Category: Interviews

Thomas Hruby was born in Montreal, Canada, where he attended McGill University, from which he received his B.A., B.C.L., and LL.B. degrees. He was admitted to the Bar of the Province of Quebec in 1983 and practiced law in Montreal. He obtained a Master’s degree in law from Charles University in Prague in 1991 and was admitted as a fully-qualified Czech advocate by the Czech Bar Association in 1992. In 1993, he opened the Prague office of the Montreal law firm Mitchell, Gattuso and he subsequently joined the Prague office of Linklaters & Alliance. In 2001 he started his own practice in Prague, and he was joined by Jiri Buchvaldek in 2006 to form Hruby & Buchvaldek. 

CEELM: Run us through your background, and how you got to your current role.

T.H.: I was born in Montreal, Canada to parents who immigrated there in 1950. I grew up in Montreal, studied law there at McGill University, was called to the Bar of the Province of Quebec, and I practiced law there … until I moved to Prague. In 1989, the Velvet Revolution changed the course of history in my parents’ homeland, as well as the course of my life. I started to work on the restitution of my family’s properties in the Czech Republic in 1991. It quickly became evident that my mother’s restitutions would be complicated and time consuming. I started coming to this country with great frequency. So I decided to offer my services to friends of my parents, most of whom also had properties here which they wanted to have restituted. The restitutions of most (though not all) of my clients were much quicker than my family’s. Soon they were redeveloping, leasing, and selling their properties, buying other properties, etc. By the autumn of 1992, I had more clients in the Czech Republic than in Canada, so I decided to move here “temporarily.” I moved in the summer of 1993. I opened my office here and restitutions and restitution related matters blossomed into a full-blown commercial, corporate, and real estate practice. Eighteen years after I first moved here, I bought a flat in Prague, which I now consider home.

CEELM: Was it always your goal to work abroad?

T.H.: No. I was very happy in Montreal. Despite the fact that many of my anglophone friends had moved to other Canadian cities and abroad, I remained a “Montreal patriot” and fully expected to work there throughout my professional career. That, combined with my parents’ experience, taught me never to say “never.”

CEELM: Tell us briefly about your practice, and how you built it up over the years.

T.H.: I have been practicing law for nearly three and a half decades. I started as a “stagiaire” or articled clerk at a largish francophone firm in Montreal, where I was immersed from morning to night in civil and commercial litigation files. I later worked for a small firm where I became the trademarks expert, in addition to general commercial and corporate law matters. In the Czech Republic, my focus moved toward real estate. In the early days it was primarily the restitution of real estate; later all aspects of real estate law fell within the purview of my practice.

My practice as it is today started to develop in 2006, when Jiri Buchvaldek joined me. Together we have built up a boutique law firm which is able to assist businesses with most legal problems they may encounter.

CEELM: Do you find Czech clients enthusiastic about working with foreign lawyers, or, all things considered, do they prefer working with local lawyers? 

T.H. Our firm has a mix of both Czech and foreign clients. I am fairly confident in saying that all of our clients are enthusiastic about working with us. There are so many lawyers in Prague, both local and foreign, that our clients would move to other firms if their enthusiasm were to wane. All of our lawyers, including myself, are full-fledged Czech advocates. I bring to the table the added advantage of having practiced in two legal systems on two continents for more than three decades. I have some clients who refuse to deal with anyone else but me, which is flattering. However, all of our lawyers are very capable. I suppose that those clients who continue to call me do so for one or more of the following reasons: (a) I not only have many years of legal practice behind me, but also the general experience which the school of life has taught me over the course of more than six decades, (b) I am able to converse with them on a wide breadth of topics in a number of languages, and (c) I try to make them feel that I am there to help them reach the right decision, not to make the right decision for them.

CEELM: There are obviously many differences between the Czech and Canadian judicial systems and legal markets. What idiosyncrasies or differences stand out the most?

T.H.: While the Czech market is fairly unified – although regional differences do exist – and the Czech legal system is uniform, one cannot say the same about Canada. It is a vast country with ten provinces and three territories spanning six time zones. Each province and territory has its own set laws, which exist side-by-side with those of the country’s federal government. Three quarters of the Canadian population lives under a legal system loosely defined as the “English Common Law” system. However, the Province of Quebec, which is home to one quarter of the country’s population, has a legal system very similar to that in continental Europe. It is a codified system. The principle of stare decisis is not a part of the law of the province. Because of the Anglo-American legal environment in the midst of which Quebec finds itself, judicial decisions carry much more weight than in continental Europe. It is a system that I have come to consider the best of both worlds. You have a code, which is the backbone of the legal system. Specific laws govern specific situations not covered by the civil code. However, the courts are constrained, if not by law then by the weight of tradition, to respect prior judicial decisions of higher courts and to allow themselves to be influenced by previous decisions of the same court. This adds a certainty to the legal environment that is somewhat absent in the Czech Republic.

Another difference between the systems in the Czech Republic and Canada – and here I am able to talk about the whole country, whether it be Nova Scotia or British Columbia, Quebec, or the Northwest Territories – is the manner in which judges are chosen. In Canada, with a few exceptions, judges are selected from among lawyers with many years of distinguished practice at the Bar, whose nomination to the Bench is considered an honor. They come to the Bench with not only a vast knowledge of the law but rich experience in the school of life. In the Czech Republic – with the exception of the Supreme Court and the Constitutional Court – judges are generally selected from those law students who: (a) have graduated from a recognized Czech faculty of law, (b) have successfully completed “judges’ school,” (c) have had some experience as judges’ clerks, and (d) have attained the age of 30! The decisions of lower courts often reflect the wisdom and experience of these “seasoned” judges. This renders appeals, extraordinary appeals, and constitutional complaints almost commonplace.

CEELM: How about the cultures? What differences strike you as most resonant and significant? 

T.H.: I find that many Czech lawyers still think that they are the fonts of all wisdom and knowledge and that the client is a simpleton who needs to be told what to do by his lawyer. Clients do not need or want to be “talked down to” by their lawyers. In Canada, lawyers have long ago learned that their role is to assist the client in reaching his goals, not to tell a client what his goals should be and decide how these goals will be pursued.

Paradoxically, I also have the impression that lawyers enjoy a higher level of respect in the Czech Republic than they do in Canada. However, I may have reached this conclusion because when I practiced in Canada, I was a young lawyer. When I moved to Prague, I was a little bit exotic. Foreign lawyers were not all that numerous, and foreign lawyers who spoke Czech and were fully qualified as Czech advocates were very rare indeed. As time went on, my grey hair probably helped me acquire even more respect.

More generally, the fact that lawyers in the Czech Republic are addressed as “pane doktore” or “pani doktorko” helps to create and maintain an aura of respectability, which “Jim” or “Jane”, or even “Mr. Smith” or “Ms. Jones” simply cannot muster.

CEELM: What particular value do you think an expatriate lawyer adds – both to a firm and to its clients?

T.H.: Lawyers who have experience in other legal cultures are able to view problems through the eyes of that foreign legal system. This helps the firm and its clients avoid misunderstandings when dealing with foreign counterparts. Experience in a foreign jurisdiction also brings a fresh outlook to dealing with purely local matters, even if local laws apply exclusively.

CEELM: Outside of the Czech Republic, which CEE country do you enjoy visiting the most?

T.H.: I very much enjoy visiting Austria, Croatia, and Slovenia.

CEELM: What’s your favorite place in Prague?

T.H.: I walk my dog almost every evening through Riegrovy Sady in Prague’s Kralovske Vinohrady district. There are few places as magical as Riegrovy Sady on a spring evening, when the scent of lilacs or linden trees permeate the park, or on a clear summer’s evening with the lights of the city twinkling below and on Petrin Hill and Hradcany across the Moldau, or on a foggy autumn evening, when the park is transformed into a myriad of softly glowing oases of hazy light separated by misty darkness, or on a snowy winter’s evening, when the boughs of the trees and shrubs bend under the weight of freshly fallen snow and my dog becomes a galloping, barking snowball.  

