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LISBON ANNUAL REPORT 2012 Lisbon on life support

An abstract from Iberian Lawyer September / October 2012 For further information please contact

May / June 2012 • IBERIAN LAWYER •


Lisbon on life support Law firms across Portugal are facing an uphill battle against a wealth of challenges. Severe austerity measures, wounded clients, cost cutting, price wars, managing talent and downsizing are among some of the issues faced. The road ahead is long and most definitely winding, and law firms are being realistic rather than optimistic. But there is the sense that, with a little imagination, agility and dynamism, they will come out fighting. Last year’s Troika Bailout saw Portugal take its first steps back from the edge. But not all its Government strides have been welcomed, or indeed tolerated. Recent demonstrations in the heart of many of the country’s cities saw an unprecedented number of people take to the streets in peaceful protest at the most recent wave of austerity measures. The Portuguese, by nature, are a people used to fighting for survival, say lawyers. They’ve been through revolutions, military coups, dictatorships and civil war. And while the crisis is proving an extremely worthwhile adversary, it will take more than this to make them hold up the white flag. That’s not saying it will be easy – far from it. The battle for survival is barely underway, and the road ahead is hardly visible under a cloud of economic depression, lack of liquidity and a paralysed domestic market. Austerity measures While the Government’s objective has been to try to reduce the deficit before it can begin to address recovery, one area that has seen some level of recovery is Portugal’s credibility with the international financial markets, says Pedro Guimarães, Partner at F. Castelo Branco & Associados, as clearly shown by the reduction in interest rates due on Portugal’s sovereign debt. Portugal had an unacceptable fiscal deficit that required drastic measures

to avoid bankrupting the country. The Troika has since recognised that the country is meeting its commitments under the MoU, and this has led to an increase in the foreign direct investment, say lawyers. But they are concerned as to whether the Government is actually taking steps in the right direction, principally because the austerity measures themselves are seen as affecting the growth of the economy. “We’re in an economic depression and everything is decreasing,” says António Soares, Head of Corporate Finance at Linklaters, Lisbon. “The question is whether the austerity measures are creating the environment for the economy to grow or destroying it.” For the time being, the severe austerity measures imposed by the Government are having a devastating effect on the economy, according to Carlos Aguiar, Managing Partner at Carlos Aguiar, Ferreira de Lima & Associados, with unemployment increasing sharply, internal consumption diminishing drastically and a very heavy tax burden imposed on the Portuguese, in particular the middle class. In fact, all the key economic indicators have deteriorated since the austerity programme began, and there is concern that Portugal may be heading towards a death spiral says Rui Amendoeira, Managing Partner at Miranda, Correia, Amendoeira & Associados, where austerity leads to more recession, which in turn forces more austerity, which causes

El rescate de la Troika el año pasado en Portugal sacó al país del abismo. Sin embargo, las acciones del Gobierno no son bienvenidas ni aceptadas por todos. La batalla por sobrevivir acaba de empezar. Los despachos tienen que enfrentarse a años difíciles, con ajustes de mercado y menos inversiones. Muchos afirman que la crisis sigue ofreciendo oportunidades a los emprendedores e incluso a despachos de abogados dispuestos a ofrecer servicios jurídicos diferenciados. Portugal está débil pero sigue en plena actividad.

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against them when it comes to supporting those making the move abroad. Many Portuguese companies are doing much better there than back home, but when trying to repatriate foreign income, many often feel penalised by stringent tax laws. António Soares, “Yes there is opportunity Head of Corporate Finance, Linklaters, Lisbon abroad, but is that money actually coming back and being invested or reinvested into Portugal?” ask Claudia even more recession. Santos Cruz, Managing Partner of AVM Advogados in Economic recovery requires also further investment, Lisbon. “The Government seems to be focusing on says Miguel Castro Pereira, Managing Partner at Abreu attracting international buyers and investors Advogados, and public investment is the motor of the but nothing is being done to Portuguese economy. “One cannot expect that private facilitate and promote the return investment will push the economy on its own. Exports or re-investment from our own are growing, but the Portuguese economy needs local companies doing well abroad.” consumption to push it further.” If the internal income available is oppressively reduced through an excessive The costs increase of tax burdens, the economy simply will not Minimising taxes in general recover. has become paramount to clients, second only to cutting Demanding clients costs across the board. And For Nelson Raposo Bernardo, Managing Partner at law firms are feeling the Raposo Bernardo, clients currently fall into three effects. “Clients are reducing categories – companies that failed, those able to handle costs and therefore reducing the situation with their own funds, and those that have providers,” says Soares at suspended projects or activities in Portugal and are Linklaters. “They want to pay investing abroad. less, split payments and allocate Liquidity is scarce in almost every economic sector work to different law firms by and financing is practically non-existent, with these factors playing a major role in the increase of insolvency selecting lawyers and comparing hourly rates, rather than going of corporate clients, says Felipe Baião do Nascimento, with just the one law firm.” Partner at Baião, Castro & Associados, a business law The scope of work and fees are and dispute resolution boutique. Lawyers are seeing being reduced or limited and caps many Portuguese companies having to restructure their are being imposed forcing law firms businesses and downsize, or obtain alternate sources of to review their expectations and finance outside of Portugal, or even the EU, to stand a strategies in the short, medium and chance of surviving. long-term. Firms will probably put And while some are adopting a ‘wait and see’ approach, the majority fall into the ‘internationalisation’ much more pressure on rigorously defining the scope of work, says Lino category, with the word attaining an almost ‘do or die’ Torgal, recently appointed Managing business status. For Amendoeira at Miranda, virtually Partner at Sérvulo & Associados, all of their Portuguese clients now have strategies because the market is constantly in place towards finding new international markets demanding law firms to set reduced fees which can compensate for a very depressed domestic caps. market. Even old companies that were traditionally Ultimately, clients look at law firms as very domestic market-centred are now looking to the contractors, says Manuel Santos Vítor, Cointernational markets as a ‘must have’ piece of their Managing Partner at PLMJ. “They want to know growth strategies. If a company, no matter its size, is how much the entire service is going to cost; not the perceived as not having an international approach of hours it will take nor the number of people involved.” some sort, this is viewed as poor management these Clients are now much more demanding. days. Internationalising within the Portuguese-speaking A challenging market countries is an area where Portugal has an advantage The current sector and market developments have been over its EU counterparts. Its historic, economic and linguistic ties give companies, and law firms, the benefit a challenge to all law firms, says Maria João Ricou, CoManaging Partner at Cuatrecasas, Gonçalves Pereira, of being able to capitalise on some of the world’s most and firms are currently being asked to provide services rapidly developing economies. Angola, Mozambique addressing clients’ needs in very competitive conditions, and Brazil are currently top of the list of markets that without of course decreasing quality and creativity. clients are turning towards. According to lawyers, the legal market’s adjustment, But while the opportunities to thrive are there, however, has been surprisingly slow. Most of the the Portuguese Government seems to be working

