On the morning of October 2, 2017, representatives from many of the leading law firms in Bosnia – and two senior in-house counsel – gathered in the Sarajevo offices of Wolf Theiss Bosnia & Herzegovina to discuss the state of the legal market in their uniquely structured country.
Round Table Participants:
- Naida Custovic, Law Office Custovic – Independent Attorney at Law in Cooperation with Wolf Theiss (host)
- Aleksandar Sajic, Managing Partner, Sajic
- Andrea Zubovic-Devedzic, Partner – Attorney at Law in Cooperation with CMS
- Bojana Bosnjak-London, Junior Partner, Maric & Co.
- Dino Aganovic, Head of Legal and Compliance, HETA Asset Resolution
- Djurdjica Katic, Head of Legal Affairs at Studio Moderna
- Nihad Sijercic, Independent Attorney at Law in Cooperation with Karanovic & Nikolic
- Sead Miljkovic, Managing Partner, Law Office Miljkovic & Partners
CEELM: This is a unique legal market in terms of the various challenges you have to face, including a fairly conservative bar association and complexities related to the make-up of the country, involving two entities and one autonomous district. How would you describe the legal market itself?
Naida: In the Bosnian market small law offices predominate, with one or two lawyers. Then there are also a few midsize firms, which have up to five lawyers. Larger firms have more than five lawyers. Some of them are completely local, like Maric & Co., and some work in cooperation with foreign offices. Overall, the Bosnian legal market is small.
CEELM: How big is the biggest law firm in the country?
Bojana: I think that would be us, at Maric & Co. – about twenty lawyers. I think we’ve always been the biggest law firm in the country.
CEELM: In most CEE markets, the international firms are often particularly strong, although not always. What about here? Do the local firms predominate, or are there international firms in the top tier?
Aleksandar: When we talk about numbers, local offices are predominant. We have no more than 1800 lawyers in Bosnia, and in Sarajevo, I think, around 500. The Bar Association told me that in Republika Srpska we have 500 lawyers, but in the Federation it’s 1300 to 1400, and in the Canton of Sarajevo, around 500-ish. I think it’s too much, and there have been an increasing number of law offices – of lawyers deciding to open law offices – in the last couple of years, and sometimes it’s not a professional choice. Sometimes we have lawyers who get fired and then they open a small office, working alone, generally dealing with all kind of legal matters.
CEELM: Does that mean that you find yourselves competing for clients with small offices quite often?
Bojana: Not always. On the deals that are more significant, it’s pretty much the same law offices.
Aleksandar: Maybe in litigation, okay, we have to compete with them for clients, but in real deals for something of significance, no.
CEELM: Am I right in understanding that law firms aren’t allowed to advertise here? Why is that? Why is the bar so rigid on that rule here?
Sead: I think it’s a relic of the past. The legal market is not developing as you would expect, like the legal system, and like the country itself. And the fact that there are very few big law firms speaks for itself. Out of the 1800 lawyers in the country I think roughly 85% work in a one-man shop.
Bojana: I also think that lawyers want there to be a dignified way of doing their profession, so they don’t want other lawyers handing out advertising on cards and chasing ambulances. Because there are a lot of single law offices, and we have a wide variety of individuals who are lawyers, I think that we just put a stop to it to keep the dignity of the profession.
CEELM: Are you comfortable with that rule? Does it seem to be achieving the ends it’s designed for, or would you rather see it relaxed?
Andrea: Not fully relaxed, I would say. It’s my personal opinion, but there might be some ways of promotion and law firm marketing that could be introduced, but it should be controlled, and again that leads to a problem, how do you control it – would it be budgetary control, would it be by type of advertising, would it be by type of media, or something else? I don’t think that our Bar Associations will ever accept a huge banner in public advertising a law firm or a particular lawyer. But I assume there’s certain ways promotion should be allowed. We should be looking at different examples in the region.
CEELM: Are you able to have websites? Some law firms in neighboring countries are so nervous about the Bar Association that they’re cautious even about that.
Sead: According to the bylaws of the Bar, law firms and lawyers are obliged to notify the bar of the address and content of their web sites.
