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26 September 2022

How Ukraine’s law firms have survived 6 months of war

Source: Law.com

Six weeks after Russian President Vladimir Putin declared all-out war on Ukraine, pictures emerged of what appeared to be Russian armed forces killing scores of Ukrainian civilians in Bucha, a once heavily wooded and leafy city in Ukraine’s northern province. The city became enmeshed in Russia’s “Kyiv offensive”—a foundational assault in Putin’s war. Calling it “horrifying,” the UN’s human rights chief, Michelle Bachelet, described images of civilians lying dead on the streets and bodies piled into improvised graves.

What became known as the Bucha massacre took place just minutes away from the home of the leader of one of the country’s most prominent law firms.

Life thereafter descended into “conditions of total loneliness” when the families that survived the strafe fled the city, says Mikhail Ilyashev, managing partner of Ilyashev & Partners. Life, he says, was “turned upside down.”

Armen Khachaturyan, senior partner of Ukrainian firm Asters, says his children would ask him “Why is all of this happening?” A question to which he still has no answer.

But law firm leaders have resisted yielding “to panic or despair,” Ilyashev says.

Throughout the shelling and bombings, Ukraine’s law firm leaders, like its people, have maintained a dignified resilience that has seen both them and their businesses endure months of an onslaught many predict will last for years. It is by this pragmatism that senior lawyers have committed themselves to the challenging, urgent and often desperate work of ensuring the survival of their firms.

Though most firms have suffered immensely, Ilyashev believes that, so long as “people are safe, sooner or later, no matter what happens, the work of the law firm can be resumed, even if all the property is destroyed.”

Staying in business has involved a range of actions: pay cuts, deploying lawyers to offices and network firms in other countries, turning to Big Law allies for support and remote working. Despite a much narrower pool of work, some firms are managing to secure key war mandates for the government, to advise corporate clients as they return to business in parts of Ukraine and are even putting themselves in a position to deliver much needed support to fellow citizens.

Staying afloat

Since Russia entered Crimea and the Donbas region in 2014, Ukraine’s major law firms have been on high alert, putting emergency plans in place. Then, on Feb. 24, 2022, Putin made his pronouncement “on conducting a special military operation”—a prelude to the wider invasion.

“It is impossible to get prepared for war,” says Timur Bondaryev, managing partner at Arzinger.

“That said, we did our best to get ready and have had to rely on a healthy dose of common sense.”

Though very few expected a full-scale war, senior lawyers reacted quickly and meaningfully.

“After the evacuation of my family, and a few hours after the first missiles fell just two kilometers from my house, I went to our central office in Kyiv and participated in emergency actions, planned in case of war,” recalls Ilyashev. This meant two things: Keeping people safe, and keeping the firm afloat, even as the business stalled, adrift in uncertainty and the threat of violence.

For Asters’ Khachaturyan, the first steps involved helping his people address “unprecedented personal and family problems, relocations, administrative and psychological support.”

Anticipating huge losses in personnel and capital, Arzinger took emergency steps to “dramatically downsize,” while retaining its core expertise to continue instructing clients.

Bondaryev committed himself to “retaining expertise” and “business continuity,” after “a significant amount of our most precious capital—our people—left the country in the first hours following invasion, without any prospect of return.”

“Our main goal was to dramatically reduce the fixed costs base and, at the same time, to get prepared for what we knew would feel to be a long trip, without clear understanding of the final destination. We have succeeded in this exercise.”

In the first weeks of war, the firm set a “very pragmatic internal deadline” to implement restructuring measures: June 1.

“A totally new Arzinger emerged. I have to admit that it was definitely not the firm which we have been building for the last 20 years.”

But he says what did emerge was a firm “able to operate very efficiently under the conditions,” and a firm “fit for the market in wartimes.”

Most firms adopted similar measures to retain expertise and maintain business continuity.

Avellum managing partner Mykola Stetsenko says his firm was able to make “zero redundancies,” enabled by a policy of efficiency. This involved introducing pay cuts across all levels, as well as curbing “nonessential expenses” such as marketing, and making certain “commercial policy adjustments,” such as “proactive fee collections.”

The firm also saved on cost while retaining staff by seconding many of its female associates (as men were prohibited from leaving the country) — Stetsenko says around 20% of his legal team were placed in secondments in European offices of international law firms, including Big Law firms Allen & Overy, Debevoise & Plimpton, Freshfields Bruckhaus Deringer, Greenberg Traurig, and Linklaters in cities including Warsaw, London and Vienna, with as many as 10 remaining in those roles six months on.