We’re in an economic depression and everything is decreasing. The question is whether the austerity measures are creating the environment for the economy to grow or destroying it

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biggest law firms have not Ultimately, clients look at law firms as yet effectively, or publicly, downsized. For Benjamim contractors. They want to know much the Mendes, Founding Partner at entire service is going to cost; not the hours it ABBC, there is a certain trend in some firms to lower their fees, will take nor the number of people involved.” which usually tends to backfire Clients are now much more demanding against the legal market and does not solve the real problem, as the Manuel Santos Vítor, Co-Managing Partner, PLMJ economic environment is asking for capability and efficiency. The climate is therefore demanding that management skills within law firms several fronts in order to protect their own interests.” become much more developed and efficient, says Law firms need to demonstrate that the clients will get a Gonçalo Anastácio, a Partner at SRS Advogados, positive return on their investment in legal services and and law firms need to adapt to these tougher show the end truly does justify the means. conditions. ‘Efficiency’ is the buzzword of the Internationalising moment among lawyers, and the Internationalisation is probably the biggest challenge majority are taking a good long facing law firms in Portugal, says João Caiado hard look at their internal Guerreiro, Managing Partner at Caiado Guerreiro. There structures, management, are more and more deals being done in Portuguese, resources and cost. and the Portuguese-speaking world is possibly the 4th “Recognition of such largest economy in the world – Brazil alone is the 5th. efficiency by the market As their clients are rapidly getting rid of their ties is essential, as players to the domestic market and seeking better returns of are becoming more and investment abroad, so too are law firms trying to solve more rigorous in what the puzzle of how to ensure they have the capacity to concerns ‘value for follow clients wherever they go. Or risk losing them to money’,” according to someone who can. Castro Pereira at Abreu The domestic market is and will continue to be Advogados. “Being depressed over the next couple of years as the long-term able to provide legal plan seems to be a move away from a consumption solutions, instead of led economy. The environment for public and private simply legal services, is investment is also not expected to evolve favourably crucial.” in the short-term due to scarcity of equity and debt As well as their day-tofunding in the domestic market. However, the day fee-earning, it is also crucial privatisation programme of the Government provides that lawyers bill in a timely manner the chance to work with foreign investors willing to and follow up on any unpaid invoices, as invest in Portuguese companies. law firms are currently being driven by their “Therefore, the question is to what extent can we work bottom line. Collecting on invoices has become a with clients who are trying to internationalise more and huge challenge for many firms, similarly to the rest more?” says António Rocha Alves, Campos Ferreira, Sá Carneiro & Associados. “The challenge is to work more of the economy, says Anastácio at SRS advogados. competitively in the international market, and you either “With the current economic crisis, you must expect need an international network or a global alliance.” many corporates to face problems and hold on to their Law firms also need a lot of imagination and to liquidity.” Many law firms will need to reconfigure departments, constantly search for new opportunities. “Any crisis, even specialise in areas of work that they did not offer before, severe, creates new possibilities,” says José Alves Pereira, Senior Partner at Alves Pereira & Teixeira De Sousa. and create added value for the clients, says Torgal at Most clients are actively looking to internationalise their Sérvulo. But the mere reallocation of teams alone may services or exporting their goods; therefore, being able not be enough to cope with the crisis. to help them through the creation of a solid and reliable Most likely the legal market will be facing network of contacts and partnerships is of the utmost downsizing and the appearance of new firms that are importance. more efficient in their cost structures. “We believe that But caution must be used in wholly focusing on the they will have to find alternative ways,” says Mendes international market. “Going international is not a magic at ABBC, “and we would not be surprised to see new bullet,” says João Vieira de Almeida, Vieira de Almeida & and smaller specialised law firms emerging from this Associados. “We need to fight for the Portuguese market, scenario”. and the work is there if you look for it.” Lawyers also agree the key is to change their clients’ perception as to the true value of legal services. “The (Over)size investment in specialised legal advice is always a good Many law firms that grew in the boom years did so on investment,” says Leonor Chastre, a Partner at Gómezthe basis of a perception within the market that ‘bigger Acebo & Pombo in Lisbon, “especially in an economic is better’ – but this is no longer a credible proposition. crisis, where organisations have to defend/attack on

