Legal Market Talk: A Digital Reset?
Our annual Legal Market Talk (as ever, featuring some of the top lawyers in Hungary) was, as you might imagine, dominated by the coronavirus pandemic. How has it affected the profession, what changes has it prompted, and what are the current and future implications a world that is very much not “business as usual”?
BBJ: How has COVID-19 changed the way you work?
Zoltán Hegymegi-Barakonyi: Baker McKenzie has always been committed to providing its people with access to a wide range of flexible and agile work arrangements to support them in balancing work and life, while continuing to meet our clients’ needs. Recent physical distancing requirements have simply intensified the extent to which these arrangements are made use of. The biggest change is that most of our interactions with clients are over videoconferencing rather than face-to-face. Luckily, we have found clients very receptive to this.
István Réczicza: Dentons did not close its office; however, we did swiftly implement our remote working protocol to ensure the health and safety of our colleagues. Since mid-May our colleagues our partially working from home or are in the office abiding to new and strict health guidance.
Ágnes Szent-Ivány: We commenced working from home as of March 16. Although we had used home-office and digital solutions previously, we now utilize the many advantages of the new digital platforms much more efficiently. We keep in contact with our clients through web conferences, work together with more colleagues and clients on projects using workplace platforms like Microsoft Teams or Zoom. We and clients use electronic signature more frequently and apply remote identification of clients. Collaboration is a key factor, what went well from the beginning. More training and conferences are organized via online platforms. Digitalization makes our work simpler and more efficient and we are convinced that this experience is good basis for a new workplace model that will at least partly remain in the future and creates new opportunities and culture.
Kristóf Ferenczi: Kinstellar moved operations to “working from home” arrangements from the outbreak of the COVID-19 crisis. Whilst keeping a minimum skeleton team in our offices to “keep the lights on”, we have been operating on a fully remote basis, successfully collaborating both internally and externally with our clients through digital means. During this period we completed a series of transactions, successfully carried out numerous signing and closing processes and maintained our operations, despite the novelty of the situation.
Péter Berethalmi: All our lawyers moved from office work to home office at the beginning of the state of emergency. Our finance and administrative team also work from home office. We had a limited capability operation in our office building with secretaries working in reduced working time. We closed our canteen and probably will not re-open it in the foreseeable future. As of now, home office is not obligatory for our lawyers and we introduced special house rules in the office building. We use Webex video conferencing frequently with our clients and also internally with our colleagues. Weekly meetings and partner meetings are held via video calls. To our surprise home office work was very efficient; we faced no technical obstacles, workflow was the same as before.
BBJ: How many of your staff are working from home?
András Posztl: Around 90-95% of our colleagues are working from home. The transition was quite smooth from a technology perspective, as we invested heavily in both hardware and software last year. Our strong corporate culture has also been important in this time of crisis, and will continue to be.
ÁSz-I: Practically our whole office works from home. We have two meetings via Teams per week. Our reception works, but only one colleague attends the office for a few hours per day to handle mail and deliveries.
KF: Having prepared our offices for the safe return of our staff, we are gradually letting our team back. As such, the number of our people working from home is varying but gradually decreasing.
What is happening with the law courts? Are they functioning at all or in a reduced format, and is this different for different courts?
ZH-B: The courts are adapting. Where possible, face-to-face hearings are substituted with written submissions and videoconferencing. Certain procedural steps, such as expert examinations, have been entirely postponed temporarily. In our experience so far, there is more of a lag in cases at the first instance, with appellate cases more easily able to progress based on written submissions alone.
IR: The government introduced rules governing civil and administrative court proceedings during the state of emergency; the operation of courts is continuous in Hungary, with certain restrictions concerning hearings. In essence, hearings should be held exclusively via electronic means (i.e. videoconferencing), and if that is not possible, hearings should be replaced with an exchange of written briefs. Our office has experience with only the latter option as we see that the courts did not have the sufficient infrastructure in place to handle civil matters through videoconferences. Due to the slowness of the in-writing procedure, we hope that the normality will soon return also to the courts.
AP: Emergency legislation has made remote hearings the default option for Hungarian courts. Via Video, the courts’ official video conferencing system, offers a solution for remote hearings in roughly 200 courtrooms nationwide.
BBJ What is happening with the backlog of court cases?
Erika Papp: No statistics are available yet regarding the operation of courts under these amended rules, however, it is certain that wherever it is possible, the court will prefer to adjudicate cases on the basis of written statements and without holding an in-person court hearing. In all other cases, where this is not a viable option, we have to wait until the end of the state of emergency for the proceedings to continue, which will most likely result in the piling up of court cases and postponed court hearings. Thus, once the threat of the epidemic has (at least temporarily) ceased, an intense life is expected to begin in courtrooms and court corridors.
ÁSz-I: Although there was a two-week long judicial break period at the end of March, the courts have not accumulated substantial backlog, meaning business is almost as usual, though the courts are slower and less flexible than business life.
BBJ: What are the trends with business law, which are the worst affected areas for you?
AP: We feel lucky to be less affected than many other industries. There was a temporary slowdown in transactional activities in March and early April, but since then M&A work has peaked. Our employment and privacy lawyers have been extremely busy since the first days of the COVID-19 situation.
KF: In Hungary our practice remains busy, notwithstanding the crisis. Although we have seen some slowdown e.g. in real estate transactions, FDI driven M&A deals and contentious matters, the domestic M&A market continues to be active, as well as the financing and the energy markets, and also various large-scale projects are ongoing which provide good sources of work for us. Our commercial team has become even busier as we have experienced a strong inflow of COVID-19 related client work across the board, both in Hungary and in the region, including employment matters and contract law advice.
