Sleazy come, sleazy go
19 November 2012 | By Lucy Burton
Bulgaria is fighting hard to emerge from the long shadow of corruption
Bulgaria is a country with much potential, but there are a number of hurdles to be overcome before the jurisdiction can make the most of the opportunities it offers. A perception of corruption lingers and the legal market still has some way to go before it can be considered mature.
Bulgaria has been seen as one of the most corrupt, crime-ridden countries in the EU since it joined the club in 2007 - a reputation that has, unsurprisingly, done few favours for the country’s legal market.
“The biggest problem for Bulgaria is perception,” explains David Butts, international manager at CMS Cameron McKenna’s Sofia office. “Five years ago the inclination of a foreign firm was to stay out of litigation in Bulgaria at all costs by trying to keep clients away from the local courts and not offering litigation as a service line.
“This is because the rules [in Bulgaria’s courts] weren’t necessarily applied on a transparent and consistent basis. While there are and always have been excellent local litigation firms, the perception was that it was often as much about access and connections as it was the strength of the client’s legal case and the lawyer’s advocacy skills. Getting involved in litigation proceedings was associated with reputational risk, both for the client and for the law firm.”
Although he does not deny that corruption has been - and, in some circles, continues to be - a serious issue, Butts says Bulgaria’s bad public image is slowly starting to shift.
“Although the enforceability of rights is still a weak point, the Bulgarian court system has slowly improved and is now under a strong microscope,” he says, adding that CMS started a litigation department through a lateral hire of three lawyers in 2011 and has more than doubled its litigation team since.
“I’d like to think that EU monitoring and verification procedures, together with demands from foreign (and local) investors, embassies and other interested parties, has led to a noticeable improvement in the local court system and the judicial mindset.”
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But others feel the distrust in Bulgaria’s court system is overblown.
“There is caution with the courts, but that is often the case in developing economies, as courts are dealing with specific commercial issues for the first time,” says Wolf Theiss local managing partner Richard Clegg. “It takes a couple of years for a firm entering a new market to understand how to best serve clients when it comes to litigation, which is why some firms - us included - haven’t invested in certain areas until recent years. We’ve seen regulatory and European Commission litigation increase because companies are more aware of their rights, so we’ve expanded our disputes capability in the past two years.”
So are Bulgaria’s courts less corrupt than the media often suggests?
“The judiciary continues to be an issue, but we can’t say everyone is incompetent or corrupt - that’s just not the case,” says Boyanov & Co managing partner Borislav Boyanov. “Sometimes, the media is too focused on the bad things. In reality it’s not particularly good and not particularly bad - it’s somewhere in the middle.”
Bulgaria’s legal market is in a similar situation, with most saying the industry is neither fantastic nor terrible.
“There’s been little movement since the recession - no significant spin-offs, no new important players, no major exits bar DLA Piper more than a year ago, and no great movement between the tiers,” explains Schoenherr Sofia office managing partner Alexandra Doytchinova. “Those leading before [the recession] are still leading. The market is stable and it will stay like this for the next few years.”
However, there is change bubbling under the surface.
“In the next few years time will show who can be flexible, especially in terms of fee arrangements and the efficient handling of matters under fee pressure,” Doytchinova continues. “Competition has moved from showing your expertise to offering the lowest fees. It is damaging for law firms, certainly, because every firm has a certain structure which is not entirely flexible. If firms are complaining they’ve lost revenue it’s not necessarily due to less work - it’s due to lower fees.”
It is this pressure, Doytchinova explains, that could demotivate local firms.
“I assume that many clients would like a bargain, but I wonder how many clients would want a demotivated lawyer doing the job,” she says. “The push for lower fees could see discrimination in the legal market whereby clients paying better fees are handled as a priority time-wise. We’ve already seen this in the treatment of counterparties by their counsel on a transaction.”
The market could also end up with a shortage of experienced, educated middle to senior associates if firms stop investing time in junior lawyers, Doytchinova warns.
“The pressure on fees means junior lawyers are increasingly having a hard time finding a job,” she says. “Many firms don’t have the time to invest in educating junior fee-earners because they don’t immediately bring in huge investments, and work is always handled more efficiently and faster by senior lawyers. For the firms that do take in young fee-earners there is huge pressure on them to learn fast because they need to produce more in the time they have. Maybe in two to three years we won’t have enough well-trained middle to senior level lawyers on the market.”
Questions of investment
But can firms afford to bring in new lawyers if legal work is stagnant? Opinion among local partners is divided, with some pointing out an increase in M&A and others describing a depressed market.
“I’ve recently advised one Bulgarian company purchasing in the UK and another in Germany,” Clegg says, adding M&A has increased as local companies have become stronger. “The type of foreign purchaser has changed - companies aren’t only coming from Western Europe, it’s also Eastern Europe investing in Asia and Asia in Eastern Europe. These companies are going overseas - they’re expanding. It’s a trend that started in 2009 and it’s been getting stronger.”
Boyanov says M&A is generally limited. “The reality is the market is grey and most local companies are having problems,” he says. “It’s true that some good companies are going abroad, mainly to neighbouring countries - Serbia, Romania, Turkey - while others are trying to do business with Arab countries or Russia. The locals are trying to look outside the EU, where evidently there are issues, but only a few are doing well and M&A is limited.”
That does not mean the cup is half full for Bulgaria’s lawyers.
“I’ve seen the crisis lend stamina [to Bulgaria’s lawyers],” concludes Boyanov. “While there won’t be any major changes until the economy improves, local firms are working harder and more effectively.”
The best of Bulgaria
Located in south-eastern Europe, Bulgaria has always been a crossroads for civilisations and is home to some of the world’s most ancient cultural artefacts, great restaurants, excellent wines and fun places.
You will not be disappointed if you are passionate about ancient history, museums and churches, or you just want to feel the party vibe in the country and its capital Sofia.
The heritage of the Thracians is visible everywhere, from the museums to the tradition of producing elegant and delicious wines. You can check for yourself the combination of good wine and tasty local food in restaurants throughout the city.
The good news for fans of healthy living is that yoghurt was created in Bulgaria and you still always find a local one at the market. I might also add that the Bulgarians claim to have invented the electronic computer, the digital watch and the airbag.
The people have a strong and interesting character, and that’s probably the reason they shake their heads to indicate a ‘yes’ and nod to say ‘no.’
Alexandra Doytchinova, managing partner of Schoenherr’s Sofia office
Key figures: Bulgaria
Annual inflation (Sept 2012)
Life expectancy at birth
Unemployment (Q2 2012)
Source: World Bank, Bulgarian National Statistical Institute