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AAA Advogados. Both internal and external lawyers, therefore, need to work together to ensure that they do not destroy the value of the market in the long run. “The rates drop is extremely Isabel Martínez de Salas, Managing Partner, serious and we should be all Garrigues, Portugal aware of this,” says Duarte Garin, Managing Partner at Uría Menéndez Proença de Carvalho. “Mercedes isn’t going to sell cars for less than their true value, and we all need to ensure that we put a fair The domestic market cannot support the weight of the value on our services and stick to it.” number of 100+ fee-earner firms currently around, say lawyers, and many are clearly struggling to maintain the Law firm leaders same levels of activity that their lawyers had pre-crisis. With all the challenges they are facing, law firms need Some structures are almost too top heavy to withstand someone sturdy at the helm to navigate them through any more battering by the crisis. the rough seas they are sure to encounter over the “I see cuts in the workforce, demergers and partners coming years. being asked to leave, and the longer it takes, the more ‘Tough times’ doesn’t quite seem to cover what extensive and painful it will be,” says Pedro Cardigos, lawyers predict lies ahead. What they are all very clear a Partner at Cardigos. Keeping face at all costs has been on is the attributes needed to ensure that they fight the defeated by the toughest and most persistent negative good fight and come out the other side as unscathed, outlook that any Managing Partner must now call and competitive, as possible. ‘reality’. At a time when no one knows what tomorrow will With their clients visibly making cuts in their bring, the ability to see the wider picture is key, says workforce to better manage the demands of the crisis, João Macedo Vitorino, Managing Partner at Macedo law firms are not, and will not, be immune to this necessary trend. The biggest test, say lawyers, is to work Vitorino & Associados. Flexibility, resilience and never losing focus on out whether you can survive the crisis in your current providing the best service possible are all characteristics size and structure. that managing partners identify as being central to Rather than facing the question of size head on, their roles. And the ability to take the right long-term however, some law firms are responding by lowering decisions while tackling overriding short-term concerns fees and extending hours to feed their structures and is crucial, says Baião do Nascimento at Baião, Castro keep their lawyers, seemingly, busy. & Associados. Also, they need to be very aware of the fact that they cannot hold onto the hope that the past Pricing glory years will return, but being courageous enough to The market has become client-driven, and lawyers are embrace the ‘now’ and reinvent their firms strategically under increasing pressure to lower their fees. Already in line with the times. a country with the lowest hourly rates in Europe, the Law firm leaders have to provide direction and temptation to go even lower in the name of retaining lead the process of adaptation to a new market – lower clients can be excruciating, say lawyers. And they demand, different clients, different products and more can always find a strategic reason to justify doing so sensitivity to pricing, says Pedro Siza Vieira, National – feeding a structure, or to occupy their lawyers – but Managing Partner, Linklaters. This will require firms to how to stop this from happening is the issue. And for go through significant changes that will require clarity managing partners, this is one of the struggles they are facing on a daily basis. of purpose, the ability to lead the partnership in making If all law firms start price dumping, says Nuno the hard choices, and decisiveness in execution. Galvão Teles, Managing Partner at MLGTS, it would be They need to create the conditions for the effective a form of collective suicide. “We have to ask ourselves, implementation of the right strategy for the firm, whether we are prepared to lose work and not to bid says César Bessa Monteiro, a Partner at pbbr, and the so as not to participate in a fee war.” The challenge is environment for such a strategy to be understood convincing their colleagues that it’s better to lose clients and implemented within the firm. Many see this than to damage the profession. environment as being based on the concept of solidarity, Smaller firms are already feeling the effects of price with a leader having to ensure every individual within dumping coming from the larger firms, according to the team sticks together to form a united front. Rui Esperança, Managing Partner at Alvim Cortes, Managing human capital is proving a key challenge that Esperança, Vaz Osório & Associados. managing partners across Portugal face. “The management The need to feed huge and expensive structures is of human resources is a real key issue nowadays,” says growing in parallel with the decline in market activity, Isabel Martínez de Salas, Managing Partner at Garrigues in and the result is that big firms have lowered their fees Lisbon, “because that is our only asset”. and are approaching small firms in order to dispute The difficulty is in managing the expectations and their natural markets. And legal fees are often being the career of associates, when they can see what is proposed at levels that fall below our professional happening within their firm and want to know how dignity, adds Dulce Franco, a Founding Partner at they fit in and when they will make partner, says Garin

The management of human resources is a real key issue nowadays, because that is our only asset

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at Uría Menéndez Proença de Carvalho. Law firm leaders Retaining talent and managing careers therefore need to address how are big challenges at the moment, and they manage their partnership, balancing them can be difficult how to tackle motivation, and, most importantly, how to retain the talent for when the market Nuno Galvão Teles, Managing Partner, MLGTS picks up. “Retaining talent and managing careers are big challenges at the moment,” says Galvão Teles at MLGTS, “and balancing them can be difficult”. offer a clear opportunity for entrepreneurs, including But now, even more than ever before, a law firm law firms, who understand the current difficulties. leader needs to be a rain maker, says Pedro Rebelo de Those who are agile, flexible, look to the market and try Sousa, Managing Partner, SRS. This, many identified to understand what is happening, anticipate trends and as a leader’s greatest asset. And Portuguese law firms manoeuvre themselves into the best position possible. could definitely use a little rain right about now. “The ones who stand still and are not dynamic will not manage to overcome these difficulties.” Just another year And the deleveraging of the economy in the years to Looking ahead, many believe that the Government’s come could also generate significant work opportunities austerity drive may be jeopardising the return to life of the Portuguese economy. And the worry among lawyers for lawyers, says Siza Vieira at Linklaters, including privatisations, takeovers, M&A and other asset sales, is that a renegotiation of the Troika’s terms or a second credit portfolio sales, restructurings and capital markets bail out is on the cards. financings. 2012 is seen as a continuation of 2011. And the view “As lawyers, since we depend on the activity rather than among lawyers is that 2013 will be more of the same. the health of the economy, we are always the last to suffer Law firms need to dig in for the coming years, adjust and the first to benefit,” says Vieira de Almeida at VdA. to the market and be prepared to make less money. We As law firms are clearly suffering, now is the time have to get ready for whatever comes after the crisis, to ensure that they also benefit from the opportunities says Martínez de Salas at Garrigues in Lisbon, and the out there. Portugal may be down, but it is not out, and key is strategic planning and to maintain and motivate it is clear that while the mood is realistic rather than the best lawyers. optimistic, its law firms will come out fighting. For Santos Vitor at PLMJ, the crisis does, however,

