There have been a few late nights at many of Austria’s top law firms in the past year. At the end of 2009, the government was dealing with the emergency nationalisation of the country’s sixth largest lender, Hypo Group Alpe Adria (HGAA), and Austria’s top lawyers had been called in to help clear up the mess.
Speaking to LB about the restructuring in 2010, Markus Heidinger, lead partner at Wolf Theiss, explained that ‘the deal was especially challenging’. After racking up huge debts, the bank was purchased by the government for a nominal E1. It has been a monumental task so far, but the work is far from over.
‘Our white-collar team is a response to requests from clients. There is uncertainty about professional compliance.’
Wolfgang Höller, Schönherr
Cut to 2011 and the fallout from the banking crisis continues, with HGAA expected to lose some $1bn in 2010. But while restructuring work has slowed down in the main, the government and shareholders are now trying to figure out who is to blame for these mammoth losses and write downs. It is now disputes work that is forcing Austrian lawyers to work around the clock as shareholders question the advice that left them exposed to risky real estate deals and the government ponders why it is propping up banks.
‘Dispute resolution work has increased a lot,’ says Irene Welser, managing partner of Cerha Hempel Spiegelfeld Hlawati (CHSH). ‘There are a huge number of investor litigation cases before the court of commerce. As a trend people aren’t willing to write off their claims, they want to pursue them before reaching a settlement’, she adds.
Crime scene investigation
Acting for the Austrian government during the nationalisation were the Ministry of Finance’s own state attorneys, the Finanzprokuratur, while Wolf Theiss teamed up with Vienna-based Kosch & Partner Rechtsanwälte and KPMG to advise HGAA in its negotiations with the government and the bank’s shareholders. But HGAA continues to keep a wider pool of lawyers busy as well, as the web of money across Europe is untangled. The bank benefited from state guarantees that allowed it to raise money cheaply from the markets despite being undercapitalised. Special government task forces have been set up to investigate possible misuse of funds. Known as CSI Hypo (after the US drama CSI) and Soko Hypo, the task forces are focusing on investigating 40 suspects across Europe over the collapse of the bank. While much of the work is yet to filter through to lawyers (or else remains confidential), it seems certain that multiple litigation proceedings will run on for many years.
‘There will be criminal cases against everyone involved,’ says Peter Polak, name partner of mid-sized Vienna firm Fiebinger, Polak, Leon & Partner. ‘There are endless disputes between shareholders going on and collection issues for loans across Eastern Europe. It’s going to be everywhere over the next few years.’
The name that keeps cropping up is Jörg Haider, the far-right politician who died in a car crash in October 2008. From 1989 to 2008, when Mr Haider was the governor of Carinthia, he worked closely with HGAA, securing investment in several projects for the province, including a new football stadium and several golf courses. But according to state prosecutors some E200m flowed into the general state budget for Carinthia rather than being invested in development projects. In July last year prosecutors investigating HGAA’s finances discovered that Haider had access to a dozen secret bank accounts in Liechtenstein containing millions of euros, which it is alleged came from HGAA as payment for Haider using his political connections across Europe. One Austrian partner summed it up rather succinctly: ‘He was using Hypo as his own personal bank account.’
‘Dispute resolution work has increased. People aren’t willing to write off claims, they want to pursue them before reaching a settlement.’
Irene Welser, CHSH
In August HGAA’s former chief executive Wolfgang Kulterer, who had close connections to Haider, was arrested and charged by state prosecutors with misuse of the bank’s funds. The charge is linked to a $2m loan to Styrian Airways AG, a carrier that later went bankrupt and is part of a wider probe into Kulterer’s time at the bank. Kulterer is not being represented by a big Austrian firm, but by a sole practitioner in Klagenfurt, Ferdinand Lanker.
The focus on corporate crime and investigations across the Austrian market has seen several firms try to pick up more white-collar work. Schönherr set up a new white-collar crime team back in October after hiring a junior partner, white-collar crime, compliance and anti-corruption specialist, Heidemarie Paulitsch, from Wolf Theiss earlier in the year. Head of the team Wolfgang Höller says: ‘The team is a response to the increasing requests that we receive from clients about the individual responsibility and liability of managers.’ He adds: ‘There is a lot of uncertainty about professional compliance.’ That uncertainty is likely to continue.
