in the UK, its influence on insolvency procedures and the issues to be considered, including the trustees’ duties, the role and responsibilities of insolvency practitioners and scheme administrators and their interaction with the PPF before, during and after insolvency.

The article also covers the effects of insolvency on an individual, including what will happen to that individual’s pension in bankruptcy and the circumstances in which the Trustee in Bankruptcy may be entitled to access the individual’s pension for the benefit of their insolvent estate.

Making Sausage – – The Seventh Circuit Examines the “Ordinary Course” Preference Defense

production of sausagesIt is relatively rare when a Circuit Court issues an opinion on the preference defenses under section 547(c) of the Bankruptcy Code. It is even more unusual when a decision examines the fact-focused “ordinary course” defense under section 547(c)(2). The ordinary course defense shields payments determined to have been made in the “ordinary course of business” of both the debtor and the creditor. In its recent decision in The Unsecured Creditors Committee of Sparrer Sausage Company Inc., v. Jason’s Foods, Inc., the Seventh Circuit has provided a useful analysis on the application of several aspects of the ordinary course preference defense.

 The first issue raised by the appellant in Sparrer Sausage was the bankruptcy court’s selection of the baseline period of conduct for comparison to that during the 90-day preference period. In the proceedings below, the bankruptcy court had truncated the comparison period based on its finding that toward the end of the time outside the 90-day preference period, the debtor had already begun to experience economic distress that had distorted the parties’ behavior. On appeal, the Circuit Court noted that this decision ignored the baseline period that had been stipulated by the parties in the action and also noted that the signs of distress were not necessarily definitive. However, the appellate court declined to upset the determination made by the bankruptcy judge because he had “offered a reasoned explanation for his decision, and his reasons were grounded in Sparrer Sausage’s payment history and supported by the record.”

A second issue addressed on appeal was the permissible range of ordinary course conduct during the preference period. Considering its selected baseline timeframe, the bankruptcy court determined that the relevant invoices had been paid in an average of 22 days. The bankruptcy court then added six days to either side of that average to calculate the permissible range of ordinary course transactions.

The Seventh Circuit began its review on this aspect by discussing the two possible methods for evaluating payments: the “total-range method” considering the total days an invoice was outstanding and the “average-lateness method” comparing the timing of payments to their due date. It characterized the method selected by the Bankruptcy Court as “average-lateness,” although an examination of the facts seems to suggest that it was “total-range.” In either event, the appellate court noted that each methodology has strengths and weaknesses and did not feel it necessary to upset the bankruptcy court’s chosen methodology.

In the application of that methodology, however, the Seventh Circuit found that the six-day upward and downward adjustment was “clear error.” The court noted that the range applied by the bankruptcy court accounted for only 64% of the payments during the baseline comparison period. By adding two more days to each side of that range, one could account for 88% of the baseline transactions. The Seventh Circuit noted that the bankruptcy court had offered no rationale for its selection of the six-day variable and concluded that the ordinary course range chosen by the bankruptcy court “appears not only excessively narrow but also arbitrary.” Finally, the Seventh Circuit also swept in one additional payment that was one day beyond its expanded range. In doing so, it allowed that payment as ordinary course despite its falling “just outside the 14-to-30-day range” that had been applied by the reviewing court. When the Seventh Circuit coupled this expanded ordinary course defense with the creditor’s “subsequent new value” defense under section 547(c)(4), it turned a $250,000 preference recovery to $0.

The Seventh Circuit’s decision in Sparrer Sausage allows several helpful conclusions for parties in preference litigation. The first is that the selection of a baseline comparison timeframe can be important to the ultimate outcome of the case. Parties will want to evaluate the implications of various possible comparison periods, in order to advocate for the one most beneficial to their position. Parties may also wish to consider stipulating as to the comparison timeframe, although such a stipulation did not protect the creditor in this instance. 