This Article was originally published in Issue 3.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Deal:

On August 15, 2016, CEE Legal Matters reported that the Esin Attorney Partnership (a member firm of Baker & McKenzie International), Hogan Lovells, and Paksoy had advised on Burgan Bank’s USD 87 million and EUR 57 million syndicated multi-tranche term loan agreement with 13 banks from 8 countries. The banks were led by HSBC, acting as coordinator, Arab Banking Corporation (B.S.C.), acting as agent, and Commerzbank Aktiengesellschaft, Filiale Luxemburg, HSBC Bank Middle East Limited, and Mashreqbank PSC acting as initial mandated lead arrangers and bookrunners.

The Players:

• Muhsin Keskin, Partner, Esin Attorney Partnership, a member firm of Baker & McKenzie International
• Sera Somay, Partner, Paksoy
• Rahail Ali, Partner, Hogan Lovells (Dubai)

CEELM: How did you each become involved in this matter? How, why, and when were you selected as external counsel?

M.K.: We were mandated by Burgan Bank to advise them in relation to their inaugural annual syndicated borrowing in 2015 and since then we have been their counsel for banking transactions. [At the time] they reached out to us directly.

S.S.: Paksoy was mandated in June 2016 through Hogan Lovells (Middle East) LLP, the Dubai branch of Hogan Lovells.

R.A.: We have worked on numerous Turkish conventional and Islamic financing transactions with HSBC. 

CEELM: What, exactly, was your mandate when you were retained for this particular project (as compared to the final result)?

M.K.: The mandate was to advise them, both English and Turkish law input, for the finance documents, which I think 100% matches to the end result. We were involved from the beginning, the term sheet stage. As this was a repeat deal, the structure was almost in place.

R.A.: My mandate on this transaction was quite comprehensive. I was involved in the transaction from the very beginning. Following our formal mandate, my team started working on the preparation and negotiation of the mandate letter and the term sheet. Immediately after the finalization of these documents, my team set about preparing all the loan documentation and participated in the intense negotiation thereof among the lenders and Burgan Bank. My team supported the lenders as to the satisfaction of the drawdown conditions and led this important process carefully.

My task was very well defined at the outset of the transaction. There was therefore no difference between the initial mandate and final result.

S.S.: Paksoy was mandated to review the agreements from a Turkish law perspective, collect the Turkish law condition precedent documents by directly contacting Burgan Bank, and issue an enforceability and capacity Turkish legal opinion. The final result was in line with the initial mandate.

CEELM: Who were the members of your team, and what were their individual responsibilities?

M.K.: I and Michael Foundethakis (the EMEA head of Baker & McKenzie’s banking team) were the Partners in charge. Serenay Cinki in Istanbul and Nicholas Macheras in Paris helped us with the documentation.

S.S.: [In addition to me], the Paksoy team members were Ozlem Barut (Senior Associate in the banking & finance department) and Soner Dagli (Associate in the banking & finance department). I was responsible for overall supervision. Ozlem Barut was responsible for drafting and Soner Dagli was responsible for the conditions precedent.

R.A.: I led the transaction as the supervising partner. Ahmet Kalafat, a Senior Associate in our finance team in Dubai, was front and center in our deal team and undertook the day-to-day running of the transaction with support from trainee Lucy Kelly. 

CEELM: Please describe the final deal in as much detail as possible – in other words, how was the financing structured, why was it structured in that way, and how did you help it get there?

R.A.: The financing needs of Burgan Bank and the regulatory considerations determined the structure of the facility. The facility was structured as a dual-currency facility comprising Euro and Dollar tranches. In order to reduce cost of funding each tranche was split into two, with one having a 364-day maturity and the other 367-day maturity. 

M.K.: This was a typical multi-tranche syndicated facility for a financial institution. There were 13 lenders on board.

S.S.: Paksoy did not contribute to the structure of the deal as this was a repeating deal of the previous syndicated loan extended to Burgan Bank in June 2015. The deal was structured as a syndicated facility provided by various banks and the documentation was in LMA format.

CEELM: What was the most challenging or frustrating part of the process? Why?

M.K.: The challenging part was the timeline. The deal closed more or less in two weeks, so everyone had to be more efficient than usual. Everyone knew the closing date from the beginning – this was basically a roll-over deal, so there was not much time or need to lengthy negotiations.

R.A.: Burgan Bank is a well-known financial institution to international financial institutions and has a successfully run banking business in Turkey. As Burgan Bank approaches the market for similar deals on a regular basis, Burgan Bank and the lenders have developed an efficient working relationship on this kind of transactions. Therefore, there was no unusual or extraordinary challenge or setback in the process.

S.S.: In general, the deal was smooth and the parties were cooperative.

CEELM: Was there any part of the process that was unusually or unexpectedly smooth/easy?

M.K.: Other than the speed, this was a smooth process. All parties were reputable financial institutions knowing what they are doing very well and there were not any last minute surprises.

S.S.: In general, the deal was smooth, but the collection of the condition precedent documents process was unusually easy/smooth as Burgan Bank timely delivered all the documents and was cooperative.

R.A.: No.

CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?

M.K.: The end result totally matched the mandate.

S.S.: There was no surprise in the deal and therefore it can be easily said that the final result matched our initial mandate.

R.A.: Yes, it did.

CEELM: What individuals at Burgan Bank directed you, Muhsin, and what individuals at the banks advised you, Sera and Rahail – and how would you both describe your working relationship with them? 

M.K.: We were guided and directed by Sehnaz Gunay (Department Head, Financial Institutions) and Nesteren Caliskan (Legal Counsel). We spoke almost every day. We managed the talks with the lenders through their counsel and made sure the common understanding was reflected into the finance documents.

R.A.: We have an established working relationship with various teams of HSBC. On this specific transaction, HSBC’s Leveraged and Acquisition Finance team instructed us. 

S.S.: We were instructed by the syndication banks through Hogan Lovells (Middle East) LLP. We are an independent law firm. We collaborate with different international law firms on a project basis. We worked on various similar deals with Hogan Lovells (Middle East) LLP in the past.

CEELM: How would you describe the working relationship with your counterparts at Paksoy and Hogan Lovells on the deal, Muhsin, and yours with the Esin Attorney Partnership, Sera?

M.K.: We were dealing with Hogan Lovells. There was a friendly and cooperative environment which made things easier for both counsel. No travels were involved. They were in Dubai. Phone calls and emails were sufficient to get to the closing.

R.A.: They were professional and responsive.

S.S.: We never directly contacted our counterparts at the Esin Attorney Partnership.

CEELM: How would you describe the significance of the deal? 

M.K.: The importance of the deal was the fact that it closed right after the coup attempt and S&P’s downgrading with no delays at all. I think It is an excellent indicator of international financial institutions’ trust in the Turkish economy and banking system.

S.S.: The fact that 13 banks from 8 countries took part in this deal proves the confidence which investors have in the Turkish economy and banking system.

R.A.: After lenders and Burgan Bank agreed but before signing the mandate letter and term sheet, a coup attempt took place in Turkey on July 15, 2016. This extraordinary event did not have any negative impact on the transaction. After a few days of internal discussion, the lenders made the decision to continue with the transaction.

This demonstrated that Turkey has a strong banking system in which international financial institutions have great confidence and that we will continue to see similar deals in the Turkish market despite this extraordinary incident.

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Deal:

In October 2016, CEE Legal Matters reported that Baker & McKenzie had advised European payment and transactional services provider Worldline on its agreement with Komercni Banka, a subsidiary of the Societe Generale Group, to develop products and services for Czech and Slovakian merchants. CMS advised Komercni Banka on the deal. We reached out to Baker & McKenzie Partner Libor Basl and Associate David Reiterman, both in the firm’s Prague office, for more information.