Indeed, Big Law firms have had a significant role to play in assisting Ukrainian firms in balancing their books in the face of crisis, with nearly all Ukrainian partners who participated in this piece expressing gratitude for Big Law’s support, as well as its withdrawal from Russia.

Vladimir Sayenko, antitrust partner at Sayenko Kharenko, says he was “very thankful to our friends at various European and U.S. law firms who offered their support and invited our employees for secondment.”

“All these efforts allowed us to decrease costs and stabilize the firm financially.”

Seconding associates forms a key feature of the emergency efficiency drive, as has remote working, which firms had prepared for in the preceding two years. At Avellum, lawyers have been working remotely from diverse locations including Poland, Hungary, the Czech Republic, Austria, Germany, Italy, Spain and Portugal. Asters too made arrangements with “friendly firms” in cities in Poland, Ireland, France, Sweden and other places, to “ease pressure on the payroll.”

War work

Despite the refrain that in times of crisis, advisers often have work to do, partners were almost universal in their sense that, at the start of the war, work flatlined.

“Unfortunately, the war is a very special crisis, which unfortunately does not provide for meaningful business opportunities,” Khachaturyan says.

And Ilyashev notes “almost all the courts stopped considering cases.”

“During the first couple of days, a large amount of urgent organizational and management crisis work piled up, with a small amount of legal work,” adds Ilyashev. “And then almost complete professional silence descended.”

Sayenko agrees that, “overall, demand for legal services locally went down,” while Arzinger’s Bondaryev says “traditional bread-winners for the firm—project finance, capital markets and M&A transactions, investigations and big ticket ‘peacetime’ litigations—have fallen apart.”

But while challenges remain, mandates in certain sectors did pick up. Asters’ Khachaturyan says that, by mid-April, as many companies returned to business, “we started to receive new assignments, mostly from the existing clients.” He does stress, however, that this was by no means a return to ‘business as usual,’ and that companies had to pay a price “to keep afloat, to keep the Ukrainian economy afloat.”

There have been key “war mandates” available to those firms with the capacity and expertise to take them on.

“In April, the courts started to resume their work, which led to the recovery of provision of litigation services by the lawyers specializing in this area,” Ilyashev says.

Due to the war, the kind of advice they’re being asked to provide has also changed. Ilyashev says clients have pushed for more labor law expertise, as they relocate people and make redundancies. “They were also interested in documentary registration of the damage caused by military aggression, the algorithm of actions and preparation of documents in connection with the seizure of property for defense purposes and other burning issues.”

Meanwhile, Avellum has been advising the Ministry of Finance of Ukraine on “all” significant financial and capital markets transactions since Ukraine’s $15 billion sovereign restructuring, including helping it attract financial support from international partners since the war’s beginning. Since war broke out, Avellum also has advised on Canada’s $1.1 billion budgetary support to Ukraine, a €300 million credit facility from a French development agency as well as several other multimillion-dollar deals.

Sayenko, too, says that international clients “continue to rely on our support,” which “allows us to stay confident about the future.”

“Those of our employees currently based outside of Ukraine also continue to assist those Ukrainian clients who moved to other European countries.”

Moscow exodus

If it were ever possible to find a silver lining amid the devastation, one most lawyers in Ukraine point to is the tightening of relations between Ukrainian law firms and Big Law, which developed when Big Law firms decided to leave Russia in the weeks following the invasion.

Arzinger’s Bondaryev says the initiative to leave Russia was “very well received” in Ukraine.

“It has helped us to better distinguish real friends and supporters of the Ukrainian cause.”

Avellum’s Stetsenko and Kharenko both say they are grateful to international law firms for their help and support. Meanwhile, Ilyashev took a matter-of-fact view on the flight of firms from Moscow, saying that, were Big Law to continue working in Russia, it would “not only mean the complete collapse of their business in Ukraine and with Ukrainian clients,” but the negative reaction in their native jurisdictions would be such that it would put “a great question mark over their future existence.”

But the role of international law firms exceeds offering support to Ukrainian firms and their lawyers, delivering pro bono and financial support, which, commendably, most were quick to do.

Khachaturyan says international lawyers also play a major role regarding sanctions and ”getting Russia and its decision-makers and war criminals liable for the war and all of its consequences,” “searching for Russian assets” and working on international investment projects connected to the post-war restoration of Ukraine.

“These are the areas where we are always happy to join efforts with our foreign colleagues.”

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