Czech firms continue to challenge international players and last year Schoenherr entered the country by taking over the Prague office of German firm Gleiss Lutz. Following that, Bird & Bird also opened an office in the Czech capital as part of a wider expansion strategy.
With most practice areas still performing well, lawyers are confident that 2009-10 will be busy. Expect plenty of movement among this densely populated legal market in the coming 12 months.
Restructuring and insolvency
Kamil Blažek, partner, Kinstellar
The legal market here is not having the best time at the moment. This is not news, but there are areas that are growing and restructuring and insolvency are two of them.
The majority of legal work currently comes from banks and other financial institutions, as most borrowers have not realised the need for high-quality legal advice. It is expected that the real increase in restructuring and insolvency work will be seen in the next eight months. Most financial institutions are strengthening their work-out departments in preparation for an increase in the number of bankruptcies.
Czech insolvency law is rather new – the existing rules have been in play for less than two years. There are two types of insolvency proceedings: bankruptcy and restructuring.
A recent trend is that insolvency proceedings increasingly relate to holdings that have a subsidiary in a number of EU-states, bringing EU insolvency regulations into play and requiring sophisticated multijurisdictional restructuring advice.
Daniel Weinhold, partner, Weinhold Legal
The times of hectic replacement of communist legislation with a more civilised model seem to be definitely over. The times of reinventing the wheel and applying purely local inventions instead of looking for tested precedents and intelligently copying them is, it seems, also behind us. Thus most major changes to legislation are merely the implementation of European legislation, including the sometimes belated changes to laws on cross-border mergers or tender offers.
The Czech Republic has become a country of subsidiaries. Most sizeable businesses are foreign-owned. The result is that the local corporations do not tap local capital markets to finance their operations. Local equity markets are almost non-existent and the number of publicly traded companies that could be taken over hostilely is very limited.
This makes local corporate work more or less synonymous with acquisitions, mergers driven by tax or operational efficiencies, and local assistance with overseas corporate and finance transactions. Local corporate lawyers would deal with bankruptcies or commercial law issues since, this being a small jurisdiction, specialisations are very broadly defined.
However, with prices of assets down or stagnant, financing on hold and overall uncertainty, the market in new corporate transactions has slowed down.
Martin Kriz, partner, PRK Partners
The Czech Republic legal market has not been immune to the impact of the economic downturn. There are many things that are changing, but also many things that remain the same.
In general, much more effort is needed for maintaining good results. The main characteristics remain the same: good market offerings, precision in all elements of work and clever billing strategies are crucial.
Obviously, the legal market has been affected along with the other markets. Banking clients that are known for extensive usage of top-class external consultants in numerous areas expect their advisers to accept much lower fee rates compared with last year. It is not easy to remain competitive and maintain good results, and a lot of effort is necessary.
There are always expectations and speculations about collapses and departures of international firms from the Czech market, and the recession only brings another stimulus. Those firms that are subject to rumours usually loudly deny any such speculations – in some cases until the last minute before they close the door.
Hessel Postmus, partner, KempHoogstad
As a result of the global financial crisis and the more cautious attitude of banks and investors, many planned refinancings and transactions were cancelled or put on hold this year.
In the years leading up to 2008 the Czech Republic witnessed a flourishing and relatively profitable market, in particular in commercial and residential real estate, and clients were not too concerned about the overall costs of their operations.
Clients have now become more focused on cost reduction, consolidating the overall costs of corporate structures, eliminating legal entities that are no longer useful and scrutinising financial accounts for possible tax optimisation.
An important change in Czech tax law relates to tax deductibility of interest on loans. From 1 January 2010 back-to-back financing will fall under the scope of the Czech Republic thin capitalisation rules, which means that interest on these loans will no longer be tax deductible. As a result, before 2010 new tax-efficient financing structures should be in place.