CEELM: How did you and Baker & McKenzie become involved with Worldline on this matter? 

L.B.: Worldline is a subsidiary of Atos which is a global leader in digital services. Atos is one of our valued clients, and we have assisted them on a number of acquisitions over the last few years. Within the Atos group, Worldline is responsible for delivery of technologically advanced payment services. So when Worldline was searching for legal representation in the Czech Republic for this transaction they selected us, in no small part due to our experience with payment services regulation.

CEELM: What, exactly, was your mandate when you were retained for this particular project?

D.R.: Initially, we were asked to assist Worldline with initial negotiations with Komercni Banka regarding purchase of their merchant acquiring business. When you think about all the places where you can pay by your payment card, this is exactly the business we are talking about. All these businesses (stores, gas stations, restaurants, etc.) that accept or acquire payment by means of payment card (i.e., not by cash) are called merchants. And this part of the banking business is called merchant acquiring. 

L.B.: Due to the introduction of EU rules regarding interchange fees for acquirers, it has become more efficient for the acquiring business to be taken over and further developed by specialized payment services providers while banks may concentrate on their core business. And this is exactly what some of the Czech banks did – they looked for a potential partner or even a purchaser of their acquiring business. And, logically, KB made the same decision. 

D.R.: We initially focused on what could be the possible transaction structure and helped negotiate the basic terms of that structure. Then, as the transaction evolved, our mandate evolved as well. We had to look into various issues ranging from HR to existing contracts, IP rights, competition clearance, and financial regulatory approvals, as well as a range of corporate issues.

L.B.: In order to implement this very specific and one-off transaction we drafted a whole package of very specific industry-related and tailored-made agreements from scratch.

CEELM: Who were the members of your team, and what were their individual responsibilities?

L.B.: David and I were responsible for the day-to-day management of this transaction with help of a number of our colleagues from Prague as well as other Baker offices who are experts in IP and competition.

D.R.: Libor oversaw the transaction and was involved in negotiating its terms and structure, while I was primarily involved in drafting the relevant agreements and also assisted with financial regulatory and corporate issues that arose in the implementation phase of the deal. As we were indeed drafting very tailored documents we spent good deal of time brainstorming between ourselves and with our colleagues what the best way to go was.

CEELM: How is the agreement structured, and what was your role in helping it get there?

D.R.: The final deal was to establish a merchant acquiring alliance between Worldline and KB. This sentence may sound simple, but you have a Czech bank, a Belgian provider of payment services including merchant acquiring services, and no precedent to rely on. So we have a fairly complex cross-border transaction in which we need to legally underpin the conditions of the future cooperation of two parties with different regulatory backgrounds in a very technical field of merchant acquiring. 

L.B.: This is a transaction ruled by a series of agreements, from rather straightforward acquisition documents up to a much more complicated alliance agreement and documentation governing migration of the business, in an environment where even a few hours of service disruption is a serious problem. This all in a situation where you need to discuss with two regulators and address all their requirements. Our role was to make sure that all the legal challenges were addressed and that this business cooperation has a solid and working legal basis in the relevant documents.

CEELM: What was the most challenging or frustrating part of the process? 

L.B.: Many parts of this deal were challenging, as we needed to move the transaction forward. We had to invent solutions that worked both legally and also in real life. As you can imagine, especially given the different and sometimes completely opposite business drivers of your counterparty, this may not be that easy to combine.

D.R.: When I think about this, one specific memory comes to my mind. From a regulatory perspective, one of the more challenging parts concerned the structuring of the alliance in accordance with Czech laws implementing the EU Payment Services Directive, while keeping in mind the position of the Belgium National Bank as Worldline’s regulator, since the first EU Payment Services Directive (which is still in place) is implemented differently in Belgium and in the Czech Republic. All parties had some serious discussions on what is and what is not doable. In the end, we were happy to see that both regulators demonstrated a very rational business approach and helped us reach a satisfactory compromise and push the deal through.

L.B.: Also, the acquiring business is rather specific. In order to be able to grasp the whole thing on paper, you need to have at least some basic understanding of how it works technically and what the flows of money are. This is a fairly complex technical payment mechanism, involving several parties (the merchant’s bank, the issuers bank, the acquirer, the payment processor, payment schemes, the merchant, the customer, etc.). 

D.R.: Sometimes, when I was reading through the technical manuals to better understand what’s going on, I saw myself as a student of technical engineering rather than a lawyer. But anyway, I think it was a fresh breeze into our usual transactional work, which typically revolves around drafting legal documentation or analyzing legislation or case law. Frankly, I enjoyed it, and I believe that such exercise makes one a better lawyer, as you have a chance to learn how to put a technical or business issue into a workable legal concept and you also get an invaluable industry insight.

CEELM: Was there any part of the process that was unusually or unexpectedly easy?

L.B.: As all parties practically pioneered the whole transaction structure, I wouldn’t say that any part was unusually or unexpectedly smooth or easy. We had no precedent to rely on, but it was really motivational to go with the client step by step through the process and learn on the go.

CEELM: Did the final result match your initial mandate, or did it change somehow from what was initially anticipated?

L.B.: I believe the final result matches the initial mandate, despite the fact that we had to tweak some details of the transaction structure as it progressed over time. 

D.R.: Apart from this, we are happy to see that the client has also instructed us on a whole range of other issues that are connected with the initial mandate, and that we have become its point of contact in terms of the establishment and operation of its acquiring business here in the Czech Republic. 

L.B.: Well, our work on this deal is not yet fully done. Although we have all the legal agreements in place, there is still much to do from operational and technical points of view. I expect to be facing some interesting challenges in the next few weeks and months during the technical implementation of the project. 

D.R: The business guys will certainly come up with great ideas how to move forward. I think it’s really interesting to analyze how the relevant technical solution may work within legal boundaries that were set five or even more years ago, when no one actually could even think about this kind of situation.

CEELM. What individuals at Worldline directed you, and how would you describe your working relationship with them? 

L.B.: We’ve had the chance to be involved with a lot of colleagues from Worldline. Given our attorney confidentiality, we would prefer not saying any names here. However, we can definitely say that it’s been a real pleasure working with them. And we hope the client enjoyed our cooperation, too.

D.R.: Yeah, I still remember our closing, which was completed faster than expected, and we found ourselves together with our client with a celebration glass at 11:00 in the morning. I don’t think that the rest of the day was so productive, but I think it was definitely worth it (laughs).

CEELM. How would you describe the working relationship with your counterparts at CMS on the deal?

L.B.: In short, professional and productive. Both parties were driven in the same direction in their efforts to lay grounds for a long-term acquiring alliance, we were happy to see that legal negotiations with our colleagues from CMS were more flexible than what you normally see in a straightforward acquisition.

D.R.: Just like us, our colleagues from CMS were commercially driven, and I believe that no party felt any need to start a major legal battle. Of course, we had some situations of disagreement, but we were all able to come up with workable compromises fairly quickly.

CEELM: How would you describe the significance of the deal? 

L.B.: This deal was really complex and, to a large extent, unique. We believe that for both Worldline and KB it was also really significant – on one hand, KB was looking for a business partner in order to keep its acquiring business as efficient as possible, while Worldline, on the other hand, took this as a great opportunity to strengthen its presence in CEE.

D.R.: Worldline is now actually very active; on the day it announced the acquisition of the KB acquiring business, Worldline also announced the successful completion of the merger of Equens and Paysquare within the Worldline group, by way of which Worldline has become a Pan-European champion in payment services. We are very happy that we could contribute to Worldline’s success, and we very much look forward to future cooperation with them.