CEELM: And are you able to identify clients? Are you able to describe the deals you’ve worked on on the website?
Andrea: As long as it doesn’t violate client confidentiality.
CEELM: I know there’s some discomfort between the local firms and the international firms, or at least there’s some uncertainty about the rules for the international firms working here. Naida, you’re at an international firm. Do you have any thoughts on that?
Naida: All of us here are local lawyers who work in cooperation with the international firms. This is fully in compliance with the rules.
David: Is the Bar okay with international firms?
Naida: The Bar does not have a special view on international firms. We do know that some lawyers feel uncomfortable with having foreign law offices present, but my personal belief is there should not be any issue as long as foreign lawyers do not advise on local law matters. In case of local law aspects there should be a cooperation with local law offices.
CEELM: Is it possible to be a foreign lawyer registered with the Bar?
Aleksandar: Yes, in the Republika Srpska it’s possible, but under very very specific conditions. It’s very complicated, and as far as I know it’s mostly the Serbian lawyers who operate in the eastern part of the country that are registered.
CEELM: Do you know of any expatriate lawyers, I mean any English, American, Canadian, or Australian lawyers, in Bosnia at all?
Bojana: There are some in Serbia, but not here.
CEELM: Let’s turn to the subject of business. What’s happening?
Nihad: I think compared to the political situation in Bosnia, business is going pretty well.
Bojana: You know what they say about lawyers: we always have work, whether things are good or bad.
CEELM: People say that, but at least in the bigger markets, while firms can hang on for a while in bad times, eventually they have to start letting people go. But things here are pretty good? You’re all busy?
Bojana: We’ve seen a change in what we do. Five, six, or seven years ago we had a lot of investments, a lot of incorporations, and a lot of deals. Now, we’re dealing with the aftermath of that, meaning we have a lot of disputes, we have a lot of liquidations, we have of lot of bankruptcy procedures, and so on.
Naida: Yes, we still have a steady inflow of foreign investments, but the overall volume is much smaller than it used to be. The type of work we are involved in has also changed. We are seeing a lot of arbitration work. There was not much arbitration before, since people were investing. The disputes started later on, particularly when certain promises by governments were not kept.
CEELM: Is that true for all of you?
Andrea: We’ve seen an increase in financing projects, which is again, I suppose, a consequence of the current situation, economic and legal, so I’m hoping we won’t be seeing much of aftermath of financing in terms of bankruptcies and disputes. In our office we’ve seen quite a busy summer, which is different from previous years. Normally, July-August would be a bit slow, then things would pick up in autumn, and then obviously slow down – but this summer was quite busy. And that was something that we found a bit strange compared to the past six years, I think.
CEELM: Lawyers in many of the markets we’ve spoken to this year have told us that M&A started a bit slow but began to pick up in Q2. But it sounds like you’re not seeing that many deals happening here. The way you describe it, it sounds like we’re heading into a recession – it sounds like people are fighting and cutting their losses – not growing.
Sead: I wouldn’t say that there are no M&A deals. There are M&A deals at a different level than what we experienced before. We are quite busy as an office. Over the past two years we did more than fifteen deals, but at a different level, I would say. In a market of 3.5 million people you cannot really expect to have multiple major deals in a short period of time. A very good day here at the stock exchange is when the traffic is KM 100,000 – about EUR 50,000 – in average trading.
Andrea: That’s a good day.
Sead: That’s a good day! So, I think there are deals, but at a different level. A lot of deals, as someone here said, come from restructuring, carve-outs, and things like that, and some of them also from bankruptcy proceedings.
CEELM: Is the economy not doing so well?
Sead: The economy’s actually doing okay. If you read the numbers, you see that there has been a constant increase over the past five, six years. There has been a steady increase in, let’s say, foreign trade and exchange. More in favor of export than import. So there is progress, but I would say it’s still not sufficient.
Bojana: I think they just released data for 2016 for foreign investment, and we had a drop of 12% since 2015. That’s a lot. I would blame politics for that, just the political situation.
CEELM: What’s the political situation like right now for investment?