Second, the election between “total-range” and “average- lateness” can also impact the application of an ordinary course defense. Average-lateness would seem to better account for possible variations in invoice payment terms. A 45-day payment on a 30-day invoice is the same as a 60-day payment on a 45-day invoice, but would be distorted somewhat by the use of a total-range analysis. Average-lateness may also produce a range of ordinary course conduct more sympathetic to creditors.

Finally, parties should carefully consider the variation to be permitted from an average-lateness calculation. As indicated in the Seventh Circuit’s decision in Sparrer Sausage, an effort should be made so that the range selected will take account of as many of the transactions in the comparison period as possible.

The ordinary course defense of section 547(c)(2) is necessarily a subjective process, fraught with the potential for uncertainty. At the same time, that  subjective element presents an opportunity for capable counsel to marshal the facts and the law in order to obtain the best possible outcome for their client.

Singapore – – Becoming the “Delaware” of the Asia Pacific Region?

SingaporeDelaware has long established itself as a welcoming jurisdiction for various legal purposes. It began as a center for company incorporation by providing a corporate law framework that was flexible and continuously updated for new developments. More recently, Delaware has applied those same principles (plus an expansive view of venue) to become a center for major chapter 11 reorganization filings.

Recently, Singapore has taken steps to give notice of its intention to establish itself as an attractive location for international insolvency matters. In April, the Committee to Strengthen Singapore as an International Center for Debt Restructuring (the “Committee”) issued its report (the “Report”) with recommendations for making Singapore a leading jurisdiction for multi-national insolvency proceedings. The Committee is a blue ribbon panel comprised of both government representatives and local leaders in the legal and financial community.

The Report begins by noting the increasing levels of insolvency and restructuring activity in the Asia Pacific region and the globalization of many of the entities involved. It notes that for reasons of practicality and efficiency, the bulk of the work relating to a multinational insolvency case tends be performed in one “lead centre.” The Report notes that Singapore is already a major financial, legal and business hub, which provides the region with a convenient base from which to coordinate multi-jurisdictional restructurings. It then sets out to suggest methods by which Singapore can compete more effectively to become a restructuring and insolvency hub as well.

As part of its effort to enhance Singapore’s position as a restructuring center, the Report contains a series of 17 specific recommendations. These recommendations are grouped into three general categories: (1) enhancing the legal framework for restructurings, (2) creating a restructuring friendly “ecosystem,” and (3) addressing the “perception gap.”

Enhancing the Legal Framework. The suggestions for an improved legal framework are intended to provide a clear set of rules and procedures that ensure that the system is quick, cost-efficient and delivers high certainty of outcome. Among such suggestions is a recommendation to provide a clear list of factors that the courts may take into account to determine jurisdiction over foreign debtors in Singapore Courts. Also, the Report recommends an expanded restructuring moratorium like the American automatic stay, which would include worldwide in personam effect and potential application to related entities. The Report also recommends improved disclosure requirements for debtors in order to facilitate creditor decisions in restructuring proceedings. The Report also discusses the desirability of consolidating related proceedings before a single judge and facilitation of so-called “pre-packaged” or “pre-negotiated” restructuring plans.

In addition, the Report suggests improvements for the judicial portion of the system. These include the recommendation that cases be heard by specialist insolvency judges or “international judges.” The latter would be non-Singapore judges specially appointed to the Singapore International Commercial Court.

Lastly, this portion of the Report also recommends increased use of Alternative Dispute Resolution (ADR) methods in resolving disputes in restructuring and insolvency matters. This would include expanded use of existing Singapore mediation and arbitration groups, as well as efforts to strengthen expertise in those groups on cross border matters.

Creating a Restructuring Friendly Ecosystem. One area covered in this category is the improved availability of so-called “rescue financing,” which is tailored to the needs of distressed debtors. To support financing of restructuring proceedings, the Report includes recommendations regarding the encouragement of local development for groups with specialized lending expertise and the chapter 11 notion of “super priority liens” as part of available debt financing.

Addressing the Perception Gap. The final broad area of the Report concerns the need to better educate others regarding the benefits of Singapore as a restructuring hub. The Report recommends a concerted effort to communicate to the wider international restructuring community the benefits of Singapore jurisdiction. It also suggests that judges, professionals and academics from Singapore increase their involvement in international insolvency organizations and organize or participate in conferences, all in an effort to raise international awareness of Singapore’s capabilities.