This Article was originally published in Issue 3.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Czech lawyer Ivan Nechvatal has spent the past five years at CEZ, becoming a Corporate Governance Advisor – Turkey in July of this year. Based in Istanbul, Nechvatal participated in the 2016 General Counsel Summit in the city and was kind enough to share his thoughts on working in the Queen of Cities.

I.N.: Shortly after graduating from law school, I joined CEZ, International Division and its program for talented graduates, CEZ Potentials. During my studies, I also worked for E.ON Czech Republic and Energy Regulatory Authority, which shows my close relations with the energy business. Having worked in the International Division of one of the biggest European utilities and dealing with cross-border legal matters and projects for last five years, it was a natural step for me to go abroad and utilize the experience gained at HQ at the local level in one of the CEZ Group subsidiaries. Graduating from the Faculty of Economics [at the Masaryk University Brno] and hence gaining an understanding of the business needs of companies also helps me to function in the foreign environment.

I.N.: Actually no, but having the above-mentioned background it was an interesting option.

I.N.: It is everywhere the same, local lawyers perceive both pros and cons while working with foreign lawyers. On one hand, foreign lawyers do not know the local law, which obviously can cause more work for the local in-house legal counsels. On the other hand, local counsel in my opinion also perceives the high added value of having the different perspective foreign lawyers can bring.

I.N.: Actually, Czech and Turkish legal systems are surprisingly close to each other as they are both based on German legal tradition. Taking this into consideration, it is much more simple to function in this legal environment than it would be if I had a common law background. 

I.N.: Turks are flexible and excellent businessmen. Like those from other nations of the Mediterranean, Turks live more in the present than in the future. This generally results in a highly business results-oriented environment with lesser accent for risks, detail, and structured corporate governance then cultures influenced by the German tradition. 

I.N.: I bring an impartial, different, and international perspective to various legal matters and issues. The transferable experience relies especially in contracting and corporate governance, while impartiality is especially important from the perspective of the shareholders.

I.N.: The Istanbul Museum of Modern Art. It’s an excellent museum with a restaurant serving delicious meals with astonishing views in the background. Good food, a great view over the Bosphorus, and world class art – apart from history, everything Istanbul can offer in one place.  

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On July 15, 2016, the streets of Istanbul and Ankara erupted in violence during a surprise – and ultimately unsuccessful – coup d’etat attempt against the Turkish government and Turkish President Recep Tayyip Erdogan. By the time the coup had been put down, over 300 people had been killed and more than 2,100 were injured. 

In the weeks and months that followed the coup, over 40,000 people were arrested – including at least 10,000 soldiers and 2,745 judges. 

On July 20, 2016, President Erdogan declared a state of emergency in the country, an act subsequently approved by the Turkish parliament. On October 3 he announced that the initial three-month state of emergency would be extended by another three months, to officially begin on October 19.

On October 7, 2016, as the concluding event of the 2016 General Counsel Summit in Istanbul, Partners from a number of the law firms sponsoring the event took the stage to share their thoughts about the significance of the coup attempt – and the current situation in Turkey in general – for their clients, practices, and businesses as part of a unique panel conversation. 

The Players:

• Vefa Resat Moral: Managing Partner, Moral Hukuk Burosu
• Eren Kursun, Partner, Esin Attorney Partnership
• Kerem Turunc, Partner, Turunc
• Jonathan Marks, Partner, Slaughter & May
• Okan Demirkan, Partner, Kolcuoglu Demirkan Kocakli

Marks: It’s been really interesting. We were a little bit worried, ahead of coming to the GC Summit, whether the whole thing was going to work, and we’ve felt very welcome. There’s a degree of concern outside of Turkey about certain developments this year including reports of large numbers of judges being dismissed, that sort of thing. All that could have a slowing effect on confidence, potentially on investment. Equally, my perspective is that this point that has already been made about Turkey’s young and dynamic economy is correct and that you can’t hold people back. Time will heal, if things don’t get worse, and then there’s some stability. That dynamism and that growing economy should help. And, from a UK perspective, we’re going to be looking as a country to make friends with other countries as Brexit comes about – Turkey is not looking like it is going to be joining the EU anytime soon, and we essentially will be in the same boat, so I think that, from a British-Turkey perspective, there’s an optimistic angle as well. 

Demirkan: Yes, it could get worse indeed, but there’s no reason to be pessimistic. It doesn’t help to be pessimistic. We Turks are not the best in any particular sector. We’re not the best construction people, we’re not the best engineers in the world or the best sportsmen or the best scientists, but we are known for having good comebacks. We have that spirit. We’ve had that spirit for centuries. And as our founder Ataturk said, well, there is no such thing as a hopeless situation, there are only hopeless people. And we in our blood, in our DNA, we don’t have pessimism too much, we’re just used to managing crises. I think we’re just good at it. It’s the one thing we’re good at. 

Demirkan: Yes, we’re experienced at managing crises. It could get worse. If it does, we’ll just have to get over it. Two very short stories about the 15th and 18th of July. Both are probably reasons to be optimistic. One is, on the 15th of July, on the Friday, I was in Germany for a pitch for an energy project, and I thought I got the job that day. “They said, we’ll just make a few revisions in your proposal and come back to you on Monday.” Before lunchtime on Monday – after the coup – I received a call saying that the project was cancelled. So yes, I didn’t have a smile on my face at the time, but then, a couple of days ago – this week, actually – they called and said that the same project is going to start next week. So in three months’ time, things are picking back up.

Question from the Room: As law firms, do you think you have an institutional role to help the country survive a crisis like that in any way?

Kursun: I think we are in a unique position to do that, because we work with a lot of investors. When you are outsiders, before you react to something, you will observe the reactions of people who are actually in the situation first. If they are panicking, you will panic; if they are calm, you’ll stay calm. So I think we are all ambassadors in that sense, and I’ll tell you one thing we are doing: The minute the state of emergency was declared, we set up a hotline where our clients can call 24/7 if they have any questions, and we’ve been sending emails every time there’s a new emergency decree. We inform our clients on that – and friends of the firm, not only clients.

But let me also tell you what I’ve seen from some others. It was a news release from another law firm, and it was forwarded to me by a client, and it was right after the state of emergency. The content was the following: “A state of emergency has been declared.” They copied the entire constitution. Their message said that now there may be a ban to go outside, business may be stopped, etc. But in the form of reassurance they said, “But these rights will prevail, and the rights are: right not to be tortured, right to life,” and things like that. And the last paragraph said, “If you have force majeure and materially adverse provisions in your contract, please consider exercising them.” Now … I mean, this is selling panic, this is benefiting from it. That’s one thing that lawyers are very tempted to do, but we should not do. We should not be over-optimistic, of course – I mean nobody’s fooling anyone – but as I said, our reactions and our attitude, our signals for the rest of [the] people … I think we have a unique role to play there.

Turunc: When I was a baby Associate in New York I used to instruct local counsel in Turkey as well as in other jurisdictions, and the shortlist of Turkish firms that we had then looked very different from the shortlist of Turkish firms that my colleagues back in New York would be using right now. Very different, although of course some of the individuals are still the same. And I think the Turkish legal market is going through growing pains. I think a lot of us have seen this – in markets like Romania, Poland to a certain extent, Italy for sure – and there are two aspects to development of the legal market here as far as I can see. One is, if you rely on anything other than your lawyering skills and your business development skills for work, then you’re bound to fail at some point. It doesn’t matter which party is in power. It doesn’t matter. That’s number one. Number two is, I think Turkish law firms need to seriously start thinking about institutionalizing their practices. And I think, Eren, you guys have obviously done this more successfully because you have the benefit of being part of an international network. But unless lawyers stop looking at their businesses as their practices and start looking at them as real Anglo-American-type partnerships, they’re bound to fail. And I think very few, if any, Turkish law firms have done that successfully. At the end of the day, it doesn’t matter whose name is on the door, as far as I’m concerned. If it’s a true partnership, it’s going to survive. If you think it’s your shop and it’s going to be your shop forever and you run the show, you’re not going to survive. 

