Are firms prepared for a single currency?

Economic and Monetary Union (EMU) appears increasingly likely on January 1st 1999. What should you be doing to prepare your organisation? Ireland's participation in the project on its commencement date looks ever more probable (even with Britain's declared non-participation at the start). There are good reasons for each organisation to initiate a legal review of the implications of the introduction of a single European currency at this time: to avoid or mitigate adverse financial and commercial consequences; to assist in overall corporate planning for the introduction of the euro; and because, although the transitional period is scheduled to last three years, the business sector may find that the changeover to the euro takes place much earlier.

The introduction of the single currency will be pursuant to a new legal framework introduced by two Council Regulations under Articles 235 and 109 of the Treaty of Rome (inserted by the Maastricht Treaty).

It is also likely that further domestic legislation will be required to effect a smooth transition to the single currency. One of the most important principles of the new legal framework is continuity of contracts. In the majority of cases, this principle is simply confirmatory, since it was most unlikely that Irish law transactions would be affected adversely. The Article 235 Regulation, which is already in effect, makes clear that the introduction of a single currency will not alter, discharge or excuse performance under any legal instrument (widely defined), subject to anything the parties may have agreed.

However, the Regulation still leaves some question marks over some types of contracts and part of the legal review is to ascertain whether an organisation is party to any such contract.

Euro timetable: Key dates and events:

June 1997

Article 235 Regulation became law in all member states

May 1998

Founding members of European Monetary Union to be selected

Currency conversion rates between participating member states to be fixed (but not the rate/s vis a vis the euro)

Soon afterwards, Article 109 Regulation to be adopted

January 1st 1999

Single monetary policy for participating member states commences

Euro will be introduced for noncash transactions

Euro will be the currency of each participating member state with local currency becoming an alternative denomination of the euro and retaining its status as legal tender

Every reference in a legal instrument to the ECU will be replaced by reference to the euro at a rate of 1:1

Conversion rates for the currencies of participating member states will come into effect

All public debt in participating member states to be issued in euros

Transitional period will commence

January 1st 2002

End of transitional period

The pound will retain its status as legal tender for a maximum further period of six months

Latest date for euro notes and coins to be issued

All references in legal instruments to IR£(or any participating member state currency) shall be read as references to the euro

Essential reviews

Review all contracts to determine:

parties - EU, participating or non-participating member states or non-EU;

currency implications, interest rate formulae, any change in financial criteria;

could it permit derogation from the "no compulsion, no prohibition" rule in Article 109 Regulation?;

termination/unwind arrangements and exposures

change in circumstances provisions - increased costs, change in market conditions, capital adequacy, etc;

force majeure provisions;

governing law.

Review all treasury transactions to determine:

impact on existing treasury hedging strategy,

whether hedging contracts will be capable of being continued or whether there will be any point in continuing with them;

adverse financial implications of unplanned hedging termination;

whether any fixed interest contracts are based on underlying Pound or existing EU currency transactions;

could the introduction of the Euro lead to an actual interest rate higher than the market rate in any transaction?;

impact of national and international market associations' proposals for listed and non-listed securities.

Review all ECU denominated con- tracts to see:

whether special risks will apply to such contracts;

does the contract already provide for readjustment of obligations or termination of contract if the ECU ceases to exist?

will the new euro "basket" benefit or have adverse consequences?

Share capital, etc

Is your company's or its subsidiary companies' share capital denominated in Irish Pounds, EU currencies, US Dollars and/or other currencies?

Is your company a subsidiary of another company which is denominating of its share capital?

Consider impact of rounding under Article 235 Regulation

Are any changes or redenominations necessary and, if yes, what procedures need to be followed?

Stock Exchange and any domestic or foreign listing rules' implications, if any

Similar considerations will apply for all bonds, notes, options issued; will redenomination of debt securities under Article 109 Regulation be appropriate?

Change in accounting systems

The timing of the change in internal and external accounting systems by companies and their customers could be significant

Are there any legal restrictions, notifications and/or procedures to be overcome, notified and/or adopted?

Are any changes proposed to the industry standard contract(s)?

Employer implications

Review legal obligations to fund pension, national insurance, etc in forthcoming years

Mergers and acquisitions

Due diligence on planned mergers and acquisitions of Irish and nonIrish companies to include a single currency review

The above is simply a list of matters that should be considered. Each industry will have a different list and different priorities. It is likely that new matters will come to light in the forthcoming months. Compiled by John Cronin and Fergus Gillen of McCann Fitzgerald solicitors.