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“The Buzz” is a short summary of the major and relevant topics of interest in Central and Eastern Europe, provided by those best positioned to know: law firm partners and legal journalists/commentators on the ground in each CEE country. 

Albania

“How To (Not) Attract FDIs”

One positive aspect highlighted by Eris Hoxha, Partner at Hoxha, Memi & Hoxha in Tirana, is the solvency reached in terms of CEZ’s exit from the Albanian market. An agreement was finally reached several months ago that, according to Hoxha, will send the message to potential investors that “the Albanian government can be reasonable and reach a good deal” even in troubled situations. He explained that, at the end of the day, CEZ left the market with a deal that allowed it to recover its investment in full [CEZ will get EUR 100 million in annual installments until 2018, which is similar to the initial investment it spent on the Albanian distribution company CEZ Shperndarje]. On a related note, Hoxha reports that it seems like “people have started paying their dues in terms of the electricity they consume, making the industry more liquid.” According to him, collection was an issue that CEZ had a big problem with in the country. 

There are, however, several developments that make Hoxha “less excited.” On January 1, 2015, an increase income tax on dividends came into effect, preceded by an increase in the corporate tax last year, which, he points out, “are less than attractive for potential investors.” At the same time, there are ongoing discussions related to a draft new labor code, which, according to Hoxha, is considerably more conservative than the current one, and, if implemented, stands to “cancel the comparative advantage in attracting FDIs that results from having a relatively cheap labor force.” Other pending legislation includes an updated civil code – Hoxha calls the current one “considerably outdated” – but, at this point, he says, these are “more discussions than actual legislative initiatives.”

Belarus

“Workload Is The Same But Different”

Geopolitics is taking its toll on Belarus, caught as it is between the rock of the sanctions imposed by both Russia and the West on the other, and the hard place of the Ukrainian crisis, according to Kiryl Apanasevich, the Office Managing Partner in Belarus at Sorainen. According to him, M&A is “almost dead” in Belarus, which, despite possessing a number of opportunities for both local and international investors caused in light of exits, is still “plagued by a shortage of buyers.” The other type of “traditional work” – Banking/Finance – is also slowing down considerably due to currency devaluations and the potential currency risks posed to potential borrowers. In fact, currency is impacting the economy as a whole, according to Apanasevich, with devaluations tending to create shortages of hard currency (EUR, USD, etc.) locally, which, in turn, affects the operations of businesses. And the red tape required to purchase hard currencies via the currency stock market, available only after securing a difficult-to-obtain permit from the central bank, also does not help.

The “traditional” types of law firm work are being replaced with other streams of business, with Apanasevich pointing to compliance, regulatory, and corporate restructurings in particular.

Finally, Apanasevich described an increased consolidation of the Belarusian law firm market, which Apanasevic says is “common in turbulent times.” He pointed to the merger between Sysouev Bondar Khrapoutski and Archer Legal and said he believes others are likely to follow.

Bulgaria

“A Depressing New Law And Exiting Reform Talks”

Partners Ivan Markov and Svetlin Adrianov of Penkov, Markov & Partners  reported several notable deals in what they described as an otherwise-relatively slow market. The first is the acquisition of single control over the Bulgarian operations of Heineken (which, according to Adrianov, was until recently jointly owned with Coca-Cola Hellenic). The second is the ongoing sale of the Tokuda Bank (a medium-sized commercial bank, according to Markov) to Industrial Holding Bulgaria.

In terms of legislation that the market is buzzing over, Markov pointed to the new Bank Bankruptcy law which was adopted at the end of March. The face that the legislation was required was described as “depressing” by Markov, since it follows the bank run of last year in a country which took pride in recording no bank bankruptcies since the crisis in 1996. The second “exciting bit of legislation talks” regards proposed reforms in the judicial system. According to Markov, the proposed legislation is meant to address ongoing issues highlighted by the EU Commission, which has “been closely monitoring problems in the country’s courts and prosecution systems.” He went on to explain that there are three different packages currently under discussion, pushed by different “circles in the parliament” and he said he is excited to see which direction the talks will take. 