Thinking beyond just Portugal Portugal has a long history of international trade, which has been particularly pertinent following the EU bailout, says Miguel Castro Pereira, Managing Partner of Abreu Advogados. This bailout has forced Portugal to sell stakes in state assets, generating great interest from new sources, he adds. “The privatisation programme attracted investors from places such as Brazil, Colombia, Spain and the UK to buy shares in national energy, telecoms and infrastructure assets.” But the headline investors in Portugal, at present, have been from China, says Castro Pereira. For example, Three Gorges and the State Grid International of China’s recent purchase of stakes in EDP and REN-Redes Energeticas Nacionais respectively. “There is also a strong trend for Chinese investment in Angola and Mozambique,” he adds. Macao is the predominant base through which China is promoting

this investment, and it is acting as a ‘gateway’ to the Portuguese-speaking markets, says Castro Pereira. Having an influence in Macao, therefore, somewhere few Portuguese firms have looked at, is proving helpful. “Since earlier this year, we have been working in partnership with local law firm C&C Advogados,” he explains, “mainly providing assistance to these Chinese investors into Portugal and Portuguese-speaking countries”. Miguel Castro Pereira But the expectation is that this international angle could bring opportunities for Portuguese business investment into mainland China’s Macao se presenta como domestic market. “As Portugal is facing una puerta de entrada a a shortage of cash flow and the internal Asia para los mercados investment has stopped,” says Castro de habla lusa, afirma Pereira, “trade with Asia is becoming Miguel Castro Pereira, de increasingly important”. Abreu Advogados. Son As their clients are taking full advantage los propios clientes los of the Macao bridge between Asia and que están aprovechando Portuguese-speaking countries, law firms will ese puente con resultados need to ensure they have a presence there to muy satisfactorios. be a part of this new investment trend. May / June 2012 • IBERIAN LAWYER • 31


A time for transparency With partner performance driving the revenue of law firms, making sure everyone is working at their best is top of the agenda Law firms are increasingly under pressure to be more commercial and transparency is becoming paramount – something that is still lacking in many Portuguese law firms, says João Vieira de Almeida, Managing Partner at Vieira de Almeida. His firm has responded by equitising all partners and introducing a partner evaluation system, based on the three main drivers of alignment, motivation and, of course, transparency. “Everyone was in line with the firm’s João Vieira de Almeida strategy and objectives,” he says, “but we now have everyone economically aligned La importancia del trabajo as well.” The introduction of an evaluation y de la productividad de los socios actualmente es crucial mechanism also works to motivate people, at a time where growth is no longer para los resultados de los automatic or guaranteed. despachos, afirma João What they´ve effectively created is a Vieira de Almeida, de VdA. Además es el mercado el gate system based on points, says Vieira de que presiona a las firmas de Almeida. From the most junior lawyer to abogados para que sean más the most senior partners, every category has competitivas y transparentes a specific competency profile and knows en su práctica diaria, lo cual es un cambio importante para what their careers could look like – but now everyone is also evaluated. la cultura de la mayoría de “Before the gate you are learning what despachos en Portugal.

being a partner means, and there’s more flexibility to go up or down,” he explains. “Once you are through the gate, your progress becomes steadier, and losing points becomes more of an exceptional circumstance.” VdA has introduced an evaluation committee, including partners from all levels so as to make it an inclusive and fair system, he says. “I think culturally it’s going to be demanding because partners aren’t used to being evaluated by their peers.” But he doesn’t expect a revolution. “We’ve inserted mechanisms that make it progressive. But it is going to happen.” There are risks, of course, to everything being out in the open. “But I think that’s also the opportunity,” he says, “because you can tackle the issues instead of pretending that they don’t exist.” For Vieira de Almeida, setting clear career objectives and evaluating progress is the way forwards in terms of the sustainability of a law firm through the economic crisis and beyond.

Talent management The hiring and development of young lawyers is now a priority for Portuguese practices, says Duarte Garin, Managing Partner of Uría Menéndez-Proença de Carvalho. During the boom years, law firms were hiring large groups of young lawyers, he says, and while firms such as Uría maintained those levels, others reduced their intake. “As such, there are now more candidates of quality Duarte Garin but not as many openings, meaning El reclutamiento y desarrollo lawyers need to be much more aware of their career development.” de jóvenes abogados con Law firms are now looking at ways talento es una prioridad para el crecimiento de to attract this talent. Incentives include la práctica jurídica en offering training in specialised practice Portugal, dice Duarte Garin, sectors and the ability to work in an de Uría Menéndez-Proença international network. Garin says that de Carvalho. En estos at any one time Uría has four or five momentos el mercado ha Portuguese lawyers working in offices cerrado muchas puertas, such as Madrid, São Paulo, New York por lo que los abogados and London. tienen que ser más Garin says that one critical factor conscientes de su plan de carrera profesional. for the process is to manage lawyers’ 32 • IBERIAN LAWYER • May / June 2012

expectation from the start of their careers. “For example, having thorough and clear appraisals help lawyers to understand how they are developing and the options for them.” Not doing so will be of no benefit to the law firm or the lawyer, he adds. A contributing factor in this shift in expectation is a greater emphasis on the so-called work-life balance. The culture has been changing in recent years, he says, and lawyers are looking for successful careers but ones that allow time for life outside of work. “Candidates for traineeship have realistic expectations, and how they see themselves progressing in the firms is probably more realistic these days than it was a decade ago,” says Garin. “That said, it is vital to have a career plan to present lawyers with how they are likely to progress in the firm and what is expected of them to achieve this.”