Sead: We’re just a year ahead of elections, and you definitely do not see any movement.
CEELM: So it’s all sort-of on hold?
Sead: The politicians would be focused on election campaigns. There are things that are in the pipeline, let’s say midterm (in the next five years), and there are plans for some divestments and privatizations in companies where the government holds shares. However, [those plans] only involve those companies of minor importance – companies where the government has a minority stake, or problematic ones where the government just wants to get rid of its stake and solve the problem. But the strategic industries, like telecommunications, energy, military industry, will most likely be on hold.
Nihad: I think there is a new trend in the past few years: investments in real estate by investors from Arab countries. And the majority of these investors are individuals or small companies, but there have been some bigger companies in the past few years as well.
CEELM: You’re starting to see more investment from the Middle East.
Nihad: Yes.
Bojana: They’re like, our third largest source of investment. Croatia’s the first one, and then Austria. And Austria’s been … for years it’s been the top source of investment.
Sead: Our major banks are Austrian.
Andrea: Or based in Austria, anyway.
CEELM: Let’s talk about the judiciary. How good is it? How reliable, how transparent, how competent?
Aleksandar: Very bad. Very bad. And it’s getting worse every year, that’s the bigger problem. The biggest problems are corruption, lack of quality judges, and non-harmonized court practices, so sometimes you can get two different decisions about almost the same case in the same court – not just in two courts on two sides of the country, but even in the same court. So definitely we have a problem. Our judicial reform now is almost 15 years in, and, yes, we put some more money in courts, we have more technical equipment, but I think that we have a problem with the quality of decisions.
CEELM: In a recent Round Table in Ukraine, the participants said that, although there were frequent problems in the courts of first instance, eventually the Supreme Court would produce the appropriate result. Is that true here as well?
Sead: We had recent experience in two almost identical cases; all the parties were the same and both cases were employment-related disputes before the Supreme Court. The first judgment went one way, but in the second, just a month or so later, two judges took a completely different view. We definitely felt like this should be addressed at the level of the management of the court, so we sent a letter, explaining that the reasoning in the first judgment would guide the court’s judgment in the second, so that we could at least know which way the practice was going.
So I think there are a lot of question marks and issues when it comes to court practice. I don’t think that even all of us who are practitioners feel comfortable referring to Supreme Court judgments anymore. I have a problem in even addressing the court, referring to the judgments. Because then you see the other party coming with the different judgement, from maybe the court in Republika Srpska or Brcko, and your reference to a judgment of the Supreme Court doesn’t really matter.
In addition, just to add to what Aleksandar said, there’s a huge backlog of cases. It’s extremely high. We have instances where it takes six years to get a decision to appeal.
Bojana: Yes. By the time it’s resolved, there’s so little chance of enforcement or collections.
Sead: And I see that more frequently, lawyers are turning to the Constitutional Court, asking for intervention.
CEELM: How does this affect how you advise your clients? If they come to you with a problem, what do you say to them?
[Many]: Don’t go to court.
CEELM: Really, you tell them to settle? You say, there’s no predictability here at all, you might win but you might lose, and it doesn’t have anything to do really with how strong your case is?
Andrea: Especially in certain areas of law, there is an even higher level of unpredictability, and I would say that in some cases – that would be tax cases – it’s even worse than “unpredictable.” We have seen a wide lack of knowledge or interest at the level of the relevant court. And IP rights. It seems that when it comes to IP or other less-developed areas in the country, that the courts simply don’t have sufficient knowledge to get into the merits of the case, so they usually just look at the procedural aspects, and then try to rule along those bases. And with tax, we’ve seen several cases where the clients would go all the way to the European Court of Human Rights, because they simply could not get their case heard properly or reviewed properly, let alone decided upon.
CEELM: Why is the level of knowledge and skill so low on the judiciary? Is it inferior education, is it a lack of continuing legal education, or is it just the quality of people who go into the judiciary?
Andrea: All the above.
Sead: All of it, and I would add a few things more on top of that. They do have training centers in both entities. They have training centers for the judges. This is just a reflection of the overall situation in society. I wouldn’t really dare to say that there is corruption. I haven’t witnessed it. But that doesn’t mean that there is none.
