THE EFFECT OF INDEPENDENCE ON SCOTLAND'S INTERNATIONAL STATUS, LAWS, PEOPLE AND COMPANIES
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THE EFFECT OF
INDEPENDENCE ON
SCOTLAND'S
INTERNATIONAL
STATUS, LAWS, PEOPLE
AND COMPANIES
JULY 2021
THE EFFECT OF INDEPENDENCE ON
SCOTLAND'S INTERNATIONAL STATUS,
LAWS, PEOPLE AND COMPANIES
If Scotland were to vote for independence from the rest of the
United Kingdom, Scotland would be a new state, though its laws
and legal system would continue. Independence would, however,
have a profound effect on people and companies on both sides
of the border. Can companies migrate from north of the border
to south, or vice versa? Will people be able to travel and work
freely in both countries?
In the first of this series of briefings we state that existed before the union with
looked at how and when Scotland might England in 1707. As such, Scotland must
secure a second independence make its entrance on the
referendum and then move to international stage.
independence itself. For a valid
For many purposes, this debut will be
referendum, Scotland is likely to need
straightforward. Numerous
Westminster legislation. The SNP would
uncontroversial international
like a referendum by the end of 2023,
arrangements (postal services, flights and
with independence to follow before the
so on) will require Scotland to do little
next Scottish Parliamentary elections, in
more than to announce that it will treat
May 2026.
itself as bound in the same way as the
Assuming independence, we now turn to UK by the previous arrangements or
the status of the two countries, Scotland simply to sign up in its own name. But in
and the rest of the United Kingdom (rUK), some cases, accession to existing
what they might have to do to their laws treaties could prove more difficult.
as a result of independence and, critically, Scotland will have to apply to join some
the effect of independence on individuals multilateral organisations, such as the UN,
and companies on both sides of the NATO and the IMF.
(new) border.
Scotland could, however, face a logical
conundrum. Until Scotland is
The old and new countries independent, it has no separate
On Scotland's independence, rUK will be personality in public international law and,
the "continuator" state as a matter of therefore, no standing to enter into
public international law, i.e. it will be the treaties or such like, even with rUK.
same legal entity as the UK, with all the Scotland and rUK should be able to
UK's existing rights and obligations overcome this issue internally, but to
(such as membership of the UN and avoid a gap in its induction into the
NATO) but having lost a little over 8% of international order, Scotland may, for
its population, slightly under 8% of its example, have to rely on foreign states
economic output, as well as 32% of its agreeing to enter into agreements with
land mass. The rest of the United the Scottish Government (which may
Kingdom continued in this way when the require a transfer of powers from the UK
Irish Free State was formed out of the Parliament for this purpose) to take effect
(then) United Kingdom of Great Britain with Scotland on independence or
and Ireland in 1922 and, similarly, accepting the application to Scotland of
Russia was treated as the continuator on existing arrangements immediately
the breakup of the Soviet Union. rUK may on independence.
need to consider its name, since it will no
longer include all of Great Britain – the Laws
United Kingdom of England, Northern
Laws applicable in Scotland before
Ireland and Wales?
independence would presumably
continue to apply after independence,
In contrast, Scotland will be a wholly new
but (as with EU law in the UK on Brexit)
state, probably not even the revival of the
2 CLIFFORD CHANCE
THE EFFECT OF INDEPENDENCE ON SCOTLAND'S INTERNATIONAL
STATUS, LAWS, PEOPLE AND COMPANIES
Scotland would need to decide what, People
if any, adaptation to its new
The Scottish Government set out wide
circumstances was appropriate (e.g.
criteria for Scottish citizenship at the time
companies and insolvency legislation),
of the first referendum. So, for example,
including transitional provisions.
