24.10.08

Legal experts interviewed by Interfax have said that the crisis will have an impact on their activities and that this impact will not be necessarily negative. Some companies are even expanding or merging so as to consolidate their positions in expectation of a growing number of clients.

True, some lawyers say that the Russian legal service market will somewhat shrink but that will not dent legal firms that use a flexible approach in their diversified practice. When the crisis is over, the market will grow together with the Russian economy, they say.

All legal experts interviewed by Interfax agreed that Russia was and would remain a promising legal service market. Most of them spoke of noticeable improvement in the operation of Russian arbitration courts.

Post-crisis legal processes to mount by the New Year

During crises the number of court cases usually grows whereas the corporate practice somewhat abates. Representatives of international legal firms such as Salans, Herbert Smith, CMS Cameron McKenna LLP, Chadbourne & Parke LLP, Hogan & Hartson LLP, DLA Piper, Orrick, Herrington & Sutcliffe LLP share this view.

"We expect a wave of debt restructuring, bankruptcy cases, and active work in courts to start early next year. This was what happened in three to four months after the August 1998 crisis even though these two crises cannot be compared," said Salans' Alexander Skoblo.

"Court cases may be over bankruptcies, defaults and non-payments. We remember this in the deeper 1998 crisis. For this reason we may presume that Herbert Smith will have a usual amount of court practice," said Dmitry Kurochkin, a partner at Herbert Smith.

"We predict an increase of bankruptcy cases, deals in sale of assets, and labor disputes in a period of large-scale redundancies. When times are hard, some buy up assets, so a new re-division of property in Russia is also possible," Leonid Zubarev, a partner in the international legal company CMS Cameron McKenna LLP, believes.

"We represented the Yukos receiver in a New York bankruptcy court, were involved in a Netherlands court case over the of billions worth of the company's overseas assets and also represented the client at a tribunal, but none of this can compare with the number of bankruptcy cases that we handled in courts from 1998 to early 2000," said Mikhail Rozenberg, a partner of the Chadbourne & Parke LLP. "This is why we expect a boom of non-payment and bankruptcy cases and labor disputes that are bound to arise in any financial crisis," he said.

"Company liquidation cases are not necessarily traceable to a crisis. For instance, we won an arbitration court case recently where we defended a geological exploration company in Russia. Local tax bodies filed a suit that could end in the liquidation of the company. Generally a crisis for attorneys hired to represent companies in courts is not the hardest period, unlike some in-house lawyers, who may have their work significantly reduced," Rozenberg said.

"We cannot rule out the possibility that directors of bankrupt companies will face numerous questions from shareholders, company employees and partners," Leonid Zubarev of the CMS Cameron McKenna LLP international legal firm has said. "After some time issues of directors' responsibility and insurance of that responsibility may come to the fore," he said. "After 1998 we were involved in restructuring debts of Russian banks. We will have to attend to these matters after the current crisis," Zubarev said.

M&A and real estate deals to slow down

"In the context of this financial crisis, nobody should expect a boom in mergers and acquisitions that we witnessed in preceding years, but I still believe that this will remain a major field of our activity in Russia," Peter Pettibon, a managing partner in the Moscow office of the Hogan & Hartson LLP international legal company, said.

In addition to M&A, deals in real estate have also slowed down. Legal experts expect to be engaged chiefly in bankruptcy and debt restructuring cases within two or three months unless the market situation normalizes shortly.

"According to our forecasts, the real estate transactions situation will remain uncertain for a year - the market is uncertain, may collapse, banks do not grant credits and developers are strapped for cash to finance new projects, Alexander Skoblo, a partner in Salans, has said.

"We can see thus far that despite the financial crisis, foreign companies interested in the Russian market are not winding up their investment projects, which is why we have been busy in recent months," said Carol Patterson, a managing partner of the Baker & McKenzie Moscow office.

"We expect a wave of M&A deals by powerful companies in swallowing those who cannot survive the crisis and are prepared to attend to legal issues in these deals. This company is very experienced in consulting foreign and Russian companies on bankruptcy procedures, representing creditors in a bankruptcy procedure, consulting on looking for the debtor's assets and debt collection aside from bankruptcy procedures in Russia. We have reasons to believe that a dire need in our services in this field will arise very shortly," she said.