In terms of potentially promising industries in the short-/mid-term, the PM&P pointed towards real estate, to a lesser extent in terms of large residential assets, but primarily regarding those assets related to agriculture, which seem to have a lot of investors scouting the market. 

Czech Republic  

“The Dust Is Settling”

One of the trends going on in the Czech Republic, according to Partner Stanislav Dvorak of Dvorak, Hager & Partners, is the increasing amount of work firms are doing helping family companies with single shareholders transition to a formal corporate structure and install formal corporate governance. Dvorak attributes this to the natural aging of the first generation of businessmen who set up companies following the fall of Communism. As they start to approach retirement age and begin to think about handing the reins over to the next generation, the need for formal corporate structures becomes more acute. Dvorak believes law firms in the market are starting to realize the potential of this practice.

Otherwise, Dvorak believes, the market is fairly stable at the moment. He believes the waves of consolidation and international law firm exits that dominated the news last summer, when both Hogan Lovells and Norton Rose Fullbright pulled out of the market, are over. The market is, as a result, calmer now, and he doesn’t expect to see any more international law firms pulling out anytime soon.

Another significant trend, the DH&P Managing Partner believes, is the increasing comfort clients have with seeing tax and legal practices come together. He referred to the resurgence of the Big 4 in particular – a phenomenon described in this magazine back in February – but said the trend is noticeable below that level as well. 

Finally, Dvorak suggested, it appears that “the dust is really settling” on the no-longer-quite-so-new Czech Civil Code, and it appears that some revisions will happen – but the scope is likely to be more limited than some once imagined, and will probably be limited to those problems that turned out to be most obvious.

Hungary  

“Bitter Sweet Banking”

Banking is again in the spotlight in Hungary with the sector being marked by what Csilla Andreko, Managing Partner for Budapest at Kinstellar, describes as “two developments in opposite directions.”

On the one hand, the market was rejoicing at the potential solution to the Non-Performing Loans in the country – which Andreko described as “a systematic issue in Hungary that is freezing the lending market.” Specifically, an Asset Management Company – MARK Zrt – was set up with the goal of purchasing the top 500 NPLs at market rates in an effort to free up lending capabilities of banks in Hungary. Another positive sign was the agreement – reached together with the EBRD and involving the banking association as well – to start reducing the bank tax over the upcoming years. According to Andreko, the tax cut – expected to be as much as 50% of the current tax over the next few years – is not insignificant.

These two developments have led to a series of positive signs, including a noticeable uptake in pitches for new money investments in the country. However, the positive outlook was suddenly placed under a question mark following what Andreko called simply “the Brokerage Scandal” that shook the market. Several weeks ago, the National Bank of Hungary suspended the licenses of three brokerage companies: Buda-Cash Brokerage, Hungaria Securities, and Questor. According to the Kinstellar Managing Partner, both investors in the brokerage companies’ products and clients with deposits lost everything overnight amid claims of fraud involving manipulation of their information system, separate record keeping, and, in Questor’s case, sale of fictive bonds. This prompted the Hungarian Government to commit to covering, at least partially, the “loss of life savings and good faith investments” out of two protection funds (OBA and BEVA). The ramification for the banking sector as a whole is that, as a result of this, the yearly membership fee for the funds for the rest of the financial institutions jumped from HUF 15 billion to HUF 35 billion – an increase which, according to Andreko, will likely counter-balance the potential positive impact of the planned tax cut.

At the end of the day, most M&A work in Hungary is still public-sector driven, and Q1 showed promise that the private sector would pick up as well. The question now is which of the changes will impact the market more in the upcoming months.

Kosovo

“State Building At Its Best (?)”