In the United States, Delaware has become one of the primary jurisdictions for bankruptcy cases by debtors from across the country. Other courts have sought to emulate Delaware’s innovations to attract an increasing share of such business. On the international front, the US and the UK have historically been viewed as multinational restructuring centers. With the issuance of the Report, Singapore has given notice that it also wants to expand its participation, particularly for enterprises focused in the Asia Pacific region. We will watch with interest to gauge their success.

“We’re Gonna Score One More Than You…….”

Fans on stadium game businessmanChances are those well-known eloquent lyrics have stirred up some patriotic spirit from somewhere deep within even the most sporting averse of us.

With the 2016 summer of sport fast upon us the effect of the Euros, Wimbledon and the Olympics could have a significant impact on the economy (and the nerves) of the nation.

It has been reported by Lloyds Bank plc, ‘that the countries reaching the final four stages in the last five tournaments have tended to see rises in both consumer spending and GDP growth… the research shows that there are generally rises in spending growth during the period of the event that tend to drop off later on in the year, once the euphoria wears off’.  East Midlands Chamber of Commerce has analysed data ahead of the Euros this year and predicted that ‘the UK economy could benefit by up to £2.5 billion in additional spending by consumers during the tournament – a similar level to that seen during the 2014 World Cup.’

But whilst Euro 2016 may kick us off, this is the start of a long 2016 summer of sport, overlapped and closely followed by Wimbledon, the Olympics and the Ryder Cup. Lloyds have estimated that the London 2012 Olympics will provide a staggering £16.5 billion contribution to UK GDP over the next twelve years. Granted, whilst the Rio Olympics haven’t quite got the same ‘patriotic allure’ of hosting, the games are still expected to have a significant positive impact on the economy. That, together with the ‘cucumber boom’ reported last year in anticipation of thirsty Wimbledon Pimms drinkers, could see quite a fruitful summer ahead.

On a serious, and factual note, as many will know the Euros 2016 is the first time that the four sides from the British Isles (if you include the Republic of Ireland) have qualified together for a major tournament since the 1958 World Cup in Sweden. As the nation prepares itself for the glory (and no doubt the pain) of Euro 2016, pub landlords are saying their prayers in the hope for a dazzling (and long) performance by the home nations as crowds gather to watch the matches with a chilled beverage, a big screen and that all-important atmosphere. It has been reported that pub trade bible ‘The Publican’ estimates that ‘like for like sales are expected to soar by more than 10% for two thirds of licensees, with one in five expecting a rise of more than 20%, fast eclipsing the 6% seen by the Rugby World Cup last year’. David Scott, director of brands and insight at Carlsberg UK, told the ‘The Drinks Business Magazine’ ‘football tournaments are worth more than £60m to the on-trade and live football can add an uplift of 60% to an outlet’s rate of sale.’

Likewise supermarket and DIY kings will be rubbing their hands together in glee in anticipation of a run on barbeques, televisions and beer sales.  Supermarket giant Tesco has predicted record sales of craft beers and ciders during the Euro 2016.  East Midlands Chamber estimates that ‘thirsty football fans across the region will drink more than £3.5 million worth of beer during the course of the tournament’. To help wash down all that beer Domino’s Pizza have reported that they are creating 10,000 new jobs as part of a major recruitment drive ahead of the Euros and the Olympics with an estimate of three pizzas to be ordered every second during Euro 2016. According to the ‘Daily Star’ that’s enough pizza to stretch half way round the world.

On the flip side all that beer and pizza is not great news for productivity (or waistlines for that matter) and employers should be wary during the summer months with employees more likely to leave early, throw a ‘sickie’ or to be found browsing social media to keep up with the score.