CEELM: Someone in another conversation said, “the problem is that whenever lawyers lose, they say, ‘Well, we had the better case!’” It’s a common excuse if you lose, so who knows what the reality is? It could be corruption, but it may also be that you just lost.
Sead: Yes, there has to be someone to blame. But I think that the judges are also under a lot of pressure. As I just mentioned, there is a huge backlog of cases, they are fighting with their quota on a daily basis. Historically, people like to litigate here. They like to fight each other, they like to go to the court, there is some supreme authority that will decide on whatever kind of disputes, even with ourselves.
Andrea: It would seem that the first instance judges seem to be the worst, in our experience, because sometimes it seems they simply want the case to go to the second instance court, like: “Whatever happens, let them decide, I’ll let the second instance decide.” And this is what creates the backlog, because often the second instance court will just send the case back to the first instance court, and then it just goes on and on.
Bojana: I think the big problem is also the fact that there is this quota of each entity in the judiciary, so even if you’re not competent, but you fit into the quota, they will take you on.
Sead: I think all of us have experience in the past with some illogical decisions from the high judicial prosecutorial council on appointments of judges. I used to work there, so I know the situation well. This institution used to be governed by the international community. There was a really significant influence. Ever since that influence vanished, you hear stories every now and then from your colleagues from university, they are struggling to apply for the tenth time to become a judge, with no chance. And they see that there are younger colleagues with stronger connections, and some political influence in the background, with less experience, are being employed as judges and prosecutors, so you do see this.
Bojana: Definitely.
Andrea: I would also add that there is a lack of accountability. The fact that the judges are not held responsible for any of the decisions they render means they can be really strange, to say the least.
Dino: Official statistics say that the High Judicial Council takes one out of ten reported cases into consideration. And there is a certain penalty for the judge in those one out of ten; usually saying, “do not do it again.” So 10% of the reported cases are analyzed, and in 1% there is some sort of a sanction for a judge.
Nihad: And I think that salaries are also an issue. Last time they increased the salaries for the judges was in the 90’s, no?
Sead: In 2004 or 5.
Nihad: Yes, but judges are not motivated to stay in the courts, that’s the issue. They become lawyers in the private sector.
CEELM: Djurdjica, do you deal with litigation? Does that come up for your company?
Djurdjica: Yes, unfortunately.
CEELM: How do you incorporate these concerns in your decisions what to do?
Djurdjica: I agree with everything. We have had many problems with court decisions, mostly involving labor cases, which traditionally here favor the side of employees. Everybody knows that, and so we have the biggest problems with those decisions, because most of the time the court puts the employee back to work. And you have to deal with it. It’s really hard to terminate employees.
Naida: Yes, termination of employees is almost impossible.
Sead: A colleague of mine joked that, “the only field of law where I have 100% results is employment - I lose all of them!” He was advising the employers.
Bojana: One time recently an employee was caught stealing from the company, and his defense was, “Well, everybody else was stealing.” And the court ordered that he be taken back to work!
CEELM: The three entities has to be a complicating factor for the judiciary. Is there one Supreme Court for all three entities, are there three Supreme Courts, how does that work?
Aleksandar: We have three, I think. We have two and a half because we have the District of Brcko as a kind of hybrid jurisdiction. In some areas we have one law, like with VAT. In some areas we have two laws, but very very similar. And in some areas we have completely different laws, for example in Labor law. As regards the court, we don’t have a Supreme Court on the state level, we have a Constitutional Court, with some appellate authority.
CEELM: So if you’re an employer, and you have factories in two states, does that mean different rules can apply to employees in the different states?
[Many]: Yes.
CEELM: That must make work for the lawyers, helping the employers. It’s good business for the lawyers, right?
Sead: It is, but it’s also, going back to your question on investments and why don’t we see them, for some investors, it’s too complicated. When you come to the Federation, then you have ten more cantons, some issues are regulated at the level of individual canton, like concessions, and even public and private partnerships, each canton has its own regulations. So it makes things even more complicated.
