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The presence of such a formidable word as «crisis» in practically all spheres of our lives has shown us an unknown side of delaying pending regulatory changes in the country. Thus, the legal market too appeared not to remain on the sidelines of a turbulent period of flux.

Following an old tradition of covering the latest trends on the Ukrainian legal market as well as observing the new horizons of legal services, it gives the research team great pleasure to represent the eighth edition of our guide: Ukrainian Law Firms 2010. A Handbook for Foreign Clients.

The general aim of the Handbook remained the same: to serve as an informational platform for market participants on legal background doing business in Ukraine, as well as to report on activity over the past year.

With the purpose of creating a link between business professionals and legal sharks, we have produced the same guide since 2002. Looking back at our first edition it is striking how much has changed in a relatively short period of time. Since the first publication either the number of firms or their services has grown significantly.

Whilst preparing this publication we paid special attention to investigating the market by carrying out a poll. The market research included handling questionnaires as well as personal meetings, telephone calls, additional requests, use of different print and on-line media, various public sources, etc. Continuing to monitor the main business trends in the country, we have included the tables on transactions in the publication. The aim of these tables is to monitor the scope of deals of the previous year. We strived to find and clarify data and would like to emphasize that the tables are informative sources and not an attempt to rank legal practices.

The Handbook presents material in alphabetical order and is structured in accordance with the branches of law practice to make your reading more convenient.

We measure our achievement by one simple standard: your success!

A Year in Limbo

In 2009 foreign investment in Ukraine was sluggish due to the global financial crisis, which badly affected the country and brought about a worldwide drop in FDI inflows and cross-border M&As. Lower prices and depreciation of the hryvnia did not compensate for the deep liquidity crisis and increased country risks. The constant political deadlock contributed to the market’s stagnation.

The On Joint-Stock Companies Act of Ukraine finally came into force in 2009. It introduced new rules aimed at creating a transparent stock market. The law addresses the most important issues of corporate governance, introduces consistent rules for mergers and acquisitions and safeguards the interests of minority shareholders against abuses by the majority. Unfortunately, due to the lack of clear procedures on transition, joint-stock companies seeking to comply with the new requirements now face unpredictable costs and significant regulatory risks. Moreover, the new law appears to conflict with the previous corporate legislation, the issue of which is yet to be clarified.

The latter part of 2009 was significant for amendments to foreign investment laws, which changed the established practices and introduced a requirement of investment accounts, currency conversion and mandatory registration for monetary foreign investment in Ukraine. However, a lack of clear procedural rules for inward investment and repatriation of profits means that the new regulatory measures are hard to understand and even harder to implement.

All in all, foreign investors look forward to the coming year in expectation of signs of recovery in the market and an improvement in regulations.

Felix Rackwitz and Daniyil Fedorchuk,
Beiten Burkhardt

Time of Opportunity

The current economic slowdown became a period of opportunities for Ukrainian lawyers. Thus, the market has witnessed the establishment of new local practices.

In January 2009, Wolf Theiss, an Austrian law firm with strong positions in Central and Eastern Europe, officially unveiled its office in Kiev. The head of the Ukrainian brunch is Gennady Khareyn, who previously managed the Moscow and St. Petersburg office of the American law firm McDermott Will & Emery and ran his own legal practice.

Established in May 2009, D&D Lawyers is a law firm of Ukrainian origin and is headed by Viktor Dovhan, who previously worked for the Kiev office of Chadbourne & Parke. The firm’s core practice areas include corporate and commercial, investment and taxation, project finance, real estate and development, energy and natural resources, international trade and WTO agreements, litigation and international arbitration. One of the unique services provided include green investment projects and the structure sale of greenhouse gas emissions in accordance with the Kyoto Protocol.

Irina Nazarova and Andriy Vyshnevsky, previously equity partners with Asters and heads of its dispute resolution and corporate practice groups, respectively, established the ENGARDE law firm in May 2009. The team currently consists of 15 lawyers and has huge potential to grow in the near future.

Avellum Partners was established in July 2009 as a boutique law firm specializing in mergers and acquisitions, capital markets and restructuring. The company was founded by Mykola Stetsenko, who was a partner at the Kiev office of international law firm Baker & McKenzie, and Kostiantyn Likarchuk, who previously headed Melnychenko & Likarchuk attorneys at law.

The end of the year was marked with two more establishments: Baibarza Fedichin and Werner & Partners.

Volodymyr Baibarza was a partner of real estate and construction practice in Magisters and left the firm in March 2009 for personal reasons. Valery Fedichin was a partner in the Kiev office of Magisters since 2008 and later joined the M&A and corporate practice of its Moscow office.

Werner & Partners is a Ukrainian-German law firm founded by the German attorney at law Thomas Werner and its Ukrainian colleagues, previously employed with Arzinger — Olena Tkachenko, Volodymyr Tereshchenko, Igor Darmogray.