Turunc: Turkey’s now a market where in-house counsel have the same demands and the same needs as those in the West. That wasn’t the case 20 years ago. And in order to be able to service those needs properly you need multiple partners with deep teams with experience who can provide the kind of seamless experience that these in-house counsel need and deserve. That, or you need to be a specialist. But you can no longer be a three-person shop that claims to provide full service in this market. That’s just not the name of the game anymore.

Turunc: It’s a more sophisticated market. On the flip side I think some international firms are going to find it more difficult to operate here as well. If you’re relying on either finance work only or if you’re only relying on the growth of the market, then you’re not going to survive either. You have to look at the long play here.

Moral: I agree, our profession has been transforming. Our firms today, with the internal corporate governance, institutionalism, is a different character from when we were young Associates. Of course, I do not believe that my firm or other firms in Turkey will have a hundred partners with a thousand associates. But the Turkish legal market has made that transformation very well, in my opinion, because of the country’s emerging market position. Despite this positive development, legal legislation lags far behind, unfortunately. Firms, like ours, recruiting 30, 40, 50 people, and well-qualified people, face bureaucratic and legislative obstacles where systems are not supporting the transformed industry. Also, at the end, there’s still the reality of corruption, unfortunately. From our GC colleagues, or from board members, I hear a lot of corruption stories unfortunately. In order to have a clean, well-respected market, we, as the industry leaders, should all contribute to improve and sustain several aspects of the legal market.

Demirkan: Fifteen years ago, Eren and I were trainees working on deals on opposite sides of the table. At the time, I had just moved to Turkey from the UK, and I was unique because I actually was fluent in English. I was one of the handful of trainees that had that talent. Nowadays we receive 80 to 100 CVs every week, and their English level is not worse than mine. So the market has definitely changed.

One thing that really attracted my attention when Resat was speaking was, before our generation we had Partners and Managing Partners who were born Partners. They were never Associates. They never worked in the kitchen. Now, all of the Turkish lawyers you see on the panel have worked for many years in the kitchen, so we know what the Associates’ problems are, we can understand them, and we know what the other firms’ problems are. I don’t think that before our generation Partners came together to talk about their problems, or that they had ever even mentioned gentlemen’s agreements. I think we’ve come a long way, and I think this shows. As you said, if you think about the Turkish legal market as a car, leaving aside the traffic and the problems that may be caused by the traffic, I think we’ve shifted gears in the past five or six years.

Kursun: I think there’s going to be a consolidation in the legal market in the future. Those of us who do the right things will grow, and those of us who don’t will disappear. And that goes for internationals as well, because when you talk about an international law firm, one important thing is their costs are high. And when you go for big discounts to get market share, that’s not sustainable. So they are going to be supported by headquarters for some time, but at some point headquarters will say, enough is enough. I think it’s going to get worse before it gets better in terms of pricing. But at some point when the consolidation happens I think it’s going to be a better market, a healthier market. As I say that, I couldn’t agree more with what Kerem and my fellow panel members said. Okan put it very nicely, they were born Partners. All of the firms who disappeared from the map, their bosses thought they were immortal. When we get more corporate, when we get more modest, when … in Turkey we say, “when we rely on nothing but the strength of our wrists,” then it will be a better environment.

Kursun: I don’t know whether it will be in the form of mergers or people disappearing or people going away, but there’s one fact. We are not charity businesses. We must make profits. We must make profits to invest, to get a better workforce, to do better marketing. There’s no other way. None of us are charities. So if you postpone making money, you won’t survive. That’s a fact of life, couldn’t be simpler. So this will happen, because when you look at pricing, you know how it is done, but the thing is, when you decrease the prices, you have to get more and more work to survive. When you do that, the quality drops, and then you have to decrease the prices even further because your quality’s even worse, and then at some point you’re done. It takes time. Cheap prices are sticky. Some of the law firms will go through that, because once you start, you can’t stop that. I don’t know what you call it, merger, disappearance, failures, whatever, but it will happen.

Marks: Maybe just a few additional thoughts from me, reflective of our experience in London, and however many years working with firms in other CEE countries. The emphasis on quality is absolutely crucial, as is the emphasis on integrity. I think that it’s the road to ruin once you go down any other route. We had an experience in another jurisdiction a few years ago, when someone suggested that we think about getting involved in something inappropriate as part of a pitch and we’ve not done anything with them since.

The point about succession – it’s not a secret, you don’t, at Slaughter and May, pay anything for the goodwill when you go in and you don’t get anything back for the goodwill when you go. I think that having more institutionalized relationships is a good idea. We share client relationships. For example, we try very carefully not to concentrate client relationships with a single partner because actually clients don’t generally like it. They might be happy to have a focal point, but they don’t want to feel that they’re stuck with X regardless, whether or not they’re the right person to deal with a particular individual or job.

What we’ve seen in the rest of the CEE that has really encouraged us is that independent firms have thrived, and equally the more committed of the international firms have also done okay. That’s what we’ve always said for our model: we can carry on as an independent firm, and if other people want to go the one-stop route, and it works for them, that’s fantastic too. If you look at various of the jurisdictions, we’ve seen Linklaters invest heavily in a number of jurisdictions, and then spin off Kinstellar, and we’ve also seen Freshfields do much the same, and in fact a succession of firms have done that across a number of CEE jurisdictions. If someone’s just got a name on the door and a few Partners and Associates with very high costs, particularly if the partners have got substantial equity in the firm, and you hit a few years of hard times, or even just less good times, are they going to stick it out? That in some ways is encouraging for people who are really committed to Turkey. I think that only the international firms that are really committed will stick it out and that in the end that will also benefit the most successful independent firms.

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Michael Malloy, the Head of Intellectual Property and Technology for Russia at DLA Piper, first came to Russia in 1990, and he moved there for good in 1994. At DLA, where Malloy has been since 2008, he specializes in intellectual property and technology issues, and his work includes franchising, corporate law, media law, and technology transfers.

M.M.: I am an American lawyer originally from Florida. I had an obsession with crafting an international career and started my legal career in Washington, DC. I started out in insurance litigation with a great firm in DC. I knew I needed to develop good lawyering skills and working on huge case litigation in a big firm was a great way to get started. Keeping my eyes on my goal of international practice, after a couple of years at that first firm, I jumped ship to another DC firm with more of an international focus. 

This was back in the early 1990s when a lot of American law firms were looking to expand internationally and specifically into Russia and Eastern Europe, so there was a lot of interest in this part of the world, but few people knew what to do here! Bill Clinton came along in 1992 and ruined my job at that firm – he appointed my boss to a prestigious ambassadorial post and with that, the firm’s budding Russian practice ended. Faced with going back to domestic practice if I were to have stayed, I realized that the time was right to get over to Russia.

I started out managing a small consultancy in Moscow to get my foot in the door of the market and later went back to legal practice, this time with KPMG and Arthur Andersen where I focused on tax, corporate law, and market entry. There were two important trends at that time: the expansion of international businesses into Russia and the prospect of the big accounting firms taking on legal practice. At the time it made a lot of sense and I wanted to be on the cutting edge. I was recruited as a “real lawyer” into the Arthur Andersen legal practice and for over six years was involved. Andersen was a first rate organization and was developing a very good legal business, but then Enron came along and ruined everything.

This was actually a great thing for me. It inspired me to think out of the box about where to take my legal practice. I had noticed something interesting (this is back in 2001): IP and technology were certainly the most promising things going on commercially, but it seemed that technical specialists and commercial people had some trouble understanding each other. This applied to IP lawyers and commercial lawyers as well. It seemed that yet again I had noticed an opportunity and I decided that having been a commercial lawyer, getting into IP and Technology would be a really interesting direction for my career. 