CEELM: And Dino, at HETA, you deal with litigation, right?
Dino: Yes, of course. This is our major business. We are a bad loan resolution company.
CEELM: And is that system problematic for you as well?
Dino: In general, everything that my colleagues said is true. We have issues with notorious verdicts and issues which are preposterous, but our major problem is lengthy procedures. A major issue for us in general is that even when we have well-prepared cases, with well-documented mortgages, even simple enforcement proceeding on a mortgage can last up to five or six years. In general, it lasts up to three years just to process enforcement on certain collateral. Because you have all the obstruction that you can imagine. You have “fake bidders” – persons bidding in enforcement procedure without any real intention to buy an asset. There is no sanction for these persons in Bosnia and Herzegovina’s legislation and they can prolong the case for years – you have time in between hearings of six months, and it’s really difficult to collect something via court. So the conclusion is, “settle with the client wherever you can.”
But again, we had a great last two years, which shows that there is still money in Bosnia-Herzegovina. We have two companies, one is located in Banja-Luka – in Republika Srpska – and the second one is located in the Federation. Both of them have profited this year, so in the rank of SMEs, HETA is second in the Federation.
CEELM: You mentioned Saudi Arabia as a source of investment. Does the Muslim history and culture here encourage more investment from Turkey and other Muslim countries? Is that something you see here that they might not see as much in Serbia or Croatia?
Bojana: Unfortunately, I think Serbia has more Turkish investment than Bosnia.
Andrea: The same is true with the Middle East in general.
Bojana: The big investment projects somehow go to Serbia, and then we get these private individuals buying up land mostly for their own residential purposes, because they want to be settling here, because they like it here, because it’s Muslim-friendly and because it’s a nice climate and close to Europe. But the big investment projects mostly go to Serbia.
David: What about EU and NATO accession? Is the country split on questions like that?
[Many]: Yes.
Andrea: Sometimes they’re split just because they need to be split. You can’t have a consensus on certain things. And then there is the influence of neighboring countries, and then there are hidden influences that nobody’s aware of, but generally I think that it’s mostly a consensus not to be in consensus.
CEELM: What is the relationship between the entities? Is there a sense that at some point they will separate as well?
Naida: Sometimes I think it’s just the status quo being maintained. There is talk about a referendum in the Republika Srpska, although it does not seem to be imminent. Some are of the view that a split of the two entities would be better than to stay together. These thoughts and voices are somewhere in the background but get typically noisier around elections.
Aleksandar: The biggest problem is that we don’t have conversations about these topics between politicians. Sometimes I think that they like the situation like this, because we have election every two years, and it’s easier to win the election on this national issue. There is no open and frank conversation about problems.
Dino: Along the terms of money, we can all agree. We have the same common interests. And being split means having access to money and power for certain political interest groups.
Sead: The funny thing is nobody ever disputes the currency at the state level. Everything, from a joint army to VAT regulations is disputed, but I never heard the currency disputed. It’s a shared interest. (laughs). But to go back to your question, the influence of the neighboring countries is still quite strong.
CEELM: Where do you see business coming from?
Andrea: Energy investments in terms of different sectors. Especially green energy, renewables, wind farms, also some old and traditional, standard sources.
Bojana: The big investments projects are mostly coal.
Andrea: Yes, but we’re seeing also a lot of interest coming from outside – not only from China, which would be more standard kind of existing sectors, further expansion, but also seeing Western countries’ interest in renewable energies, especially now where government support kind of went down in Western Europe for solar energy, and I think that might be something.
CEELM: Are you seeing wind farms appearing? Is that still happening?
[Many]: No
Andrea: It’s development-based, but then that goes down to the structure and complexity of the country, because you need to go through all these different levels to even set up a project, before you can start implementing it.
Naida: I think there is a lot of interest in wind farm projects, but the problematic part is the actual implementation, which is very complicated. There are different entities and local authorities that need to be involved to obtain all the permits that are necessary.
CEELM: And is real estate strong? It is in many markets, these days.