The «movement» of international law heavyweights towards Ukraine is likely to have been slowed down. Some of the firms which were expected to come postponed the opening of Ukrainian brunches and limited their presence through «Ukrainian desks» instead of offices.

According to the annual publication “Law Firms of Ukraine. Annual Market Research” the market experienced the following dominating trends in the first half of 2009:

  • Recession of business activity on the legal market, lower market profitability;
  • Restructuring within law firms;
  • Fewer transactions and larger volumes of consulting;
  • Changing content of work within practices;
  • New practices on the Ukrainian legal market;
  • Lawyers changing qualification;
  • Lower payrolls of lawyers;
  • Reduction in legal personnel;
  • Diminishing of “salary appetites” of hired lawyers — reformatting of legal market from a market of hired lawyers to a market of employers;
  • Less competition between law firms for legal staff;
  • “Purging” in legal companies of “weak links”;
  • Change in pricing policy for clients and forms of payment;
  • Probability of lawsuits against clients;
  • Changes in the structure and workload of legal practices;
  • Establishment of new firms due to dismissal of employees;
  • Development of conditions for development of a medium segment of law firms;
  • Strengthening of competition in conditions of a falling market after large Western firms come to the Ukrainian legal market;
  • Fall in price of premises of law offices.

Law Firms Management

The past year appeared to be notable for re-branding and restructuring in the market.

Arzinger & Partners law firm left the network and turned into independent local law firm Arzinger. The new brand reflects the new goals and new opportunities for clients based on Arzinger’s new business strategy. Apart from the change of status to an independent local firm, expansion into new markets and practice areas, it joined international associations of independent law firms.

In October the widely known Kharkov-based Inyurpolis law firm changed its name to ILF (it practical terms, it is an abbreviation of the old name). The primary aim of rebranding is to adjust the company’s name with its new development strategy, namely, strengthening its positions in the international sphere.

Another market player, INTEGRITES, presented its new corporate style in accordance with «the firm’s current status as well as its future goals and tasks».

Moreover, the past year is considered to have been exceptionally busy for the business development and marketing departments of the law firms. New approaches towards the positioning of practices as well as a rise in media activity were observed.

Migrations and Appointments

Asters increased the strength of its real estate and natural resources practices by promoting the firm’s senior associate Roman Kostenko to partner with effect from January 2009.

The Kiev office of Baker & McKenzie announced appointments of Antonina Yaholnyk, head of competition practice group, and Ruslan Drobyazko, who manages intellectual property practice, as partners.

Sayenko Kharenko retained its team and additionally hired Svitlana Kheda as counsel in February 2009. The experience of Ms. Kheda includes practicing law with the Kiev office of a Western law firm for over seven years and running the Programs Department of the International Law Institute (Washington, DC, USA). The firm’s counsel Nazar Chernyavsky was promoted to partner, and the firm’s senior lawyer, Dmytriy Taranyk, was promoted to the rank of counsel.

Two lawyers from Magisters joined AstapovLawyers in the past year. Oleh Malskyy joined the firm’s Kiev office as a partner to head its M&A, corporate and antitrust practice. Oleh Beketov, senior associate, has become head of the international litigation department.

Ernst & Young, a member of the «big four», has a new partner of tax and legal department. Olga Gorbanovskaya, who manages human capital practice, concentrates on personnel management services.

Oleksandr Khomenko, a partner of Vasil Kisil & Partners, decided to leave the firm and concentrate his practice on arbitration management regarding bankruptcy and insolvency matters.

In December INTEGRITES admitted the new partner of its banking and finance Oleksandr Aleksyeyenko previously employed as a partner in Volkov Koziakov & Partners attorneys at law. The partner will concentrate on the banking sector, international finance, as well as corporate, labor, antitrust.

In 2009 Arzinger’s team was strengthened by Pavlo Khodakovsky and counsel Oleksiy Yasinsky.

Practices: Watershed Experience

Following the downturn in the economy the legal market kept an impact in banking and finance, capital markets, mergers and acquisitions, real estate and construction. In the past year the market experienced a significant depression of inter-jurisdictional transactional legal services, in particular, those which were traditionally served as a source of work and incomes for big domestic law firms.

This entailed low demand on appropriate services in those areas. At the same time, there is increasing interest in debt restructuring, corporate law (including related to the adoption of the new Joint-Stock Companies Act), bankruptcy and insolvency procedures, liquidation of enterprises, disposition of secondary or loss-incurring assets, labor and employment issues, litigation, competition, taxation advice.

The relatively low activity on international capital markets turned into deals involving sophisticated restructuring of capital market instruments (see Table 1).

Table 2 explicitly shows a reduction in lending transactions and reorientation to loan restructuring. The European Bank for Reconstruction and Development was probably the most active lender of Ukrainian banking institutions. As for state measures to revive Ukrainian banks by means of stimulating a rise in capitalization and improving their liquidity as well as recapitalizing several «problem» banks, there is a long «to do» list for recovering their credibility.