British citizens habitually resident in
The UK Parliament would need to amend
Scotland on the day of independence
the Scotland Act 1998 to enable the
would automatically have become
Scottish Parliament to pass laws that will
Scottish citizens, as would British citizens
take effect on independence but that
born in Scotland but living outside
currently fall outside the Scottish
Scotland on the day of independence
Parliament's powers.
and children born in Scotland to at least
Scotland would also need to create one parent with Scottish citizenship.
regulatory bodies to replace existing UK
rUK would also have to decide upon the
institutions that serve the whole UK (e.g.
national fate of Britons who acquired
the Financial Conduct Authority, the
Scottish citizenship (no one should be left
Competition and Markets Authority and
stateless). For example, should everyone
the industry bodies), which may
habitually resident in Scotland cease to
themselves need to adopt new rules for
be British (i.e. rUK) citizens on
the entities that they regulate.
independence or should they be entitled
The need to change its laws would not to retain British citizenship if they so wish
be confined to Scotland. rUK would need or if they meet certain criteria, such as
to pass laws to modify UK statutes which birth or parental birth in rUK? What about
apply throughout the UK to reflect their those living in rUK (or, indeed, elsewhere)
reduced territorial scope (e.g. the but born in Scotland?
Constitutional Reform Act 2005 alone has
Dual British and Scottish citizenship –
over 100 references to Scotland), and its
if allowed by rUK, as it currently is for
continuing regulators would need to
other nationalities – could have
adapt their rules to reflect their reduced
advantages for British citizens. This would
remit. rUK regulators may also need to
be particularly so if Scotland were to Should everyone habitually
reconsider the scope of ongoing resident in Scotland cease to
become a member of the EU because a
investigations that relate to
Scottish businesses.
Scottish passport would grant British be British?
citizens free movement within the EU.
Both Scotland and rUK would need to Many British citizens with Irish
decide how to treat matters which are connections obtained Irish passports
currently wholly internal domestic issues after the UK's Brexit referendum for
and to address this through appropriate that reason.
legislation (e.g. enforcement of judgments
At a more practical level, many who
and insolvency recognition), which may
would become Scottish citizens will
require additional agreements between
already hold British (i.e. rUK) passports,
rUK and Scotland. In some cases, turning
which could have up to 10 years to run
internal domestic issues into cross-border
before expiry. It would probably be
issues could have a significant financial
impracticable to replace all of these with
impact, such as tax and pensions,
Scottish passports before or at
discussed in a subsequent briefing.
independence, even if that was what the
Businesses would need to track legal holders wanted. Will British passports
changes, in Scotland and rUK, that could held by Scots still be valid, whether as
affect them, particularly where they result British passports, Scottish passports, or
in additional compliance requirements. at all?
These may include obligations for a
The SNP said at the first referendum that
business to inform its customers and
it would look to agree a common travel
counterparties of how the new legal
area with rUK, like that between the
regime affects its relationship with them
Republic of Ireland and the UK and, as a
(e.g. new deposit or investor protection
result, that Scotland would not participate
arrangements for financial services firms).
in the Schengen borderless travel area if
and when an independent Scotland
joined the EU (see a subsequent briefing).
CLIFFORD CHANCE 3
THE EFFECT OF INDEPENDENCE ON SCOTLAND'S INTERNATIONAL
STATUS, LAWS, PEOPLE AND COMPANIES
All new members of the EU since 1997 Companies
have been required to commit to join the
UK companies can currently have their
Schengen area, though Bulgaria, Croatia,
registered offices in Scotland or in
Cyprus and Romania have yet in fact to
another part of the UK. On
join. Scotland's negotiating position with
independence, companies registered in
the EU might also be perceived to be
Scotland would become, as far as rUK is
weak since the SNP has such a clear
concerned, foreign companies. In
desire – perhaps even need – to join the
principle, that would not cause a
EU, though Ireland retains a common
problem. Scottish companies would be
travel area with the UK and is outside
recognised and accorded legal
Schengen. Membership of Schengen
personality in rUK on the same basis as
would typically require checks on all
companies incorporated under the laws
individuals entering Scotland from rUK
of Germany, Delaware or Russia. It may
and passport stamps, as well as
be that Scottish companies that carry on
restrictions on the ability of rUK citizens to
business within rUK would be required to
work in Scotland and even to go to
register a branch in the same way that
Scotland (the normal Schengen maximum
foreign companies must do so, but that is
is 90 out of any 180 days).
not in itself a heavy burden.