Chadbourne & Parke LLP partner Shane DeBeer also believes that the outlook for foreign legal companies in Russia during and after the current financial crisis will be approximately a replay of the 1998 situation. "Certain companies such as Chadbourne & Parke LLP provide a significant range of services and will stay in the market by providing services such as restructuring and assets changing hands. This will make it possible for us to offset a shrinkage of business in other fields such as legal support of deals in stock markets," he said.

Foreign law firms to survive upheaval and stay in Russia

The legal experts all thought the financial crisis would not make their companies quit the Russian market and that any crisis added to their work load.

The Hogan & Hartson law firm has been appointed legal consultant to Gazprom (RTS: GAZP) on the planned Southern Stream gas pipeline construction. The company will head a consortium of leading European law firms in charge of consulting on legal aspects such as corporate law, legislative regulations, financing, construction, European law and anti-monopoly legislation in countries that the pipeline is expected to cross.

Hogan & Hartman has also acquired another important client, the Rosnano state nanotechnology corporation, to which an impressive amount of 130 billion rubles has been allocated. The company's legal experts will provide legal protection for the funding of nano-technology projects.

Herbert Smith also feels assured Russia, despite the crisis. This year has been very fruitful for its Moscow court practice, the company's partner Dmitry Kurochkin, said. "We have been representing TNK (RTS: TNKO)-BP and Robert Dudley since April 2008. Work for these clients has taken up most of our time and also that of our colleagues in the Herbert Smith corporate, taxation and financial practices. There have been over fifty court cases and some of them are still in progress," he said.

"We have no intention of leaving the Russian market, said Leonid Zubarev of CMS Cameron McKenna LLP says. "What is more we will expand or consolidate our presence in the Russian market by merging the Russian practices of three international law firms, CMS Cameron McKenna, CMS Bureau Francis Lefebvre and CMS Hasche Sigle. The integration of our practices is underway in Russia. The setting up of a joint practice with nearly 150 legal experts is expected to be brought to completion by early 2009," he said.

"It will be possible to work in Russia even after the crisis. Clients are staying in the market and new foreign companies are coming in. For instance, at the moment we are involved in clearing the acquisition by Dutch Eureko B.V., one of the largest European insurers, of Russia's Oranta insurance company with anti-monopoly bodies. We plan to close the deal late in November," the CMS Cameron McKenna partner said.

Salans' Alexander Skoblo has said that the company would continue representing the interests of Coca Cola, Halliburton, Russia's Siberian Coal and Energy Company (SUEK) and management of the SIBUR company in Russia and other countries where Salans has offices. "Also in 2008 we held negotiations on behalf of the Toyota and Hyundai car companies with the St. Petersburg government on construction of factories on the private-public partnership basis," he said.

Chadbourne & Parke LLP partner Shane DeBeer, who shares his time between London and Moscow, welcomes the development of business in Russia and successes scored by his Russian colleagues and closely follows those successes. His colleague Mikhail Rozenberg said that the company will continue working in Russia in other fields as well as the flourishing court proceedings. "We have for years been consulting the Gazprom gas monopoly and its subsidiary on structuring and financing the gigantic Shtokman gas project." "In the practice of mergers and acquisitions we represent the Daimler AG company that plans to purchase a package of the Russian Kamaz (RTS: KMAZ) truck plant. Not long ago we represented PepsiCo and Pepsi Bottling Group in their purchase of 75.53% of shares in OJSC Lebedyansky (RTS: LEKZ), which accounts for about one third of the Russian juice market. The deal was worth $1.4 billion," he said.

Russia to step up litigation activities

The financial crisis is bound to increase work for legal experts because failure to follow up on commitments leads to a significant increase of court cases. "As a consequence, we have to hire an increasing number of people who will specialize in such disputes. Generally, the world practice suggests that consulting activities tend to shrink whereas the litigation practice increases. Russia is inclined to follow the world's trend," said Oleg Skvortsov of DLA Piper, where he heads a division in charge of litigation.

In general, legal counsels of international companies believe that the world financial crisis will not dent their profession. The crisis will be less hard on Russia even though post-crisis court cases will catch up on certain Russian companies, and working in Russia may even be more interesting for them. Russian giants will survive and may absorb small companies; expensive international law firms will have a lot of work in any event, and maybe even more than in steadier times with the post-crisis lawsuits.

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Source: Interfax