Taking this strategy forward, I joined the Moscow office of an excellent Canadian IP powerhouse: Gowlings. In the years with Gowlings, I learned a tremendous amount about IP and how to handle IP in a commercial context, but as my skills grew, I wanted to find a platform for a broader client base. 

While doing a hotel franchise deal opposite the DLA Piper team, I realized that DLA Piper very well could be exactly the platform I was looking for, with technical excellence and a genuine global reach. I gave DLA a call and they shared the vision – an IP and technology practice with a commercial accent. I joined DLA Piper to lead the Intellectual Property and Technology practice group in 2008 and have been here since!

M.M.: It has always been my goal to have an international practice. I initially expected that I would work outside of the US for a few years and bring that experience home for an international practice, but things didn’t work out that way. I came to Russia more than 20 years ago and am still here!

I have a really broad practice involving intellectual property, technology, and a lot of commercial work and negotiation. This negotiation aspect of the practice goes beyond the usual negotiation one might expect on a deal–by-deal basis. We have a significant number of clients who, after trying to finalize their transactions in Russia, call us in to close the deals.

In building up my practice, I have followed two principles: first, recruit and develop great people – nobody can do this alone, especially as a foreign guy in a foreign land; and second, never say no – there are too many lawyers in Russia who just say “it cannot be done” (the Dr. No Syndrome), but I have always tried to find ways to make things work.

I have considered practice development as a long-term strategy: 1) build the team; 2) build capability; and 3) build reputation. It all has to be based upon substance and built from the ground up.

M.M.: This will depend upon the client and what they need, but as a general matter, if it is purely domestic work for a Russian client, it is almost always better to have one of our Russian lawyers lead the project. Generally speaking, though, as almost all of my Russian clients have some international activity or prospects, they are generally more than happy to work with foreign lawyers – provided that the foreign lawyers actually add value. In some ways, with Russian clients, I feel that as a foreign lawyer, I need to meet a higher standard to really add value. 

M.M.: The effect of the political climate has had nearly no effect on my life in Moscow other than the food imports. The quality of pepperoni on pizzas has suffered due to the sanctions.

M.M.: I could (and still may) write a book on this question, but I will focus on three things. 

First, Americans have a deep obsession with documentation. For the same transaction, an American might bring a 100-page agreement while the Russian party expects something around ten pages. My experience has been that Americans expect to have everything under the sun nailed down in a document so that the document is the embodiment of the agreement.

Russians, however, seem to rely more upon the relationship and what has been actually discussed and agreed between the parties. I have found over the years that Russians are very reliable when it comes to issues which have been discussed and agreed in the relationship while Americans tend to rely upon what has been written in an agreement document. 

Here’s an example from franchise deals: Many franchise deals have a development schedule where the parties agree that the franchisee will open a number of units over a period of time. To an American, the development schedule is a rock solid binding obligation, so if the franchisee opens 11 units when 12 are written in the development schedule, the franchisee is in material breach of the agreement. To the Russian side, though, the development schedule is a goal to be strived for, but they realize that sometimes things don’t work out as planned. The Russian is looking at the relationship – “we are in this together” – rather than numbers written on a schedule. 

I have seen this come up many times where the American side (usually the franchisor) is frustrated by a “material breach” while the Russian side (usually the franchisee) does not see it that way. In discussions, the Russians will often remark that it was never actually discussed that the development schedule was a critical part of the deal while the Americans point at the (usually very long and complicated) agreement. 

The most important advice I can give to international people doing business in Russia is to respect the relationship and actually discuss every important issue – you cannot rely upon things “hidden” in the agreements.

Second, Americans and Europeans often have too great an expectation of certainty or specificity in the rules. We need to keep in mind that Russian legislation, the legal profession, and enforcement mechanisms have only been in place for a short time – since the end of the Soviet Union. Because of this, legislation is not always perfected, so the rules may not be written as well as they will be, and practices and precedents have not been fully established yet. In working with Russian law, one must accept that there is a different level of uncertainty than you can expect in more mature systems. This is temporary, of course, but building a legal system takes time.

Third is that enforcement of rights through the legal system is difficult. Americans expect a legal system where it is possible to achieve effective enforcement of rights through court actions (although it can be expensive and can take time), but that is not really the case for many commercial disputes (especially for breach of contract) in Russia. While claims move through the Russian courts more quickly than they do in the US, the process is radically different, and evidentiary rules place a very heavy burden on a claimant to the extent that cases which might be easy wins in the US are frustratingly difficult in Russia. I often have to counsel American clients that having something in the agreement document does not really mean that it will be easy to enforce. I tell them to go back to my first point that the best enforcement is avoiding the problem and that can be done only through the relationship.

M.M.: Russia is a deceptive place for a lot of foreigners coming from the US and Europe. At first glance, Russia seems to run pretty much the same way one might expect in the USA or Europe – the cars, buildings, fashions, etc., all look a bit different but well within the norms one would expect. Business people act like they do in Europe, and many Russians have excellent foreign language skills, so initial interactions are also within the expected norms. This leads Americans and Europeans to expect that Russians think and operate just like “we” do and that there is no significant cultural difference to worry about. 

That’s a big mistake. Russia has a very distinct culture and ways of doing things, and it is important to understand that.

My personal favorite difference between Russian and American culture is that we have different axioms. Every culture has its own unproven beliefs upon which a lot is invested. Russians have their own, too, but they don’t share those of the Americans. Being in Russia and with Russians has required me to question and consider these American axioms.

Here’s an example. In the US, we have deeply rooted belief that democracy is “good” and we don’t even question it. We take it as a universal truth. In fact, we justify a lot of actions on defending, promoting, or expanding democracy at home and abroad based upon this axiom. Russians, however, are not conditioned into this axiom and are mentally and emotionally able to earnestly question whether democracy is “good.” 

M.M.: There should be three things a senior expatriate lawyer adds to the firm and its clients: 1) Cross-cultural understanding – the ability to help international clients understand how things are done in Russia in terms that they can understand – and the mirror opposite: helping Russians understand international counterparts; 2) Technical skill and judgment – this is probably applicable for any senior lawyer, but there is the added twist of the international component to be able to expand that judgment from experience in the local market and from abroad; and 3) Translating – not language so much as concepts and approaches. While there are lots of Dr. No lawyers who say things cannot be done in Russia, my experience is that with appropriate flexibility and by working together, it is possible to effect nearly (not all) everything parties want to achieve in a relationship. The key to this is to understand where each side is coming from. 

I often view my role as being a bridge – I have to understand both sides of the river and find a way to bring people from each side to the other.

M.M.: Czech Republic. I love the architecture and vibe of Prague. 

M.M.: There is a groovy café called Ukuleleshnaya on Pokrovka. It is a café and club which also sells ukuleles. They also have great live music events. I have a band in Moscow and we play there often, so I like this place from a customer’s and performer’s point of view!  

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Deal:

On June 27, 2016, CEE Legal Matters reported that Orrick had advised Sberbank and VTB on RUB 70 billion in financing for Telmamskaya HPP LLC (a subsidiary of EuroSibEnergo Group, which itself is part of the En+ Group energy and natural resources industrial conglomerate). Baker Botts advised Telmamskaya HPP on the deal.

The loan financed Telmamskaya’s RUB 70 billion acquisition of 40.29% of Irkutskenergo PJSC, a company that operates several hydroelectric power plants, thermal plants, and electric networks, from Inter RAO Group. 

The Players:

• Dmitry Gubarev, Partner, Orrick
• Konstantin Garmonin, Partner, Baker Botts (answering select questions)

D.G.: The security structure and certain terms of the financing were changing in the course of our work during the transaction. However, in general our mandate did not change: we were responsible for drafting all the financing documents, issuing necessary legal opinions, collecting condition-precedent documents, and negotiating the financing documents on behalf of the banks. 

