Central & Eastern Europe: Open for business

Currently basking in the ­reflective glory of the EU ­presidency, the Czech Republic is making full use of its time in the spotlight. The country’s position in the European hotseat may only last until June this year, but its ministers – not least the Czech EU Presidency ­representative Ivan Langer – have been making use of the mantle.

It is useful exposure at a time when the economic stability of many Central and ­Eastern European (CEE) countries lies in the hands of wealthier neighbouring countries, with the perilous positions of Hungary, Ukraine and Romania springing to mind.

Good news, then, for the business ­community and, specifically, law firms, as forward thinking from Czech central ­government is facilitating greater ­transparency in the country’s markets.

After a Company Register, Land Register and other important registers became ­accessible online in the past years, the Czech Republic is making good on plans to realise an EU-backed e-justice plan with new online registers that went live this year.

A new central evidence register of all pending execution proceedings has been launched (completed over the first half of 2009), allowing interested parties to access due diligence information, smoothing the path between Czech business partners and the banks. Anyone will be able to check whether the property of a potential client is subject to an enforcement of third creditors’ claims.

“It has been coming for years but it has been a bit of a revolution,” says Pavel Marc, a partner at Wolf Theiss working across the firm’s M&A, corporate, banking and finance and competition practices. “The registers provide us with much more transparency and make it easy to do the basic due ­diligence. We use them every day. It ­eliminates a lot of hidden costs and delay. We can access the info quickly, at low cost and with greater reliability. It’s very useful for the business community.”

The Czech Minister for Justice, Jirí Pospíšil – a young, progressive politician – has received praise from the legal community for pushing the registers through. Ivan Sagál, banking, finance and M&A partner at ­Weinhold Legal, says they add to a sense that the Czech markets are safe for business.
“The Czech markets have developed and all these things are helping to build trust in the parties involved in business transactions in this country,” he adds.

Economic stability

The country’s economy is not in as bad a state as some of its peers. Marc points out that there is a “big gap” between the CEE countries, with Poland and his own Czech Republic faring better than Hungary, Romania and the Baltics. To some extent the Czech banks were protected from the more ‘sophisticated’ financial instruments that served to deliver the UK into the jaws of the credit crunch. Czech banks went through a dramatic clean up during the early 1990s following the transition from government-run to privately run entities.

“The banking system is quite primitive here,” says Marc. “The banks don’t like to hear it, but it’s true.”

However, it is not all a bed of roses. The Czech Republic, and Slovakia in particular, were hit by the downturn in the automotive industry, which their governments backed in the years prior to the economic crash.

“With hindsight, backing the car industry was a bad idea, but after the battle everyone is a general,” says Marc ruefully. “Unless there’s a domino effect – with one CEE country taking down another – I think the Czech Republic will be fine. The face of M&A is different now – a lot of assets are being bought from fire sales, for instance. This requires local expertise from lawyers and leaves a lot of room for regional firms like us. I hope that the high-value M&A will come back when the decision-makers stop waiting for better prices. We in Prague are confident and confronting the downturn with an optimistic attitude.”

Weinhold’s Sagál agrees: “There has been a considerable downturn in the appetite for acquisitions. A year ago there were investors coming into the country trying to buy into anything that looked like it might be ­successful. This has changed of course.”

Sagál says rather than reconstructing the banks, most of which are owned and based in other countries, his firm is being kept busy refinancing, changing terms and ­making amendments to loan documents for uneasy creditors, admitting that ­“everyone is nervous about what’s going to come” in the next few months. But the ­feeling is that forward-thinking, like the online ­registers, will help allay some of the fears surrounding this part of the world and build trust in the Czech Republic as a place to do business.