At Wolf Theiss, which has had a white-collar practice since the mid-1990s, litigation partner Bettina Knoetzl believes that Schönherr is jumping on the bandwagon a bit late. ‘Schönherr didn’t focus that much on litigation and dispute resolution in the past and it has a real lag there and is not involved in the big cases,’ she says. ‘White-collar is a booming area and there is a general trend that white-collar practices are growing,’ she adds.
But white-collar practices will always be a niche area, as Florian Kremslehner, head of disputes at Dorda Brugger Jordis succinctly puts it: ‘There are not necessarily more crooks because of the crisis.’
Property disputes
Real estate funds have also been under the spotlight. Austria’s property market hasn’t quite faced the crash that much of Europe suffered. According to a report by property brokers Colliers International, investment in Austrian property in 2010 was comparable to volumes seen in 2005/06, unlike European markets such as Ireland and Spain that are still lagging way behind boom levels. But Austrian investors have been hit hard by the over-exposure of some publicly quoted real estate companies to shaky investments across Central and Eastern Europe.
As the value of these real estate funds has tumbled, there have been accusations of fraud and financial irregularities, with many shareholder groups launching legal action against their financial advisers. Most of these claims have been launched by smaller investors who were sold supposedly ‘mundelsicher’ (gilt-edged) real estate investments and feel hard done by after losing millions of euros as the eastern European property market crashed.
One major case to hit the headlines was the fall of real estate fund Immofinanz, which lost up to 95% of its value in 2009. The trouble began after a dispute over the whereabouts of E512m raised via a bond issue that went missing between Immofinanz, one of its subsidiaries and a Vienna-based private bank, Constantia Privatbank. As a result investors lost confidence in Constantia Privatbank and, as in HGAA’s case, in December 2009 the government stepped in and forced the bank to restructure and be sold off to a consortium of other banks.
‘We will see lots of disputes cases in the future. It’s like a flood that goes away but will leave traces.’
Florian Kremslehner, Dorda Brugger Jordis
Again the restructuring work proved fruitful for many firms, with Fiebinger, Polak, Leon & Partner acting for the shareholders of Constantia Privatbank. Specialist banking firm Fellner Wratzfeld & Partner advised on the restructuring and sale to a consortium of banks, including UniCredit Bank, Erste Group, Bawag, Raiffeisen Zentralbank and Volksbank. Constantia Privatbank itself was represented by heavyweight Vienna-based banking firm bpv Hügel.
But as the restructuring work for the big firms has ended, smaller outfits have stepped in to assist shareholders with litigation. One small firm that has picked up a fair share of work in the Constantia Privatbank shareholder litigation is the two-partner Viennese firm Kerres | Partners. ‘It was a clear Ponzi scheme,’ says managing partner Christoph Kerres. ‘Money was used to buy new shares on the market and used to push up the value of stock. There are several hundred civil cases pending and we represent the majority of them.’ Kerres says that in one branch of the commercial court in Vienna there are 20 judges currently occupied with Constantia Privatbank shareholder cases.
‘These scandals are of an enormous size for a small country like Austria,’ adds Kerres. ‘Take the Madoff scandal, that was a $40bn case internationally. In Austria alone, the Constantia Privatbank scandal is worth E13bn.’
At Binder Grösswang Rechtsanwälte, disputes partner Christian Klausegger believes that many of these types of disputes will run for the next year or so. ‘You’ll usually find the larger firms have been working with the banks on restructuring work,’ he says. ‘Surprisingly there are only a handful of smaller law firms that are launching these disputes for shareholders. It should go on for one more year or two. A lot of it’s not in the public domain but my best guess is that dispute resolution will continue to gain importance for law firms in Austria.’
Kremslehner agrees. ‘The past few years have changed the mindset of investors, it’s like a flood that will go away but will leave traces,’ he says. ‘We will see lots of similar cases in the future, though there may be less volume and amounts claimed.’
As the Austrian authorities and shareholders continue to unpick the mess of the banking crisis for the next year or so, Austrian disputes lawyers will be spending a few more late nights at the office. LB