Kosovo was described as a country in its infant stages of statehood and struggling with a difficult and cumbersome process of state building by Dastid Pallaska, the Managing Partner of Pallaska & Associates. This has been reflected in the past months, according to him, both in the economy overall and in the government’s failure to finalize several large deals, including the privatization of several large companies. He believes that such failures not only have a negative effect on the perception of potential investors but also raise questions about the integrity of the tender processes themselves. Indeed, Pallaska noted that there seems to be a shift by the new Government towards abandoning tender processes in favor of so-called “direct strategic discussions” – while making sure that this process is kept as transparent as possible.

Another characteristic shaping the market in Pallaska’s view is the unilateral adoption of EU legislations without them being “accompanied by the economic benefits that normally would follow.” This creates a lot of “new obligations without benefits,” though Pallaska conceded that some preferential benefits do exist for the country, and that trade, in particular, has benefited from them.

In terms of specific legislative updates impacting the market, Pallaska pointed towards the reintroduction of taxes on dividends (ironically, coming from a government that positions itself as being center-right), as well as the introduction of several benefits for companies in terms of the taxing regime (such as recognizing certain costs as tax deductible).

In terms of what is keeping lawyers busy in the market, Pallaska explained that due to the economic slowdown many deals have ended up in court, causing dispute resolution teams to grow despite the best efforts of transactional firms like his to mitigate risks for litigation. 

Lithuania

“A New Dispute Instrument.”

There are two notable legislative updates in the Lithuanian market according to Ramunas Audzevicius, Partner and Co-Head of the Dispute Resolution practice at Motieka & Audzevicius. The first is the introduction of class actions as a fresh instrument in the country, which is a welcome update, according to Audzevicius, as it “will allow those not able to finance litigations on their own to join forces and have one firm represent their interests – which would also increase the liability exposure of the defendant.” The Motieka & Audzevicius Partner stated that, despite the urgent need for the new instrument, it will take years before its impact will be truly visible in the market, as the likely types of cases to employ it take a long time to play out: “They will likely revolve around consumer rights and competition infringements. In the latter, for example, one has to wait for an investigation by the competition authority, a decision, and an appeal from the highest courts before individual claims can establish a legal basis.”

The second legislative update is related to the labor code. According to Audzevicius, a new labor law is being proposed to make the market more flexible and attractive for employers and FDIs. One way this might happen is a proposed reduction of the employment termination notice period from 6 months to 1.

Lawyers in Lithuania are quite busy on a number of fronts, Audzevicius explained. In terms of disputes, some of the most important ones – both in terms of volume and value – tend to be energy/energy security related. Two bankrupt banks (SNORAS Bank and Ukio Bank) have “also generated plenty of ongoing litigation around them, giving a lot of work to law firms.” Finally, there are several exciting infrastructure projects related to Rail Baltica which, according to Audzevicius, always tend to provide a steady stream of work “for all ranges of lawyers from general corporate lawyers, to construction, and even for litigation ones as there is always room for disputes in such big ventures.”

Romania 

“Infrastructure should be a priority!”

2015 started off with high expectations, according to Andreea Toma, Partner at Leroy si Asociatii. “Unfortunately, the public sector did not move as fast as … foreign investors expected,” she said, explaining that several large public PPP projects – the kinds of projects which are “really a driving force, both directly and indirectly,” in Romania – were put on hold at the end of the year. She added that the question of reactivating those PPPs is not necessarily a matter of attracting new investors, but one of retention, with existing foreign investors “potentially re-considering their stay in Romania if proper infrastructure for their business is not provided.” 

By contrast, Toma noted, there is “some movement on the private M&A transactions side, especially in the medical services sector, likely involving private equity firms – the usual suspects in such matters.” She also pointed to some movement in the oil & gas industry, most recently with the Carlyle Group purchasing the entire Romanian business of Sterling Resources. 

On the legislative side, Toma pointed out that a new draft fiscal code is under discussion, which is supposed to bring some material changes. This comes however in the context of overly frequent changes in the tax legislation, which has adversely impacted predictability in this sector. Another notable legislative change is related to capital markets in general and to the implementation of the AIFM Directive, in particular. 