D.G.: The team consisted of myself, my Partner Konstantin Kroll, Associates Svetlana Gareeva, Maria Illarionova, and Victoria Bryxa, and legal assistant Diana Tsaprilova. Svetlana, Maria and I were primarily responsible for the drafting and negotiating of the financing documents. Konstantin focused on corporate aspects of the transaction. Diana was responsible for assisting with collecting the CP documents.

K.G.: The Baker Botts’ core team consisted of senior members of our Russian finance practice, including me and Finance Associate Kira Gladkoborodova, both based in Moscow. The team was also able to draw upon expertise from our other European offices on matters requiring specialist input.

D.G.: The financing was used for payment for the acquisition of 40.29% of shares in PAO Irkutskenergo (a major energy company in Eastern Siberia). PAO InterRAO was the seller and the borrower – OOO Telmamskaya GES, which belongs to EN+ Group – was the buyer.

The facility agreement was based on the standard form that was recently developed by the Association of Russian Regional Banks. The standard form was the product of a major collaboration by a group of experts, including both lawyers and bankers. I am proud to be a part of that team, and therefore was particularly excited about doing another financing on the basis of that form. 

Since this standard form is rather new (Orrick has done three transactions on the basis of that form, though overall there have been fewer than ten), a lot of provisions of the facility agreement required more time for negotiations compared to LMA-based financings. However, the parties did their best to achieve a successful closing in a very limited time frame.

K.G.: A transaction of this size and complexity was successfully closed in a very ambitious time scale thanks to an exceptional level of commitment that all parties and their counsel devoted to the transaction.

D.G.: The financing banks had to follow a very tight acquisition schedule. That ambitious timing was the biggest challenge. It took us six or seven working weeks to draft and negotiate all the documentation and to achieve a successful closing. We had to work at night and on the weekends. Both teams were under a lot of pressure in order to get the deal done within such a limited timeframe.

D.G.: We had very professional counterparts on the other side – Baker Botts – and although they did a great job in defending their client’s interests, I believe we understood each other very well throughout the negotiation process, which was helpful given the complexity of the deal.

D.G.: Certain details of the deal structure changed, but generally the structure was the one that had been initially anticipated.

D.G.: We represented both banks equally and received directions and answered to both of them. There were large teams involved from Sberbank and VTB, but primarily we were instructed by Marina Matveeva from Sberbank and Mikhail Tamaev and Anton Loginov from VTB. Most of the discussions and conference calls involved both banks and, therefore, we managed to work out decisions that were acceptable to both our clients. 

D.G.: The Baker Botts team is very professional and a pleasure to work with.

D.G.: I believe the deal is very significant for Russia. First of all, these days there are not so many financings of that size in Russia (70 billion rubles is more than USD 1 billion). Secondly, this deal demonstrates that the new standard documentation developed for syndicated financings under Russian law is and will be used in Russia, particularly for large domestic syndicated deals. I believe each Russian law-syndicated financing increases the sophistication of the market. 

This transaction – along with a few similar deals we have recently worked on – demonstrate that the changes to the Russian Civil Code that were introduced last year have created a legal basis for structuring complicated financings purely under Russian law (with complex covenant packages, reps and warranties, sophisticated security structures, etc.). Deals like this show that the domestic Russian market is becoming more and more mature, notwithstanding the decline in cross-border financings involving Russia for the past two years.

I am also glad that I and my team members who over the years have been working on the formation of the standard financing documentation can now use it in practice. I am sure there will be more and more complex Russian law syndicated financings involving a larger number of banks.

K.G.: This transaction proved to be one of a select few syndicated financings to date in Russia fully done under Russian law to the best international standards for such transactions.

Our team is seeing a marked demand for using Russian law in complex lending transactions, which reflects several factors, including a trend of “de-offshorizing” the corporate structures used in the Russian debt market. This is driven by Russian tax law developments and sanctions concerns, as well as a number of positive developments in Russian law which are helping to facilitate such structures.

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Deal:

On March 8, 2016, CEE Legal Matters reported that Sayenko & Kharenko had advised Sberbank on the restructuring of a sovereign-guaranteed loan to Yuzhnoya’s State Design Office and the Road Agency of Ukraine (Ukravtodor) with an outstanding principal balance of approximately USD 367 million and had advised Sberbank and Citibank on the restructuring of another loan to Ukravtodor with an outstanding principal balance of EUR 37.3 million. Linklaters advised the banks on matters of English law, and Avellum acted as Ukrainian counsel to the Ministry of Finance of Ukraine on both matters.

As we reported at the time, the outstanding principal balance of the two sovereign-guaranteed loans and accrued interest thereon were discharged in full, and the two loans were terminated, in exchange for the delivery to lenders in respective portions of (i) the USD 315.769 million aggregate principal amount of Ukraine’s 7.75% notes due in 2019, representing 75% of the outstanding principal balance of the loans plus accrued interest, and (ii) the USD 102.246 million aggregate notional amount of Ukraine’s GDP-linked securities, representing the remaining 25% of the outstanding principal balance of the loans.

We reached out to Nazar Chernyavsky, the Partner at Sayenko Kharenko who led his firm’s team on the restructurings, for more information.

N.C.: We became involved once the preliminary commercial agreement on going through with the deals was reached by the Ministry of Finance and Sberbank and Citibank. The deal structure was preliminarily discussed, and we were expected to analyze it, provide our general views on viability from the Ukrainian law perspective, and verify several structural issues which were subject to negotiation. As the preparation went forward, we had to change several elements to accommodate the banks’ requirements for execution. 

N.C.: I was the Partner responsible for structuring and overall supervision of the deal. The firm’s Counsel Anton Korobeynikov generally managed the transaction documentation and the firm’s deliverables (e.g., legal opinions), and he was assisted in that by Associate Taras Shyb. Apart from the core team, we also involved members of our arbitration and corporate law teams to ensure that the relevant bits of the transaction documentation were in order.

N.C.: The basic idea underlying both transactions was to restructure the loans made to Ukravtodor and Yuzhnoye State Design Office by exchanging them into sovereign Eurobonds and value-recovery instruments issued by the State of Ukraine within the framework of restructuring of its own sovereign debt in 2015.

The exchange was made through replacement of the borrower under each loan with the State of Ukraine by means of novation. Simultaneously with that, new sovereign Eurobonds and value recovery instruments were issued and delivered to Sberbank and Citibank to replace the novated loan.

The main task of the banks’ advisors was to ensure that the execution (consisting of the replacement of the borrower and issuing and delivering new Eurobonds in exchange for the loans) not be interrupted, leaving the banks midway through the process. Our team, in co-operation with Linklaters, managed to tweak the transaction structure to keep the banks’ position as protected as possible throughout the whole execution process.

N.C.: The most challenging part of the process was to reach an agreement among the parties as to what flexibility is allowed under Ukrainian law. Since the transaction was a one-off exercise (meaning that the sovereign does not assume the debt of sub-sovereigns on a regular basis), the regulation of the transaction was quite limited. More specifically, there was just one paragraph in the Ukrainian 2016 budget law which described how this transaction should be done. Due to its general nature, the provision provided some flexibility on the one hand, but, on the other, was subject to different interpretations as to the sequence of steps. As a result, the legal advisors of the banks and of the Ministry of Finance had to spend some time to agree on the interpretation and the execution approach that would be acceptable to all parties.

N.C.: Due to the general nature of our mandate, the result generally matched what was requested from us in the beginning. Some tweaks were made in the course of the transaction, and we had to provide a bit more detailed explanations of various concepts involved (in particular, the detailed regulation by the 2016 budget law, the value-recovery instruments or “state derivatives” as they are called in the Ukrainian laws, etc.).

N.C.: The Sberbank and Citibank teams working on the transaction showed a good understanding of the issues involved and active thinking in resolving the problems arising in the course of the transaction. We have had a great established working process and effective communications with both banks and spent a number of quite interesting legal discussions at the time of brainstorming the deal elements.