Taxing itself out of the race While Portuguese companies are doing well in Angola and Mozambique, when repatriating dividends and profits, however, many are facing unfavourable tax treatment While there are double taxation treaties and exemptions in place with Mozambique and Angola, respectively, says António Vicente Marques, Founding Partner at AVM Advogados, when investors bring dividends back to Portugal, many are being re-taxed. For example, corporate income tax (CIT) on profits of a local company is 35 percent in Angola and 32 percent in Mozambique. However, where the local entity’s shareholder or parent in these jurisdictions resides in Portugal, dividends distributed from profits and repatriated back to Portugal are, in theory, taxed again. This is at a rate of 25 percent unless a double taxation agreement (DTA) exists or the dividends fall within the article 42 exemption of the Portuguese Tax Benefits Statute. While appearing to act as an incentive to Portuguese entities repatriating their dividends and profits from abroad, says Vicente Marques,were it not for the express exception that where the local subsidiary benefits from any form of tax exemption from paying tax on profits in those jurisdictions, then the Portuguese resident shareholder can no longer rely on the DTA or article 42 exemption above. Given the emerging market status of countries like Angola and Mozambique, that wish to attract foreign investment and therefore inevitably offer tax exemptions, in most cases the Portuguese shareholders end up paying tax on profits or dividends repatriated back to Portugal. For this reason, and also because the CIT rates in Portugal are high anyway and expected to increase under the austerity drive, many are restructuring their operations and moving their holding company to countries with more beneficial taxes, like Malta, Ireland, and the Netherlands where the holding companies receive a far more advantageous tax treatment, he adds. “The business community has no other option besides moving the holding company to a more tax friendly country.” When many investors go to these countries, they do so to make substantial investments, says Claudia Santos Cruz, Lisbon Managing Partner, and the respective local governments provide them with reductions. We have seen a recent trend of companies foreseeing high profits and

moving their headquarters to other countries, which harms the Portuguese economy and growth, because potential investors are fearful of bringing profits back into Portugal. The State has focused its efforts on foreign investments and promoting Portuguese companies abroad and under the austerity programme increasing tax revenues and privatising state interests, says Santos Cruz, however, very little has been done to ensure and facilitate the return of investments from our own companies that are successful abroad. “They are not taking steps to alleviate the tax burden or attract reinvestment back into Portugal.” This would require a reduction in general tax rates. Conversely, the Government is instead increasing the amount of taxes with higher incomes also now subject to a State surcharge. Until 2011, there was also a holding company exemption for dividends from Portuguese or EU subsidiaries but this was revoked in 2011. Portugal also introduced an exit tax for companies wishing to move their operations outside of its borders. “The EU has said this breaches the freedom of establishment principle under the EU Treaty,” says Santos Cruz. They are, however, seeing clients restructuring, moving out and taking a short-term hit by paying the exit tax because in the long-term the tax benefits and level of profits will be significantly better. Most are of Portuguese origin with international operations, but because of the measures at home they are moving, they say. Smaller clients are also thinking twice, says Vicente Marques, as they don’t have a holding structure, so they set up in Angola or Mozambique and just reinvest there or start over somewhere else. It’s a question of optimising business decisions. “We are likely looking at a future where many of the successful Portugal-based companies will have their registered offices or holdings abroad,” he adds. Aside from the EU, companies are already investing in, for example, San Tomé, Mauritius, in other African countries or even Hong Kong. The Government wants reinvestment into Portugal, he adds, but you don’t do this by imposing more taxes, you get exactly the opposite effect. What this all means, ultimately, is that the investment is not coming back into Portugal at a time when it is sorely needed. And law firms are having to refocus to ensure they are following their clients as they redomicile their operations.

António Vicente Marques

Claudia Santos Cruz

Aunque la mayoría de empresas no tienen dificultades en repatriar dividendos o beneficios de Angola y Mozambique a sus paises de origen, hay algunas empresas que siguen sufriendo un trato desfavorable en cuanto al pago de impuestos, dice António Vicente Marques, de AVM Advogados. Por eso son muchos los que estan reestructurando sus operaciones y trasladando su empresa holding a paises con más ventajas fiscales.

May / June 2012 • IBERIAN LAWYER • 33


Innovating out of the crisis Portuguese law firms are finally facing up to the economic environment, and acknowledging that cutting costs and a little imagination are a way out

Manuel Santos Vítor

Las firmas portuguesas estan finalmente sufriendo las consecuencias de la crisis y reconociendo que deben recortar costes y ser creativas para salir de ella. La mayoría de ellas no supieron prever que duraría tanto tiempo, dice Manuel Santos Vítor, de PLMJ, y siguen con la esperanza de que mejore pronto la situación.

At the start of the crisis in 2008, US, UK and northern European law firms cut costs, dismissed partners and downsized. Iberian law firms, however, did not react in the same way, says Manuel Santos Vítor, Co-Managing Partner at PLMJ. “Many did not anticipate it would last this long or be so severe,” he says. “We had been hoping things will improve.” But times have since changed dramatically. “Some law firms are fighting for clients on price alone, with probably 90% of mandates being won or lost on that basis,”says Santos Vítor. And there are increasing cases of price dumping, he adds. “But those firms are sending the wrong messages; you get more in the short-term but you will suffer in the long-term.” If law firms are not generating sufficient revenues or fees, he says, they need to cut costs, explore new avenues of revenue and, as a last option, downsize.