Reaching Maturity

The market is still approaching maturity (a statement that implies no slight to the individual capabilities of the players on it). Maturity is a function of sophistication, fairness, complexity, magnitude, the number of transactions, the depth with which legal practices have taken root and the extent to which traditions have been tested and proven by time.

Signs of immaturity:

  • dominance of general practice law firms;
  • no sizeable representation of major international law firms;
  • an unstratified market;
  • immature competition.

Maturity always comes sooner or later. In the meantime, however, corruption, red tape and the regrettable willingness of businesses to adapt to whatever unhealthy environment might exist sometimes make proper legal services superfluous and irrelevant. Or rather, there is demand for other types of legal support.

The Ukrainian environment is one in which obeying the rules (intricate and unfair though they may be) is much less attractive than circumventing them. Even the threat of punishment does not help. This is holding back the market’s maturing.

Volodymyr Kotenko, Ernst & Young

At first glance, the number of M&A appeared to fell dramatically. The majority of deals were made in the retail, media and agricultural sectors, Ukrainian heavy industry (see Table 3). Compared to previous years noted for a boost in M&A activity in the banking sector, 2009 was a slack period. While analyzing the changes in terms of these transactions, the acquisitions of attractively priced distressed Ukrainian assets has already been taking place. The point is that this sphere became less transparent and currently restricts any publicity for strategic business reasons.

Multi-jurisdictional mergers and acquisitions brought a substantial piece of work for antitrust practitioners (see Table 4).

Real estate and construction has always been a less public sphere, and the past year was no exception (see Table 5).

The shortage of real estate finance transactions has obvious consequences as such.

The past year was rich in exposure to potential tax and customs claims. Lawyers stressed that the ambiguity within the Ukrainian tax legislation leaves scope for different interpretations which currently, and for various reasons, have become more and more aggressively pursued by the tax authorities. This entailed strengthening the service of tax litigation support intended to provide support in disputes involving tax and customs authorities, including representation of clients in courts.

Some market observers noted the significant workload in investment issues. However, that was not the traditional legal assistance of foreign business expansion and making investment in Ukraine, but the prescribed procedures for taking funds out, restructuring and conservation of businesses, etc.

The ways in which privatization in Ukraine is conducted was among the main demotivating factors for foreign investors and the case of the Odessa Port Plant is not the first notable example. Nevertheless, there are expectations that the EURO-2012 football tournament will boost private and government investment, mainly in infrastructure and commercial real estate.

One of the dominant trends on the market is an increasingly selective approach to legal counsels. As market insiders note, at a time of economic downturn clients became even more selective to instructing legal counsels. To compete effectively compete in the niche of top law firms, market players need to demonstrate additional competitive advantages in unison with the seamless quality of service, outstanding expertise and market leading professional reputation.

No wonder that the scope of outsourcing to external legal advisors experienced a significant reduction. For example, in terms of cost reduction, large-scale businesses of various industries decided in favor of strengthening in-house departments rather than attracting law firms.

The most common opinion of market insiders is that the revival of the economy and, consequently, classic practice areas mentioned above, should be started in the banking sector.

This is the driving force to re-launch investment projects in real estate, construction, acquisitions, both cross-border and domestic lending and capital markets transactions.

Some market observers pointed to the establishing to the new practice of criminal law, which was not very typical for law firms in the previous years of economic growth.

On competition with international players

I am convinced that the Ukrainian law industry has weathered the storm caused by increased competition from international players. I put this down to the ability of the industry to respond to the challenges posed by an increasingly complex international legal framework. The durability is largely a product of the way in which the domestic market operates. The arrival of international law firms in Ukraine over the past few years was widely expected to signal the collapse of the domestic market. However, this has not happened. The truth is they simply came too late, appearing at a time when we could already offer services of the highest quality to major international clients.

The Ukrainian market had already been consolidated by a new generation of legal companies some years ago which were staffed by a new generation of lawyers who graduated from foreign universities and gained experience with foreign law firms. Their arrival on the Ukrainian market created competition for the traditionally dominant companies and we welcomed their arrival as it served to wake up the market. They have made the old law firms which were established in the last years of the Soviet Union take a fresh look at the market by encouraging them to reorganize, reform their partnerships and reconsider everything from their approach to clients right down to staffing policy. Now when analyzing the arrival of international companies, we can say that it also serves to develop the market.

I said this a while ago and the expression caught on: we are living in a time that symbolizes the end of the glamour of law firms. While before the crisis external attributes such as a famous brand name meant a lot and, for example, to get a loan from a bank a client needed to bring a legal opinion only via a particular “extraordinary” law firm, the situation is now quite different. The time when law firms occupied a market position mainly due to generous advertising or political alliances is a thing of the past. Clients became smart enough and picky enough to choose intellect, experience, knowledge and the result. It can also be said that there is demand today for innovation and real legal support. I am convinced that this is a general trend of our time.

Oleg Makarov, Vasil Kisil & Partners