Russia 

“Old Talks, New Twists”

The deoffsorization of the Russian economy continues to be a major subject of discussion for Russian lawyers, according to Maxim Kulkov, Managing Partner of the recently launched Freshfields spin-off boutique Kulkov Kolotilov & Partners. This is not a new topic, according to Kulkov, since it is a concept that President Putin talked about three years ago, and the Law on Deoffsorization came into force on January 1, 2015, but the draft Amnesty Law – which in “return for returning Russian capital from off-shores will not penalize potential associated tax offenses” – was recently published and is expected to be passed soon.

Another discussion taking place in the country at the moment follows last year’s merger of the Supreme Commercial Court, which handled commercial matters (between commercial entities), and the Supreme Court, which handled “general jurisdiction” matters (either between individuals or between individuals and commercial entities). Ongoing talks revolve around generating a common procedural code for both types of matters (though merging the lower levels of the two courts is not yet being considered). This, according to Kulkov, has businesses concerned, as, while the courts currently responsible for commercial matters tend to be business-oriented (such as factoring equity ownership), the “general jurisdiction” courts tend to factor in more individual-focused aspects, which often favor the weaker party. At the moment, this is in a “concept stage,” with a bill draft expected by autumn.

Ukraine

“High Time To Buy in Ukraine”

According to Maksym Lavrynovych, Managing Partner at Lavrynovych & Partners, it is now the “high time to buy” in Ukraine when it comes to real estate assets. According to him, investors have come to the realization that prices have hit their lowest possible point – with some assets being valued at even 5 times lower the price of 5-7 years ago. As a result, Lavrynovych reported, there is strong and growing interest from investors in Austria, Germany, Poland, the US and “ironically, from Russia.” This trend was also facilitated, according to Lavrynovych, by business magnate George Soros’ recent statement that “Ukraine presents the best interest for his billion-dollar investment this year.”

Another positive trend in the country that Lavrynovych pointed to was the digitalization of several otherwise bureaucratic processes such as business registrations, accessing land registers, etc. These things are increasingly being made available to business people “without having to have direct interactions with public representatives.” At the same time, several powers are being transferred away from the public sector to notaries, which, Lavrynovych claims, “tend to be more business oriented and business friendly.” 

In terms of what is keeping law firms busy, the Lavrynovych & Partners Managing Partner noted that a notable uptake in demand from the banking industry has been registered in recent months, both because of legislative changes and because of an increase in the number of restructurings and loans in the market. 

Thank you!

We thank the following for sharing their opinions and analysis on the news:

• Stanislav Dvorak, Partner, Dvorak Hager & Partners
• Eris Hoxha, Partner, Hoxha, Memi & Hoxha
• Csilla Andreko, Managing Partner, Kinstellar Budapest
• Maxim Kulkov, Managing Partner, Kulkov Kolotilov & Partners
• Maksym Lavrynovych, Managing Partner, Lavrynovych & Partners 
• Andreea Toma, Partner, Leroy si Asociatii
• Ramunas Audzevicius, Partner, Motieka & Audzevicius
• Dastid Pallaska, Managing Partner, Pallaska & Associates
• Ivan Markov and Svetlin Adrianov, Partners Penkov, Markov & Partners
• Kiryl Apanasevich, Office Managing Partner, Sorainen Belarus

This Article was originally published in Issue 2.2. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Our June issue, which focuses on the Baltic States and includes an Experts Review section dedicated to Life Sciences, is now out! With the publication of this Issue 2.3, the April one becomes available to non-subscribers as well.