However, not wanting to echo the infamous lyrics of Euro 1996 ‘thirty years of hurt, never stopped me dreaming’, an early exit from a tournament could really kick the economy, and would stick the boot in after the early exit from the 2015 Rugby World Cup. It was reported by the International Business Times that elimination from a major football competition could lead to the market going down by 0.5% the next day which equates to £3 billion being wiped off the market in a single day. So an early exit could do more than just denting the country’s pride.

Wayne Rooney / Andy Murray / the Brownlee brothers / Jessica Ennis – Hill ……the potential saviours of the UK economy? No pressure.

Another Trump Victory (Sort Of)


Trump wins again!  But the winner is Trump Entertainment Resorts, Inc. and not the presumptive Republican presidential nominee, Donald Trump.

In January, we informed our readers of an important decision from the Third Circuit Court of Appeals in favor of Trump Entertainment.  In that ruling, the Third Circuit held that Trump Entertainment could reject the continuing terms and conditions of a collective bargaining agreement (“CBA”) that had already expired.  Under the National Labors Relations Act, an employer has enforceable duties under a CBA even after the CBA has expired.  The Third Circuit’s decision therefore provided debtors with a way out from under the CBA. This was the first decision by an appellate court holding that an expired CBA is still subject to rejection under section 1113 of the Bankruptcy Code.  As we discussed in our prior post, section 1113 allows a debtor to reject a CBA as long as the debtor complies with the procedural and substantive requirements of that Code section.

On May 31, 2016, the U.S. Supreme Court denied without comment a petition for writ of certiorari filed by the workers’ union.  By refusing to step into the mix, the Supreme Court let the Third Circuit’s decision stand.  That decision will have the effect of strengthening the hands of employers who can now move to reject expired CBAs and thereby avoid having to continue to comply with the terms and conditions of the CBAs.  It remains to be seen whether other courts will follow the Third Circuit’s lead.

The Supreme Court’s denial of certiorari may also have the unintended effect of removing a litigation issue that could have vexed Mr. Trump during his presidential campaign.  After all, it is not universally known that Mr. Trump no longer controls Trump Entertainment, and it would certainly have been politically troublesome having to explain how it was appropriate for Trump Entertainment to reject the CBA and to stop funding the union’s health care and pensions.

Saudi Arabia’s Vision 2030

86366597_thumbnailOn April 25, 2016, H.R.H. Deputy Crown Prince Mohamed Bin Salman announced the Kingdom of Saudi Arabia “Vision 2030”, a plan to radically transform the Kingdom’s economy in, what many commentators saw as, a response to budgetary pressures arising from the slump in crude oil prices.

Vision 2030 sets out a comprehensive road map to promote more efficient government services and to diversify the Kingdom’s economy by boosting private sector job creation and developing the non-oil economy.

“We have an addiction to oil. . . this is dangerous,” Prince Mohammed has recently stated in interview. “It has delayed development of other sectors.” To that end, a flotation of a 5 per cent stake in state-owned Saudi Aramco is planned which would value the oil giant at more than $2tn and mark a historic transformation of the Kingdom’s primary economic engine, boosting transparency around the state-owned company’s finances, as well as granting Saudi Aramco more independence from government oil policy. According to the plan, the ownership of Saudi Aramco will then be transferred to the state’s Public Investment Fund, which will help bolster it into a sovereign wealth fund valued at up to $3tn, the world’s largest, with a mandate to kick-start domestic investment.

Privatizing government assets, from Saudi Aramco to other assets in healthcare and education, will help meet ambitious diversification targets of raising non-oil government revenue from SR163bn ($43bn) to SR1tn by 2030, and to boost the role of the private sector from 40 per cent to 65 per cent of gross domestic product by 2030 and that of small and medium-sized enterprises from 20 per cent to 35 per cent.

But the Vision is about so much more. The plan also aims to reduce unemployment from 11.6 per cent to 7 per cent by 2030. To that end, it is seen as essential to end the Kingdom’s reliance on lower-paid foreign labor. This means a renewed focus on education, as well as a higher female participation in the workforce (from 22 per cent to 30 per cent).

In a country where more than half of the population is under 25, many younger Saudis hope that economic transformation will lead to a less stifling and a more equitable society. And job creation is rightly seen as a progressive tool in averting disaffection.