Sead: I wouldn’t say real estate as such, but infrastructure, definitely, there is highway construction and railways, to a certain extent, the airports are extending their capacities now, we see in Tuzla, that airport is constructing new terminals, so you do see in infrastructure some progress.
CEELM: Are you encouraged by that?
Sead: Absolutely. The country is in desperate need of better infrastructure. If you go down in the south, you’ll see how the roads are. We also see a significant increase in tourism. As an industry, in 2016 there was a growth of 18% in terms of the overall number of nights spent.
Bojana: Yes, in the whole country. It’s fun, it’s relatively cheap compared to the neighboring countries, and it’s a really good and interesting place to visit.
Andrea: It’s adventurous.
Sead: We have a lot of different kinds of tourists, too. You have religious tourism and you have health tourism, which is slowly developing. There are people coming for dentists, coming for plastic surgeries, maybe. And people coming for recoveries as well. I think that the Sarajevo health fund entered into some agreements with some foreign funds in Libya, and in Iraq, so they are doing some recoveries for their patients.
Nihad: In the telecommunications sector, a few years ago we had a lot of small companies and the sector is now being consolidated with a few players at the national level.
Andrea: The IT sector is busy. Startups that grow out of the startup phase, and then manage to go through some acquisition process. I see a couple of those, but they still haven’t grown as companies and still remain fairly domestic in terms of their business operations, which means they hire a lot of people and tend to expand, and use the invested technologies for the development, so I would say the IT sector is still growing.
Sead: The food industry as well.
CEELM: The GDPR is creating a lot of work for law firms in the EU. Are you doing any GDPR work here, or is that not a major source of work for you?
Andrea: I don’t think there are that many companies with offices both here and in the EU. Usually, at least in our experience, it would be a corporation basis, or a best friends’ basis, and with the acquisitions, we usually make sure that on the high level to sort it out so they can at least reduce the stringency of the regulations.
Naida: GDPR-related work will come here – just a little bit later than it has in the EU, like everything else. Although GDPR-related data privacy work will come to us with a certain delay, relevant work will pick up soon, likely coming from the local arms of international groups that consolidate and harmonize their data privacy rules and standards.
Dino: In all of Bosnia, you have seven inspectors who cover data protection. For the entire country, for all of the companies: seven. So you can imagine how many inspections they can make. So it’s still not developed in the companies. You have foreign companies which apply these rules because they have to, because of the mother companies. But over here, you can expect never to be visited by inspectors. And even if they visit, the penalty is between EUR 5,000 and 50,000. And you cannot expect EUR 50,000 for a first offense. So it’s worth the risk: if you pay a person, you have to pay his/her salary, which will in a couple of months amount to EUR 5,000.
CEELM: Is litigation strong for all of you? It sounds like the courts are full, so is everybody busy with that?
Andrea: There’s a lot of litigation, but it’s a question of whether you wish to deal with all types of litigation. I’m quite sure that most of the people in this room don’t do commodity litigation. So if you look at the high-value disputes, or some strategic points that are important for clients, then I would say you go more to the court and to litigation. What keeps you busy is the fact that the procedures are really lengthy. So it drags on, and I’ve also seen that many local attorneys in particular tend to extend the proceedings, they cause a lot of delays. Basically, what happens is that local attorneys have more commodity work, so that they won’t be able to get into all of those litigations. As we mentioned, it is one-man shows, mostly, or they have a lot of young trainees, maybe not fit for litigation, at that level at least. And also, there’s a lot of settling going on, so sometimes litigation is used as pressure for the eventual settlement. At least in our experience in litigation, the bigger law firms would usually get into more complex litigation, but not commodity work. Unless you have to, for example when you have requests from a long-standing client.
Sead: It’s also a matter of the client’s liquidity. There are a bunch of clients – all of us have experienced this – who intentionally go into litigation to gain two or three years. The debtors are already trained and educated, and they know that there will be no real penalty or they can already see they’ll go bankrupt, but they’re intentionally pushing you into litigation.
CEELM: Let’s go around the table and describe your outlook for this year and going into next year, both for your firm and for the economy of Bosnia. Bojana?