N.C.: Linklaters had a co-ordinating English-law counsel role on the transaction. As a result, we co-operated closely with them in getting the deal done. Generally, our firm has a long-lasting relationship with Linklaters. On this transaction, as usual, we had professional and constructive communication which enabled us to achieve the best result for our clients.

N.C.: We work regularly on Ukrainian capital market and finance deals with Avellum. As a result, we know their team very well and are very comfortable in having them advising the counterparty to our client.

N.C.: The deal was one of very few similar deals for Ukraine. By successfully completing the restructuring of loans of Ukravtodor and Yuzhnoye State Design Office, Ukraine managed to lessen the debt burden, which is crucial in the current difficult economic and financial environment. In addition, by accomplishing this restructuring Ukraine made another step in complying with the requirements of the IMF Extended Fund Facility to manage external sovereign and sub-sovereign debt.

This Article was originally published in Issue 3.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Graham Conlon is a Partner and English-qualified solicitor at CMS, where he is the Co-Head of International Private Equity and the Head of Corporate and M&A in Kyiv. He divides his time between Warsaw and Kyiv and has a regional role and advises on private equity and M&A transactions throughout Europe and beyond.

Before joining CMS in 2010 Conlon spent five years with Linklaters renowned “flying squad” in London and Bucharest, then almost two years with Bingham McCutchen and another year and a half with Salans (now Dentons) in Almaty, Kazakhstan.

G.C.: I originally signed up for a career in the Royal Air Force, and they sponsored me through university and taught me to fly before I realized that a career in the military was probably not what I wanted in the medium and long term. So in my final year of university I applied to Linklaters, got the job, and requested special permission to extricate myself from my military commitments. I received that permission, but on the condition that I repay everything back to them – a debt that was hanging over my head for quite some years before I could finally afford to pay it back!

G.C.: Yes. One of the main reasons I joined Linklaters was because of the international opportunities available. As part of that I was offered the opportunity to spend six months as a trainee in Bucharest, and I loved it so much that I ended up staying four years, working as part of Linklaters’ regional CEE/SEE private equity team, doing deals all over the place. It was hard work, but a lot of fun too, and I learned a lot – in particular thanks to Ted Cominos, my former Linklaters boss and mentor. But at some point I decided that it was about time to return to London, so as to not get pigeon-holed as a CEE specialist at too young an age, and I took a job at a US firm. But whereas I had been running deals at one-year PQE in CEE, back in London I was responsible for drafting due diligence reports, doing basic research, and doing first drafts of transaction documents. I felt under-challenged and bored and quickly realized that I was an emerging-markets lawyer at heart. And so I dedicated my career to emerging markets from that moment onwards. But by then it was 2008, just after Lehman Brothers, and the M&A market was a bit quiet, so I used the opportunity to spend a couple of years on secondment to Almaty, Kazakhstan, where things remained pretty busy notwithstanding the global crisis.

G.C.: I joined CMS as a Partner in 2010 along with Ted Cominos and seven other former Linklaters colleagues. Ted and the team have since moved on, but Anela Musat, Camelia Tanasoiu, and I stayed, and we continued to build up the practice and the team step by step, and I am really lucky to work with such great colleagues for great clients. Generally my clients tend to be private equity funds, strategics, or high-net worth individuals doing M&A deals in the region, but I also act for CEE/CIS-based clients when they are doing deals in the West. For example, last year I advised Amica, the Polish white goods company, on their entry into the UK: the largest Polish investment in the UK to date, as far as I am aware. 

G.C.: The very big cross-border PE & M&A deals, as well as M&A deals in less developed markets, are often governed by English law. Clients therefore require English-qualified advisors in such circumstances, and they appreciate the value-add that we can offer given that we are based on the ground in the region and have a long track record of doing deals here. By the time that clients instruct lawyers, they have typically made up their mind (at least in principle) that they want the deal to go ahead, so they need lawyers who can find a way to get the deal done on sensible terms, rather than come up with a long list of reasons as to why it cannot. On nearly every CEE/CIS deal there is always an issue that pops up – an issue which, in the West, might be a deal- breaker, or at the very least a reason to chip away at the purchase price, or delay closing. But chances are that we have seen the issue before, somewhere else in the region (and I have seen a real range of strange issues in my time, including some which would make a John Grisham novel seem tame), and we are able to find pragmatic ways to get over it and move on with the deal. In more developed countries such as Poland, however, the need for an expat lawyer is much less – the jurisprudence and the courts are sophisticated enough for local law to be used. However English law is still used sometimes when there is a cross-border element. 

G.C.: There are definitely cultural differences between the UK and some of these countries – and a lot of superstitions. Some of my favorites include: never leaving a window or door open such that a draft blows through (otherwise you will get sick); not whistling indoors (you’ll get poor); not returning to your house to pick up something you forgot – and be sure to look in the mirror if you do; not shaking hands over the door threshold (in case you disturb the spirit that lives there – as it might then be tempted to wreak havoc in the household, and bring bad luck to those who live there); offering to shake a woman’s hand before she offers hers; never giving a bouquet of flowers with an even number of flowers in it (even numbers are only for funerals); never giving a clock or a watch to someone as a present (they might think you want to kill them); never offering the corner seat to an unmarried girl – unless you want her to remain single for the rest of her life; and being very wary of encountering a woman first thing in the morning with an empty bucket (the cleaner in my block once got a real telling-off for this very reason). Plus of course there are culinary differences (horse meat and camel’s milk in Kazakhstan, and ‘Herring under a fur coat’ in Ukraine) and business differences (getting a deal done in Turkey is a completely different kettle of fish from getting a deal done in Poland, which again is completely different from Ukraine). But if there is one thread which joins all the countries together, then it is the warmth of the people with whom I have worked and met over the years. They have always been very hospitable, and have gone out of their way to make me feel welcome, much more so, I feel, than would usually be the case if/when foreigners visit the UK.

G.C.: When deals are governed by English law, then the added value is clear. But even when they are not, clients still sometimes require expats to be involved. Earlier this year I advised on a high-profile deal in Italy for example – a deal which had absolutely no connection with English law or the UK whatsoever. But I was involved simply because it was a complex cross-border deal with a number of difficult issues to negotiate and solve, and the client wanted a trusted M&A practitioner to help negotiate the deal and project-manage it to a successful signing and closing – a deal which completely destroyed my Christmas and New Year break, but I guess that is the price of being a transactional lawyer sometimes!

G.C.: With the exception of two or three countries, I’ve advised on transactions in pretty much every CEE/CIS country there is – from the Baltics to the Balkans, and from the Czech Republic to Tajikistan. I don’t always travel on each and every deal, but I have been to most of these countries over the years, and I am very fortunate to be able to combine one of my passions (traveling) with my job. There is no particular place which I would single out above the others therefore. though given that my wife is Ukrainian and my son half-Ukrainian, it is perhaps only natural that I have a particular fondness for Ukraine – a country which has it challenges, but with a population of 45 million and a genuine desire for change at the grass-roots level, it is just a matter of time until the unbelievable potential of that country – the last sizeable emerging market in Europe – shines through.

G.C.: Kyiv is a beautiful city, especially in the summer, and I have plenty of favorites. But on a sunny day I would recommend a nice walk from St. Sophia’s Cathedral, past St. Michael’s Cathedral and St. Andrew’s Church, and then down Andreevsky Spusk to get a sense as to Kyiv’s beauty. Volodymyr’s Hill also has great views over the Dnipro river and beyond. For a beer after work, then the fountain at Golden Gate is a nice down-to-earth place to relax in the summer, and for something a bit more upmarket, Ohota na Ovets in Podil is one of my favorite restaurants.

This Article was originally published in Issue 3.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.