“We are managing costs in terms of operational matters, new investments and suppliers,” says Santos Vítor, “but times are demanding that law firms come out of their shells.” PLMJ are now doing transactions in places they wouldn’t have been a few years ago, such as Latin America, nonPortuguese affiliated African countries and China. “We are also taking the lead in transactions, rather than relying on international firms to do so as in the past.” The big challenge is that law firms are being forced to turn their attention towards their people, says Santos Vítor. “Everybody in the firm has to play an active role in overcoming the crisis. On top of delivering quality and timely service, lawyers have to be efficient, economic, bill timely and wisely, and collect.” Law firms also need to differentiate between lawyers, he adds, in terms of the results that they bring to the firm as a whole.

Sharing know-how

Benjamin Mendes

Luis Filipe Carvalho

The influence of Lisbon’s legal elite is spreading to Africa, says Benjamim Mendes, Founding Partner of ABBC & Associados. Angola and Mozambique – former Portuguese colonies – are extremely active, he adds, as law firms look to profit from the business generated by the countries’ natural resources – not least as the legal regimes in both jurisdictions are based on Portuguese law. “Around ten Portuguese law firms have entered Angola, with five or so doing the same in Mozambique,” he says. “Our firm formed a partnership with VCA – Vitor Carvalho & Associados – in Angola last year and hope to finalise a deal in Mozambique before the end of 2012.” Luis Filipe Carvalho, a Partner at ABBC, says that there are challenges for ambitious market entrants, however, Portuguese firms are prohibited from practising in both countries so have to form local alliances.

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Angola’s capital Luanda is also regularly voted the most expensive city in the world, with 40 percent of the population residing there. Mozambique is considerably more regionalised, but still not cheap. “The boom in oil and gas has made both countries very expensive,” Carvalho adds. “Hiring local lawyers and staff and finding office space can be costly.” And one area in which Portuguese firms are helping develop the local market, he says, is training lawyers. “Really good local lawyers are hard to find,” says Mendes, “and standards are often below what international clients would expect from counsel”. This has put the emphasis on Portuguese law firms to hire and train local lawyers, both domestically and in Lisbon, creating an axis between Portugal and Africa. And these concerns over quality are where the Lisbon practices can really step in and make their mark.


The future is in exports Being business-oriented, helping struggling clients export their business and taking advantage of the Portuguese-speaking Community are key to mitigating the crisis Portugal has two short-term problems, according to João Caiado Guerreiro, Managing Partner at Caiado Guerreiro. “A lack of capital and liquidity, and the absence of a domestic market.” Clients are therefore increasingly moving from a domestic-based approach to an international focus, he says. But it’s not by design or deliberate choice – they have to go out and sell somewhere else because they can no longer do so in Portugal. “You can restructure, get rid of debt and fire people, but there’s a limit. Either you export or you close down.” Even the medium to big Portuguese companies are looking elsewhere to export their business, with the biggest draw being Angola and Mozambique, he adds. “But we are also helping clients move into Brazil in particular, and also within the Community of Portuguese Speaking countries (CPLPs).” Caiado Guerreiro is involved in lobbying for the change of customs agreements to facilitate trade between

the CPLPs. For example, the Portuguese Government and the CPLP are trying to get Brazil to slightly bend its rules to allow what is considered ‘national content’ in Brazil to include Portugueseproduced goods as long as the majority of capital is Brazilian. “And they have been very receptive to this.” They are also helping their clients get financing to be able to adapt their products so that they can start selling internationally, and establish subsidiaries abroad. “We used to do it because it was good business,” says Caiado Guerreiro, “but now we have to be even more business oriented.” Law firms are having to become more and more like investment banks, he adds, just without the capital. But there are opportunities to be had: by helping clients find new markets, figure out financing, sell parts of their companies, buy others and export their products, law firms will also be helping themselves out of the crisis.

João Caiado Guerreiro

Portugal tiene dos problemas a corto plazo, dice João Caiado Guerreiro, de Caiado Guerreiro: la falta de capital y liquidez, y la inexistencia de un mercado propio o doméstico. Cuando una firma quiere tener un foco empresarial es importante ser capaz de acompañar a los clientes en su internacionalización.

From Lisbon to Central/Eastern Europe While Lisbon is best known as a platform to Portuguese-speaking countries, a new trend of looking east is emerging, says Nelson Raposo Bernardo, Managing Partner of Raposo Bernardo. “With the lack of liquidity and financing currently in Portugal, we have been observing a growth in clients looking to Central and Eastern Europe for investment opportunities,” he says. “And they are mostly focusing on Poland, Romania, Slovakia, Ukraine, and also Russia.” Earlier this year, the Portuguese and Polish Presidents spoke at a joint conference regarding economic cooperation and highlighted the successful investment by many Portuguese companies in Poland. While there aren’t many Polish investments in Portugal yet, adds Raposo Bernardo, the hope is that over the coming year more investment will start to flow between the two countries.

Aside from the traditional sectors, such as corporate and commercial law, the firm is advising companies from IT, real estate and construction investigating the possibilities Central and Eastern Europe have to offer. But rather than using firms based there, interestingly they are using Lisbon as a base from which to do so, says Raposo Bernardo, going with their existing Portuguese advisers. “But while we serve our clients mostly from our office in Lisbon, we felt that having someone on the ground was an advantage.” Therefore Raposo Bernardo opened offices in Poland and Romania in the first half of 2009, he says, to support clients that were beginning to turn their attention towards Central and Eastern Europe. Now, they say they are even seeing Spanish clients looking to invest there, Raposo Bernardo adds. “This is a priority project for us, and we believe that this trend will continue.”