The main titles in Issue 2.3. are:

• Prominent International Disputes Lawyer Joins US IDR Team Of Squire Patton Boggs
• Breaking Patterns: Interview with Ion Dragne, Newly Elected Dean of The Bucharest Bar
• Czeching the Legal Market: Leading Czech Lawyers Discuss Client Service, Strategy, and Changes
• The Ace In The Hole: Ronald Given is Wolf Theiss’s Secret Weapon
• Guest Editorial by Aku Sorainen: A Quarter Century of Baltic Legal Market
• CEE Writ Small & Reshuffling the Deck as part of our Market Spotlight section
• Market Snapshots covering competition, life sciences, data privacy, energy, and tax in the Baltics
• Inside Insight Interviews with Jurate Kuzborska-Girce (Head of Legal – Baltic States at Phillip Morris), Priit Lepasepp (General Counsel at Nelja Energia), and Ilze Slakota (General Counsel at UralChem, Latvia)
• “Expat on the Market” interview with Matthias Strohmayer of Varul in Latvia
• CEE “Experts Review” analyses on Life Sciences across CEE jurisdictions

Subscribers can access all these and more in the electronic version here. If you are not yet registered to access the CEE Legal Matters magazine, you can sign up here.

As our readers know, this also means that our previous issue is now available. 

The April (2.2) Issue Contains: 

• A Guest Editorial by Denise Hamer, new Partner at DLA Piper International: “Go East, Young Woman!”
• The Summary of Deals and Moves for February-April 2015
• A review of the convoluted and controversial Hypo Group Alpe-Adria Bank crisis
• A report on the move by White & Case’s Budapest office to Dentons, and White & Case’s subsequent withdrawal from Hungary;
• A review of Privatizations across South Eastern Europe
• “Market Snapshots” containing an overview of various practice areas in Russia and Ukraine
• A Round Table conversation with Senior and Managing Partners at the leading firms in Kyiv about the challenges they’re facing
• A report on how partners at firms with offices in both Ukraine and Russia manage the potential for distraction during a time of conflict
• An interview with leading legal recruiters in Russia to understand how the current financial crisis in that country is affecting lateral moves in that country
• A humorous review of surreal and silly disputes in Russia over the past year
• Guest Market Spotlight Editorials by the Olga Binda, Counselor to the President of Federal Chamber of Advocates of the Russian Federation, and Olga Usenko, the Chief Editor and Head of Research Programs at the Ukrainian Journal of Business Law
• The Buzz — a review of the issues and subjects dominating conversation among lawyers across CEE
• “Inside Insight” interviews with senior in-house counsel from Carlsberg Ukraine, Henkel, ING Bank, Food City, Virgin Connect, and the Co-Chairman of the Compliance Club under the American Chamber of Commerce in Ukraine
• “Expat on the Market” interviews with Peter Teluk in Kyiv and Matthew Keats in Moscow
• CEE “Experts Review” analyses of White Collar Crime across all CEE jurisdictions

The full electronic version of the April Issue can be found here and the pdf version can be downloaded from here.

 

Dentons has advised Israeli developer Morgal Investments on the successful completion of the first stage of the sale of part of the land intended for the implementation of the Planetograd project.

The Planetograd project involves the construction of approximately 1.5 million square meters of low-rise residential housing, as well as multiple forms of transportation, utility, social, and commercial infrastructure, all on a 240 hectare area on Pulkovskoe Shosse, not far from the Pulkovo Observatory, near St. Petersburg. The cooperation agreement for the project was signed by Morgal Investments and the Governor of St. Petersburg during the 2014 St. Petersburg International Economic Forum.

The buyer and developer of the residential areas of the Planetograd project is the SOZIDANIE Agency for Land Development – a subsidiary of the major Russian developer Setl City. The developer has estimated completion of the project in 14 years. The transaction is valued at approximately USD 500 million.

“The Planetograd project is one of the most strategically important low-rise residential construction projects in our city today and is being personally overseen by the Governor of St. Petersburg,” stated Karina Chichkanova, who Heads Dentons’ St. Petersburg Real Estate practice, and who is leading Morgal Investments’ legal team for the project. “We’re delighted that we have the opportunity to represent Morgal Investments in the structuring of and preparation for such a complex and multi-phase transaction. In the first stage alone we signed more than 30 different agreements and related documents.”