Richard Lock: A surprising amount continues but it is not so easy to see new deals being put together. The banking moratorium has imposed something of a standstill on the finance market, but in the medium and longer term we anticipate a lot of restructuring and insolvency work. Meantime, we have been busy with crisis related advice and, for example, acting for the banks managing the recent sovereign bond issue.
PB: Transactions are put on hold in general, litigation work continued as before. Corporate and commercial law work also continued. In general new transactions are slowed down, except for some green filed developments.
BBJ: How does your pipeline for future work look. Are clients still looking for input on deals, or is everything held on pause?
ZH-B: Thankfully, we see our clients going full steam ahead. COVID-19 has presented several challenges as well as opportunities from a commercial perspective and we have had many clients seek assistance in navigating them. We are also invested in ensuring our clients are kept abreast of changes in the legal landscape arising from various governmental measures locally, regionally and globally.
EP: There is still a great deal of uncertainty on the market, which makes it almost impossible to say how future work will look. As per the optimistic view, we will be back to normal by Q3 or Q4 of this year. Some clients say that they still have an appetite to transact, and some have already inquired about the “NHP Hajrá!” program which the National Bank of Hungary launched to mitigate the negative economic effects of the COVID-19 pandemic.
IR: I am extremely proud of our team as we have been kept extremely busy by our clients in the past months and managed to close several cross-border major transactions with an overall asset value of EUR 3.5 billion. Our team regularly acts as the main transaction counsel on many of the most significant M&A deals in Hungary and across the region. Even in the current challenging circumstances, working remotely, we closed deals involving Poland, Singapore, South Africa and Serbia, just to name a few. I hope that the second half of the year will be equally busy for us, but the future is currently very blurry. We don’t know when and if a second wave of the virus will pick-up, what effect that will have on the economy; these and other uncertainties in the market may decrease the appetite of investors.
AP: We have seen some deals suspended, but the pipeline is still very busy for the next three or four months, filled with large local and cross-border transactions. The question is not the short term, and we are also confident about the long term, but there still is uncertainty about the mid-term effects of the virus on the legal market. The final effects will depend on the severity of the recession and the speed of recovery.
ÁSz-I: There are still notable deals under planning, related to which our knowledge and expertise has already been requested by our clients. Not everything has been put on hold and we expect to continue M&A transactions and restructuring. Some new real estate deals are already in the pipeline.
KF: We expect relatively strong deal flow in terms of M&A deals, on the financing market, in the energy sector and in contract renegotiations – in particular relating to large projects – as well as a pick-up in disputes.
RL: Despite all the uncertainty, some things never stopped (e.g. internal restructuring or long-term strategic steps) and it is clear that those who can, want to get business moving again as soon as possible; as ever for lawyers, those in trouble also can produce work and need advice. The combination of existing deals’ continuing momentum, crisis-related advice and early stages of new deals have kept us reasonably busy during the lockdown. There is uncertainty over how long that can continue, and how quickly the country and the global economy comes out of the lockdown, and whether there is sufficient clarity for decision making to recommence. In the medium- to long-term there is likely to be no shortage of work, whether restructuring and insolvency related to those businesses in trouble (e.g. tourism), or opportunistic buyers seeing assets available for lower price levels. In the longer-term, Hungary may be able to benefit from COVID and de-globalization related shortening of supply chains, i.e. more Asian industrials seeing a need for manufacturing capacity in Europe. The automotive industry is key for Hungary, and the recent BMW decision to pause the Debrecen development is serious but, on the other hand, the many developments related to electric vehicle technology seem positive and likely to grow.
PB: Definitely less work can be expected due to COVID-19, however, there are several new projects that still continue and litigation work is not affected either. Clients required more labor law advice than before.
BBJ: Will there be lasting changes brought about? Will more legal work be done remotely or electronically?
ZH-B: Working remotely has numerous advantages; holding meetings online, for example, can make them more accessible to people who would otherwise struggle to attend due to travel time, needing childcare, or health related issues. There is also a significant sustainability argument for working electronically. We are keen to retain these positive aspects of the recent changes in the future too.
EP: We can already see a massive shift towards the use of e-signature, digitalization, paperless employment, online payment, different payment terms in FinTech, and we can be sure that this transition will also be permanent in the future. We are quite certain that online meetings and deals will be the practice in the foreseeable future and there will be significantly less offline negotiations or meetings. Businesses as well as law firms slowly return to the workplace, however we experience many of our clients only return in rotation to avoid having many colleagues in the office at the same time.
AP: We plan for significant further investments in technology. Large global law firms seem to be in a better position to make these investments because of their economies of scale, but the exact outcome is still unclear. Efficiency will also increase with less travel and more interactions in the virtual space.
ÁSz-I: We are sure that more legal work will be done remotely, and electronic tools will be used more frequently. There will be more digital platform conferencing and training instead of traveling or meeting in person as it has now been tested and worked well during the pandemic and it is a time and cost saving method.
KF: We are finding this crisis accelerates previously commenced or considered changes in our approach to flexibility of working, the role of physical premises, digital collaboration and the value of time spent. For example, the practice of mandatory countersigning has been changing and is now exclusively being executed through virtual means (through skype or similar applications), a practice that clients are quickly getting used to.
RL: More will certainly be done online and it is extraordinary how smoothly the transition to remote working went within our office. However lawyering remains a people business and face to face working and meetings will be back.
PB: I definitely think that many more people will work remotely and the way law firms work will change significantly as a result of the COVID-19 state of emergency. Law firms will realize that they do not necessarily need as much space as they had thought earlier and that some lawyers are even more efficient from home office.
BBJ: Is there anything else to add?
PB: It is difficult to see now what will be the final outcome but, in general, law firms need to adopt to the new situation. They need to be more flexible in physical sense (how they work with their lawyers and with clients) and also commercially (they need to meet with ever more changing demands of clients).
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