The plan is certainly ambitious, not least in its timelines for implementation but it is admirably conceived. After all, in a region where societal development can take time, it does no harm to catalyze the process.

Vision 2030 should be seen for what it is: a plan that will inspire and mobilize action to change the country. The plan, together with other recent developments, should not be viewed as evidence of a state losing its way but rather as signs of a country on the cusp of transformation.

Prince Mohammed has stated that the plans for 2030 are premised on a $30 oil price — and are to be implemented at any price. This transformation has as much, if not more, of a sociological as an economic imperative. Vision 2030 has been seen by many commentators as a reaction to relieve budgetary pressures but perhaps, rather than being the mere motive for change, the drop in global oil prices has presented to the opportunity to drive through changes which were, in any event, sorely needed.

As a Firm, we have been fortunate enough to be instructed on a number of initiatives connected with the plan. In meetings on those projects the buzz is palpable. The mood on the streets is energized. It is a privilege to be present in the Kingdom in such monumental times and to participate in a project so profound both in nature and scale. And it goes (almost) without saying that Vision 2030 offers enormous opportunities for foreign investment.

Exciting times . . .

UK Manufacturing – a Sector on Hold?

GearsThe performance of the UK manufacturing sector is one of the key indicators of the health of the UK economy as a whole. To what extent is the current stagnant growth in that sector a result of the impending EU referendum?

The Markit/CIPS manufacturing Purchasing Managers’ Index fell to 49.4 in April 2016, its lowest level since early 2013. The index measures the growth in the manufacturing sector; a figure of less than 50 indicates that the sector is in recession. The index recovered to 50.1 in May, however, many are concerned that the manufacturing sector is currently at a standstill.

The sector also remains below its pre-crises peaks, unlike other sectors (such as the services sector) which are now well above their pre-2008 level. Recession or stagnation within the sector is a troubling sign, given that manufacturing accounts for approximately 10% of the UK’s GDP, meaning that it can act as a drag on wider economic growth, increasing the pressure on the service sector to drive overall growth. In headline cases such as the collapse of SSI, mass redundancies can have a devastating impact on a particular geographical area which can take years to recover from, as well as the inevitable impact on dependent suppliers.

Some of the sector’s problems have been reasonably long-standing, such as the strong pound making UK investment from overseas investors less appealing, as well as making UK exports more expensive for overseas buyers. In addition, manufacturers who supply products to the oil sector have been affected by the decreased demand from that sector due to the low price of crude.

However, one issue in particular is often cited by manufacturers as impacting on their business – the looming EU referendum.

A survey by Markit found that approximately one third of UK manufacturers surveyed believed that uncertainty over a possible Brexit has had an impact on their business, with 8% of respondents of the view that the impact was “strongly detrimental”.

Squire Patton Boggs’s annual Manufacturing report found that 83% of respondents wanted to see the UK remain part of the EU, with many citing the fact that the EU remains UK manufacturers’ largest single trading partner.

In the event of a Brexit, manufacturers may have to contend with (1) volatile currency markets, (2) the possibility that certain countries may put trade barriers in place for UK goods and (3) that some buyers within the EU may choose to buy their goods from a supplier within the EU rather than continue to use a supplier outside of the EU structure. Those uncertainties may have caused manufacturers to put their investment and hiring decisions on hold pending the outcome of the referendum and any resulting fallout. In addition, overseas customers may be holding off placing large orders with UK manufacturers until the outcome of the referendum (and therefore the basis on which they trade with those manufacturers) is known.

It is easy to see how potential risks such as those cited above are leading to considerable uncertainty within the sector, with the inevitable impact on output. However, whether the upcoming referendum is in fact having a significant impact on the manufacturing sector will only be known following further analysis in 6 or 12 months’ time. In the event that the outcome is to Bremain and the sector does not pick up, then it would appear that the  sector is being affected more by underlying issues such as currency strength and overall demand, as opposed to uncertainty about the UK’s future relationship with the EU.