A common travel area between rUK and
A number of companies registered in
Scotland would significantly mitigate the
Scotland indicated during the first
business impact of independence on
referendum that a vote for independence
people issues. Employees who are
would lead them to move to rUK their
Scottish or rUK citizens would retain the
places of registration or the companies
right to reside in either Scotland or rUK
through which they carry on some or all
and to travel freely between them,
of their business. This may have been for
although their employment rights may in
regulatory reasons, reasons of public
the future depend on the jurisdiction in
confidence, the uncertainty over
which they live and work. However, other
Scotland's currency (see the next briefing
nationals, including family members of
in this series) or just convenience but, in
Scottish or rUK nationals, resident in
the financial sector in particular, regulatory
Scotland or rUK would not necessarily
considerations are likely to have been,
have the same freedom of movement,
and to continue to be, a key driver.
and this could have adverse impacts on
Some companies registered in England
employees even if their existing rights of
and Wales or Northern Ireland may also
residence in either Scotland or rUK were
wish to move their seat of registration
preserved. For example, other nationals
to Scotland whether for tax or
resident in Scotland may not be able to
other reasons.
move their residence or travel to rUK on
business or for holidays without work The most straightforward way to move
permits or visas (or vice versa for non-UK seat would be for the United Kingdom to
nationals resident in rUK). pass legislation immediately following an
independence vote allowing a move on,
These issues may also affect EU nationals
say, a company's shareholders passing a
resident in Scotland or rUK and currently
resolution to that effect. If there is no
benefiting from citizens' rights under the
legislation to ease the process,
EU-UK Withdrawal Agreement unless
companies would need to consider how
Scotland and rUK agree to continue to
best to migrate, a matter that would need
apply the provisions of the Withdrawal
to be the subject of contingency planning.
Agreement on citizens' rights as if
What is required will vary from company
Scotland remained part of the UK.
to company and with how each business
The risk of disruption to employees is
wants to be structured in the future.
much greater if there is no common travel
area as all employees may have to make What is done and how it is done will
irrevocable choices as to where they wish determine the effect of any migration on
to reside or work. contracts (e.g. whether it gives a right of
termination) and on counterparties.
A legislative change of registered office
4 CLIFFORD CHANCE
THE EFFECT OF INDEPENDENCE ON SCOTLAND'S INTERNATIONAL
STATUS, LAWS, PEOPLE AND COMPANIES
from Scotland to England may affect, for Conclusion
example, the insolvency regime that
If Scotland votes for independence,
governs a company, but in practice the
everyone – companies and individuals
immediate consequences for
who engage in what will become cross-
counterparties of a move are likely to be
border activity – will need to consider
minimal, except in regulated industries
their positions. Should companies migrate
where the place of incorporation may
one way or the other? If Scotland were
affect whether an entity holds Scottish or
subsequently to join the EU, how would
rUK licences and its ability to operate in
that affect the ability of people to cross
the other jurisdiction.
the border?
CLIFFORD CHANCE 5
THE EFFECT OF INDEPENDENCE ON SCOTLAND'S INTERNATIONAL
STATUS, LAWS, PEOPLE AND COMPANIES
CONTACTS
Chris Bates Melissa Fogarty Kate Gibbons
Consultant Joint Head of Corporate, London Partner
T: +44 207006 1041 T: +44 207006 4699 T: +44 207006 2544
E: chris.bates@ E: melissa.fogarty@ E: kate.gibbons@
cliffordchance.com cliffordchance.com cliffordchance.com
Simon Gleeson Simon James Dan Neidle
Partner Partner Practice Area Leader,
T: +44 207006 4979 T: +44 207006 8405 TPE London
E: simon.gleeson@ E: simon.james@ T: +44 207006 8811
cliffordchance.com cliffordchance.com E: dan.neidle@
cliffordchance.com
Mark Poulton Hywel Robinson Phillip Souta
Partner Partner Head of UK Public Policy
T: +44 207006 1434 T: +44 207006 8387 T: +44 207006 1097
E: mark.poulton@ E: hywel.robinson@ E: phillip.souta@
cliffordchance.com cliffordchance.com cliffordchance.com
Nigel Wellings
Joint Head of Corporate
T: +44 207006 8011
E: nigel.wellings@
cliffordchance.com
CLIFFORD CHANCE 6
THE EFFECT OF INDEPENDENCE ON SCOTLAND'S INTERNATIONAL
STATUS, LAWS, PEOPLE AND COMPANIES
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topic or cover every aspect of the topics with which it deals.
It is not designed to provide legal or other advice.
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