Nelson Raposo Bernardo

Lisboa es reconocida como plataforma de entrada a los países africanos de habla lusa, pero se percibe una nueva tendencia de interés de negocio hacia el este de Europa, dice Nelson Raposo Bernardo de Raposo Bernardo. Las empresas parecen encontrar salida en países como Polonia, Rumania, Eslovaquia, Ucrania o Rusia.

May / June 2012 • IBERIAN LAWYER • 35


Portugal examining PPP payments The renegotiation of existing contracts may mean a potential change in the next generation of PPPs

José Luís Esquível

El rescate de €78bn en el 2011 de la Troika incluye provisiones que obligan al Gobierno a revisar sus mayores contratos de PPP y a renegociarlos, afirma José Luís Esquível, de Esquível Advogados, lo que significa que el mercado tiende hacia las privatizaciones o hacia el modelo tradicional de concesiones.

The Troika’s 2011 €78bn bailout package includes provisions that the Government must go back to the major existing PPP contracts and look at renegotiating them, says José Luís Esquível, Managing Partner at Esquível Advogados. “To help ease the debt crisis, one of the main aims is to reduce the amount of concession payments made by the Government,” says Esquível. To this end, contractors are being asked to see if they can operate projects more efficiently too. Concession companies enjoyed a strong run of Portuguese public-private partnership (PPP) projects in the mid2000s. Transport projects and some social infrastructure schemes, such as hospitals and roads, were tendered to private sector developers and investors after the structure was first passed into law in 2003. The PPP mechanism allows companies to design, build, maintain and – crucially – finance projects directly. The local authorities then offer regular payments for use of the project or payments based on certain performance targets in terms of the operation of the project. Portugal has truly embraced the PPP model, says Esquível. Some sources, such as PriceWaterhouseCoopers, estimated that at its peak Portuguese PPP activity was the highest in the world in terms of GDP. Roads and railways were especially active with around 30 deals signed over a five-year period, plus a number of existing concession contracts – such as the Alcântara port, the Oporto Light Rail System and the Vasco da Gama bridge – shifted to a PPP model once the original contract had expired. One of the key benefits of PPPs, at least for the Government, he adds, is to shift the responsibility for coming up with the billions of Euros needed to fund such programmes from the State to the private sector. He points out, however, that the Portuguese PPP sector is now entering a crucial time following the bailout. The Government has also undertaken a thorough review of Portugal’s largest PPP contracts and, in August 2012, the first renegotiation was concluded. That deal saw Ascendi, owned by Banco Espírito Santo, and Mota Engil agree

36 • IBERIAN LAWYER • May / June 2012

to cut the amount they receive from the Government for the Pinhal Interior motorway scheme. Last year also saw other motorway contracts shifted from shadow toll payments (where payment is based on the amount of vehicles using the road) to availability payments (where payment is based on the use of the road only). It is hoped similar renegotiations could slice payments across the PPP programme by up to a third, says Esquível, saving billions but also putting concession companies in a complicated position. While they are renegotiating state payments, the financings for the projects – usually in the form of non-recourse debt to banks – is often tied to levels of payments and this could cause a disconnect. “I don’t think this initiative will result in many refinancings because the banks would ask for higher pricing on any new debt, which will make it hard to operate some projects,” he adds. “I think the financings will remain as they are and it will be down to the concession companies to handle the lower revenue.” The renegotiations have raised questions over the future of PPPs in Portugal, says Esquível. The Troika, for instance, included a clause excluding new PPPs until the process is finalised as well as provisions for legislation to tighten up the risk profile of such projects. In essence, this means that the Ministry of Finance will have to scrutinise future PPPs a lot more closely to assess the risks before agreeing any deals. As such, projects – such as the new Lisbon Airport or the Lisbon-Madrid High Speed Rail Link – remain where they have been for the last decade – at the planning stages. There could instead be new solutions put forward, adds Esquível, although Portugal is awaiting its latest state budget before a clearer idea of priorities can been established. “We have to be realistic about the next generation of PPPs and wait to see what happens with the renegotiations. I think the market may shift towards privatisations,” he says, “or a more traditional concession model with a different risk matrix.”

LISBON ANNUAL REPORT GUIDE TO LAW FIRMS AAA Advogados, Rua Alexandre Herculano, 50 – 9.º 1250-011 Lisboa Contact: Tel: Email: Main practice areas:

Dulce Franco / Gabriela Rodrigues Martins + 351 21 330 93 00 Fax: + 351 21 330 42 33 / Web: Banking and Finance, Corporate and M&A, Commercial & Contracts, Dispute Resolution, Energy & Utilities, Labour & Employment, Private Equity, Restructuring & Insolvency, Renewable Energy, Tax

ABBC e Associados, Largo S. Carlos, Nº 3 1200-410 Lisbon Contact: Tel: Email: Main practice areas:

Benjamim Mendes + 351 21 358 36 20 Fax: + 351 21 315 94 34 Web: Corporate & M&A, Dispute Resolution, Employment, Energy, EU & Competition, Finance & Projects, IP, Public Law, Real Estate, Aviation and Tax

Abreu Advogados, Av. Das Forças Armadas, n.125, 12º, 1600-079, Lisbon Contact: Tel: Email: Main practice areas:

Miguel Castro Pereira + 351 21 723 18 00 Fax: + 351 21 723 18 99 Web: Litigation (Criminal, Civil, Commercial) Arbitration & Mediation, Corporate & Commercial (M&A, Private Equity, Insolvency & Restructuring), Sports, Banking & Finance, Tax, Real Estate

A.M.Moura Advogados, RL, Rua da Escola Politécnica, n. 167 – 1 andar Contact: Tel: Email: Main practice areas:

Adelaide Moura + 351 21 829 72 10 Fax: + 351 21 824 32 61 Web: Banking, Competition, Contracts, Corporate, Environment, Labour, Litigation, Mergers, Restructuring, Tax