Chichkanova’s team included Associates Arina Dovzhenko, Tair Suleymanov, and Svetlana Shlyunko.

Vasil Kisil & Partners has successfully represented the interests of Budynok Pobutu Obolon PrJSC (BPO), a subsidiary of Dragon Ukrainian Properties & Development, in a dispute with the State Emergency Service of Ukraine regarding termination of the construction of a residential and office complex in the Obolonskyi District of Kyiv.

Dragon-Ukrainian Properties & Development plc (DUPD) is a real estate investment company incorporated in the United Kingdom. DUPD’s shares have been listed on the London Stock Exchange since June 2007. DUPD was established by Dragon Capital to invest in the real estate market in Ukraine.

The local administrative court dismissed the claim of the State Emergency Service of Ukraine in its entirety. The court found that there were no statutory grounds for termination of BPO’s construction, as all violations of the fire safety regulations that had been identified in an inspection has been rectified before the hearing date.

VKP’s team was supervised by Partner Oleg Alyoshin, and included Counsellor Oleg Kachmar and Leading Associate Yuriy Kolos.

Consistent with its mission to inform and serve in-house counsel across the region, CEE Legal Matters has initiated the 2015 version of its highly regarded CEE Corporate Counsel Best Practices survey, once again inviting over 3000 General Counsel and Heads of Legal across Central and Eastern Europe to fill out a short online questionnaire about best practices, key strategies, and personal preferences.

Some 698 senior in-house counsel participated in last year’s survey, and their responses resulted in the widely-read CEE Corporate Counsel Best Practices Handbook. David Stuckey, the Executive Editor of CEE Legal Matters, expects this year’s report to be even more popular. “As we’ve grown, our network has grown,” he said, “and we’re now in close contact with even more lawyers, both in-house and in private practice, than we were at this point last year. In addition, those who participated in last year’s survey found the results extremely useful. As word spreads, I have no doubt that this year’s report will be even better.”

Participants who complete the survey will, as last year, receive a free hard copy of the report itself — and a 25% discount on tickets to the September 10-11 General Counsel Summit in Budapest: An unprecedented event, designed exclusively for General Counsel and Heads of Legal, who alone will be able to register to attend. Guest speakers announced so far include Pal Kara, the Vice President and Group General Counsel at MOL, Judith Gliniecki, the General Counsel at CEE Equity Partners, Andras Mohasci, the Commercial Compliance Counsel (Global) at British American Tobacco, Gergo Budai, the General Counsel and Deputy CEO at Invitel, and many others. In addition, Marie-Anne Birken, the General Counsel at the EBRD, will give the keynote presentation covering how General Counsels can be agents of law reforms. 

The survey is available here and we welcome input from all General Counsel and Heads of Legal and/or Compliance.

Information can be found at the event microsite, here.

Radu Cotarcea, the Managing Editor of CEE Legal Matters, which is organizing the GC Summit, believes the event — the first of what is expected to be an annual event in CEE — fills an obvious gap. “For years now we’ve had in-house counsel complain to us that they have limited opportunities for networking, idea exchange, and simple communication about how best to manage their time and address the many challenges they face each day,” Cotarcea says. “It became clear to us that a dedicated event, created specifically for them and with their needs in mind, would be extremely useful.” It may be more than that. “We also,” Cotarcea says with a smile, “frankly, think it will be fun.”

Gide Loyrette Nouel is a partner of both the survey and summit with more to be announced soon — we thank them for their support!

Paksoy has advised funds advised by Triton on the sale of Compo’s Expert division — one of the leading suppliers of specialty fertilizer products for professional applications — to Goat Bidco (a subsidiary of the XIO Group). Compo was advised by Linklaters as international counsel, and Goat Bidco was advised by the Yarsuvat Law Firm.

Triton retains ownership of Compo’s consumer business unit, which Paksoy describes as “the European market leader in high-quality home and garden products.”

Paksoy’s team was led by Partner Togan Turan, who was assisted by Associate Zeynep Sehoglu.