Bojana: I’m definitely enthusiastic, as I’m sure that the work is coming, and we are quite busy.
CEELM: Are you optimistic that more transactional work is coming?
Bojana: It’s hard to predict, I think probably not until after the election next year in October. I think that things are going to be slow until then in terms of big investments, but hopefully with the new structures in place …
Djurdjica: I am not as optimistic for the upcoming year as Bojana. It’s election year, so everything will go slow. We don’t have a strong legal framework for trade, and there won’t be any changes before the elections.
CEELM: It’s tough that an entire year before the elections, you’re all already saying it’s on hold.
Bojana: Locked down.
Djurdjica: Everything stops, and parliament’s slow with their work. I don’t expect any new laws to be brought, but we expect a tax law and I don’t think it will be written before elections. So we don’t have a strong legal framework for trade and labor. So I’m not very optimistic.
Andrea: I think it’ll mostly be a wait and see game, especially for transactional work. Based on previous experience, there may be some minor transactions, restructurings and that kind of work, but as Bojana mentioned, major investments or major M&As, I think, will probably be on hold until after the elections. A lot of different laws have been announced – the tax law in particular - which may have an impact.
CEELM: This tax law will have a positive impact? This is something you’re looking forward to?
Andrea: That depends from which side you look at it! But in general I think that we may see some more financing coming in, and fewer cross-border M&A deals, at least for the next year or so.
Bojana: One thing that comes to mind is the restructuring of Agrokor. That situation is going to have to be resolved, and there might be some M&As coming out of that.
Nihad: We should also mention that last year both entities introduced new banking laws which for the first time have regulated NPLs, so we can expect some increased NPL-related work.
Andrea: We’ve just been to an NPL conference in London, and, to be honest, it seems that Bosnia is still not seen as an attractive market for this. The focus is still on Croatia, Romania, and now Ukraine, as being the next big things on the NPL market. With one billion euros of NPLs, we’re apparently really small. But I think the lack of regulation might have been a thing, now, when things pick up, that could be a game-changer.
Naida: You are right. Due to the small size of the market we are not so interesting for large investors, but we have actually seen an increase in debt-restructurings and NPL-related work. For us, as it looks now, we will be busy for the next six to eight months with restructurings and NPL transactions.
Andrea: One or two deals here are big, usually because they cross the country. And when you talk to lawyers in other markets, that’s a monthly thing for them.
Sead: But there is also what we see now, there are a lot of NPL sales from neighboring countries, especially from Slovenia. They have these what they call bad banks, and they are selling their NPLs.
CEELM: We have a bad bank representative here, in fact. Dino?
Dino: My colleagues have taken some of my words. HETA was not a regulated entity. As they mention now there is a new NPL law, but still there are no bylaws explaining how exactly it would be regulated. However, HETA was the first in Bosnia to conduct a large-scale assignment of receivables from a bank as a regulated entity to a non-regulated entity, and as I mentioned, three years afterwards we are making a profit out of it.
The information is that some big European players are stepping in the market, and yes, compared to European standards the market is low, but one billion euros of NPL is something that can create big profit for you.
CEELM: Naida, what about you?
Naida: Like we said, as things look right now, at least the next six to eight months will be busy with debt restructurings and NPL-related work. Like the others here, we do not expect major M&A transactions or transactional work in general, except for financings. We do see an increase of local syndicated financing transactions which is interesting for us. To a certain extent, local banks are still trying to do such transactions with their own legal departments, but we are confident that more work will come to law firms due to the changing legal environment and the need to comply with international developments and standards.
Nihad: I think that the governments will try to use this year to push through and finalize some existing projects. There are three or four important pending energy projects, so probably they will push to finalize this, and to initiate the work before the elections. I think the same will be with the highway, and you can expect that they do open some new parts of the highway this year. That’s it from the project side, and we will continue doing this litigation work.
CEELM: In fact, if I were going to ask what the biggest problem here was, it sounds like it would be litigation. Is that right?
Naida: In my view, the biggest problem the Bosnian legal market faces is the fragmented regulatory regime. Here you have various fragmented and unclear regulations and it can be very difficult to advise clients since the laws are simply unclear and ambiguous.