AVM Advogados, Carlos Alberto da Mota Pinto, Amoreiras Square 17A, 8ºB, 1070-313 Lisbon Contact: Tel: Email: Main practice areas:

António Vicente Marques / Claudia Santos Cruz + 351 30 450 10 10 Fax: + 351 30 450 10 09 Web: Full Service International and Commercial

BCA – Baião, Castro & Associados – Sociedade de Advogados, RL, Av. Cinco de Outubro, n.º 17, 8th floor 1050-047 - Lisboa

Contact: Tel: Email: Main practice areas:

Felipe Baião do Nascimento + 351 21 319 06 40 Fax: + 351 21 319 06 44 Web: Corporate & Commercial Law, Banking & Finance, Mergers & Acquisitions, Litigation & Arbitration, Public Law

Cuatrecasas, Gonçalves Pereira, Praça Marquês de Pombal 2, 1250-160 Lisbon

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Maria João Ricou and Diogo Perestrelo + 351 21 355 38 00 Fax: + 351 21 353 23 62 Full Service Law Firm

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LISBON ANNUAL REPORT GUIDE TO LAW FIRMS Esquível Advogados, Avenida António Augusto de Aguiar 5, 2º B, 1050-010 Lisbon Contact: Tel: Email: Main practice areas:

José Luís Esquível + 351 21 384 53 10 Fax: + 351 21 384 53 19 Web: Administrative & Public Law, Project Finance & Infrastructure, Dispute Resolution, Energy & Utilities and Environmental

F. Castelo Branco & Associados, Avenida Liberdade 249, 1º, 1250-143 Lisbon Contact: Tel: Email: Main practice areas:

Pedro Guimarães + 351 21 356 75 00 Fax: + 351 21 358 75 01 Web: Administrative, Environmental, Infrastructure & Projects, Finance, Banking, Competition & EU, Property, Construction & RE, Corporate, M&A, Dispute Resolution, Litigation & Arbitration, Employment, IP & Tax

Garrigues, Av. da Republica, 25-1º, 1050-186 Lisbon Contact: Tel: Email: Main practice areas:

Isabel Martínez de Salas + 351 21 382 12 00 Fax: Web: Full service law firm

+ 351 21 382 12 90

Gómez-Acebo & Pombo, Avenida da Liberdade, 131. 1250 Lisbon Contact: Tel: Email: Main practice areas:

Albano Sarmento +351 21 340 86 00 Fax: +351 21 340 86 08 Web: Construction & Public Works, Commercial, Commercial Contracts and Tax

Caiado Guerreiro & Associados, Rua Castilho n.º 39 – 15º, 1250-068 Lisbon Contact: Tel: Email: Main practice areas:

João Caiado Guerreiro +351 21 371 70 00 Fax: +351 21 371 70 01 Web: Corporate and M&A, Banking & Finance, Arbitration & Litigation

pbbr - Pedro Pinto, Bessa Monteiro, Reis, Branco, Alexandre Jardim & Associados - Sociedade de Advogados, Avd da Liberdade 110, 6º, 1250-146 Lisbon

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Pedro Pinto + 351 21 326 47 47 Fax: + 351 21 326 47 57 Web: Commercial and Corporate, M&A, Private Equity, IP, Advertising, TMT, Real Estate, Employment, Banking & Finance, Capital Markets, Administrative, Planning & Environment, Competition, Tax, Litigation and Arbitration

PLMJ, Sociedade de Advogados, Avenida da Liberdade 224, Edificio Eurolex, 1250-148 Lisbon

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Manuel Santos Vítor + 351 21 319 73 00 Full Service Law Firm

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+ 351 21 319 74 00

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LISBON ANNUAL REPORT GUIDE TO LAW FIRMS Raposo Bernardo, Avenida Fontes Pereira de Melo 35, 18º, 1050-118 Lisbon Contact: Nelson Raposo Bernardo Tel: + 351 21 312 13 30 Fax: + 351 21 356 29 08 Web: Email: Main practice areas: Full Service Law Firm

Sérvulo & Associados, Rua Garrett 64, 1200-204 Lisbon Contact: Lino Torgal Tel: + 351 21 093 30 00 Fax: + 351 21 093 30 01 Web: Email: Administrative & Public Law, EU & Competition, Banking & Finance, Labour & Main practice areas: Employment, Capital, Markets, Corporate & M&A, Project Finance & Infrastructure, Commercial & Contracts, Dispute Resolution, Energy & Utilities, Tax and Environmental SRS Advogados, Rua Dom Francisco Manuel de Melo 21, 1070-085 Lisbon Contact: Pedro Rebelo de Sousa Tel: + 351 21 313 20 00 Fax: + 351 21 313 20 01 Web: Email: Main practice areas: Commercial, Corporate/M&A, Competition/EU, Dispute Resolution, Energy, Environment, Employment, Finance, Infrastructure & Transport, Life Sciences, Public, Real Estate, Shipping, Tax and TMT Uría Menéndez - Proença de Carvalho, Edifício Rodrigo Uría, Rua Duque de Palmela 23, 1250-097 Lisbon

Duarte Garin + 351 21 351 53 66 Fax: + 351 21 092 01 01 Web: Corporate & M&A, Real Estate, Planning, Employment, Tax, Dispute Resolution, Projects, Banking & Finance, Insurance, Competition, Restructuring & Insolvency, Energy, Shipping, Public Law and Intellectual Property

Contact: Tel: Email: Main practice areas:

Vieira de Almeida & Associados, Avenida Duarte Pacheco 26, 1070-110 Lisbon João Vieira de Almeida +351 21 311 34 00 Fax: +351 21 311 34 06 Web: Full service Portugal, Angola, Brazil and Mozambique

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