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Serhiy Chorny, partner at the Kyiv offices of Baker & McKenzie A year ago, Ukrainian lawyers were turning down work. Now, some are eager for clients

The pinch of economic recession is being felt by all Ukrainian citizens and businesses. The country’s law firms are no exception.

Their business blossomed in recent years, as business activity picked up, buoyed by a decade of economic growth. Top international law firms flocked to Ukraine, eager to grab a piece of its mushrooming legal services business. Clients were abundant. Some firms in recent years turned down work, opting for the lucrative jobs. Lawyers were flooded with investment-related jobs, such as initial public offerings and acquisitions.

That was then and this is now.

In recession-battered Ukraine, the legal services business is down, by some 30 percent, according to one firm. Firms have cut their staff by 15 to 30 percent or more, and they are no longer turning down work. And the focus is no longer on investment, but on bankruptcies, insolvencies, sales of distressed assets and debt restructuring.

Serhiy Chorny, a partner at the Kyiv offices of Baker & McKenzie, put it bluntly: “It’s not like in previous years, when a lawyer would tell a potential client: ‘Well I am happy to help, but I am busy and this will cost you such an amount.’ This year, lawyers are willing to talk to a client, offering their vision of how to resolve their problems, without even thinking about being paid for it. The aim is just to get the client’s interest or keep a client within a law firm.”

The recession has brought new challenges for lawyers and their clients.

“The debt restructuring, insolvency and bankruptcy practices almost didn’t exist last year,” Chorny said.

Economic recession, abrupt currency fluctuations, rising piles of debt and relentless political turmoil has shaken up Ukrainian businesses across the board. With credit markets frozen, many businesses are struggling to avoid default. Some are trying to restructure debt. With finances stretched, others have no choice but to face bankruptcy, or be sold off as a distressed asset.

Eager for work, law firms are scrambling to adapt. In some cases, lawyers need to be retrained or new ones brought in. The success of law firms, like in many competitive industries, depends on how fast they can adjust.

“The key function of restructuring is to avoid default and alter the terms of debt agreements in a way which will allow the company to stay operational and service its obligations properly,” explained Volodymyr Sayenko, a partner with Kyiv’s Sayenko Kharenko law firm. “This is often a complex exercise, particularly in situations when the client’s debt combines different types of financial and capital market instruments, including syndicated loans from foreign lenders, loans from Ukrainian banks, eurobonds and domestic bonds.”

Real restructuring work has actually started only two months ago, said Baker & McKenzie’s Chorny. He expects the largest amount of the work to come this autumn and winter. Baker & McKenzie is involved in up to 10 debt restructuring projects, mostly in banking and finance sphere, and metallurgy industry.

Sayenko said his firm is currently advising on debt restructuring deal for clients in food processing, telecommunications and insurance. The firm is involved in the restructuring of a $465 million loan given to Ukraine’s state road administration by Morgan Stanley, and the eurobonds of Interpipe, the leading pipe manufacturing group owned by billionaire Victor Pinchuk.

In contrast to investment deals, there is nothing to boast about when your business finds its finances stretched. So the legal work provided by firms in such situations is typically discrete, unless a business is publicly listed and, thereby, forced to reveal its situation to investors.

The Kyiv office of international law group Salans is advising on the restructuring of debts at one of Ukraine’s largest and most-troubled banks, Nadra.

Oleg Batyuk, managing partner at Salans, estimated that the turnover of Ukraine’s commercial legal market involving international transactions was up to 100 million euros last year, including domestic and international firms.

Fees vary and everyone expects the rates and business overall to be down this year. Firms have cut staff. Long gone are the overwhelming hours worked by lawyers in previous years. Now they have more time and rest to dedicate, when they land a client.

“Most law firms have reported [layoffs] of 10-15 percent on average. Ukrainian offices of international law firms cut out more than 20 percent of their staff,” Sayenko said. Salans’ Batyuk said some firms cut up to 40 percent of staff and the salaries paid to remaining employees.

Baker & McKenzie’s Chorny said lawyers are this year “happy to propose” a 15-20 percent discount on the $270 per hour fees charged last year, especially for big projects. Often, they will work on a project basis, not charging per hour. Sayenko estimated that average legal fees are currently around 100 euros per hour if associates handle the work, rising up to 300 euros if partners are hired.