Andrea: And the lack of predictability. You really cannot know how any of the authorities will address your issue, because it depends on the day, or on the judge you get, or what instructions they got that week.
CEELM: Is it possible that you could have a case involving a similar set of facts in two entities and that they might rule differently?
Andrea: Completely.
Naida: You can also experience such a result in the same court or in the same authority. The result often depends on the person who makes the decision.
Andrea: Sometimes even the same judge.
Naida: Yes, sometimes even the same judge makes different decisions. So that’s what makes it really tricky.
Sead: I agree. It’s absolutely unpredictable, and it will to a great extent depend on the results of the elections. Unfortunately, you do not see at the moment how the things will develop, but in my experience working in such a turbulent market as Bosnia, sometimes just a small change can have a significant impact on the overall market. Just some change in trends, or in political views on certain topics, can really change the situation. For us, maybe dramatically, as everyone here just said, even two big deals a year are …. But to cut it short, there is some prospect of improvement, and we do see some positive movement in a number of industries. But I do not honestly expect any dramatic changes. We’ll know in two years’ time. I think we’ll have a clearer picture after the election results are implemented and new governments are set up. And the post-election period sometimes takes a year, with coalitions forming at different levels, so it takes time. I would say in two years’ time.
Bojana: And by then it’ll be time for new elections. Unfortunately, that’s how it goes. There’s not a way for this country to progress.
Aleksandar: I agree mostly – I just want to add one thing. This year we have seen a huge increase of daily consulting work, even for domestic clients. It seems to me that companies in Bosnia – or maybe it’s just our clients – are slowly recognizing the need to hire lawyers in order to prevent problems, and not only when those problems have already escalated. That’s definitely the thing that marked this year in our office. We have a huge increase in that kind of work. Even from clients who until recently hired us only when a problem had already escalated, now sometimes ask us before.
CEELM: That sounds like a growing sophistication of the market.
Sead: We are in 2017, and people are slowly realizing, as their businesses are growing, that maybe they should ask for help. But on the other side, I think the problem is always how to educate them that we do not do our work for free.
Aleksandar: There’s no free ride. This is an issue for all of us here. They expect to receive a high-level of advice free. That’s with the locals, I’m just referring to the local clients, of course.
Naida: I think the situation is more or less the same for all law firms. Certain local clients tend to expect to get a lot for free.
Andrea: Picking up on this, I’ve seen a lot of investment in in-house legal teams. I think they’re growing, they’re becoming more educated, more acquainted with the market and the trends. A lot of members of law firms would generally choose to go in-house, and I think it’s a growing trend world-wide. It’s Generation Y with the work-life balance issues. And it is true that the hours are getting longer, in this profession. This is something that’s not very common in Bosnia, at least, where still work-life balance is very important. And also, what I haven’t yet seen but I kind of expect to see is the Big Four developing their legal teams and expanding into the legal market.
CEELM: Have you seen some of that growth here?
Andrea: Some of it, but mostly internal, they’re usually not big enough to provide full legal service. But I’m just thinking whether that’s going to come with the next couple of years as well.
CEELM: Do any of them have legal departments, not in-house, but external counseling clients here in Bosnia?
Andrea: Well, they do, it probably comes as extra work, with tax advising, so it’s not like it is in Western European countries right now, they’re developing, and beginning to compete in the legal market. So this is something that is probably on the horizon for us as well, likely.
Sead: What we’ve also seen over the past two years is that there is a growing trend among local law firms, mid-size law firms, forming some regional kind of cooperation, alliances. This is a 3.5 million people market, and the former Yugoslavia covers roughly 22 million people, and then there is a need for multi-market coverage. There are some advantages, such as language and culture, things that are not really barriers to some of the firms. But we do see that they are teaming up, they are exchanging clients, this is a trend.
With that the conversation drew to a close. We would like to thank the participants for sharing their views and opinions with us, and Wolf Theiss Bosnia & Herzegovina for their hospitality in hosting the event.
This Article was originally published in Issue 4.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
