Ukraine's legal industry ground to a halt in 2010 with many local firms reporting a tough year. Suzanna Ring charts the changes in the region's market

"I think it's fair to say that 2010 has been a prolongation of the post-financial crisis market that we got used to in 2009," says Magisters local managing partner Andrew Mac.

In contrast to its Russian peer, the Ukrainian market did not pick up last year and there was a lack of notable deals in the market. Cuts in both fee earners and rates have remained as firms struggle to cope in the depressed market.

Mac adds: "I think there were a combination of reasons for the lack of activity this year including the fact that this was one of the emerging markets that was doing disproportionately well before the crisis, and as a result it is doing disproportionately badly now."

While deals were scant, one of the few transactions in 2010 did, however, mark the largest merger in Ukrainian history, with Russia's Altimo and Norway's Telenor Group combining their stakes in mobile phone operators Russian VimpelCom and Ukrainian Kyivstar GSM to create VimpelCom.

Orrick Herrington & Sutcliffe, Skadden Arps Slate Meagher & Flom and Magisters lined up on the $23.8bn (£14.9bn) deal, which was completed in May 2010 after four years of negotiations.

As companies look to cut back on external legal spend, a number moved to set up their own in-house legal function in 2010. Asters managing partner Oleksiy Didkovskiy comments: "What has been extremely interesting this year is that huge businesses have been trying to build their own in-house legal teams, which has meant that law firms have seen less work.

"There are two reasons for this. First, businesses are concerned about confidentiality so they want to work and play inside their own teams and second, they are looking to save money wherever they can."

Didkovskiy adds that while he sees the logic behind this, businesses can only use their lawyers for general work and still require law firms for anything that is remotely niche. He says: "In-house teams can't be professionals in everything and there are some niches where they just cannot compete with law firms."

More movement

Despite taking work away from the legal market, in-house teams did provide another home for the large number of lawyers that fell victim to the redundancy rounds of 2009, with movement across the market generally having remained high ever since.

Magisters global head of tax Oleh Marchenko left the firm in 2010 with two associates to set up his own boutique, Ulysses, which offers services in corporate, dispute resolution, real estate and tax. The majority of Magisters' tax practice also joined the new firm in May.

Meanwhile, local outfit Volkov Koziakov & Partners, which was formed through a merger between Volkov & Partners and Sergiy Koziakov & Partners in 2008, split in two last year, with both firms resuming their former titles.

Ilyashev & Partners managing partner Mikhail Ilyashev cautions: "There have been significant reductions in staff numbers over the past year or so with up to 70% of fee earners cut in some firms. I expect that some of the European firms will withdraw from the market next year."

The year ahead

So with another bleak year behind it, can the Ukrainian market start to have some faith that things will pick up again in 2011?

Mac says: "I think we're definitely going to have a better year next year. If I look at the pipeline as of today compared to this time last year, there are definitely more big ticket deals on the cards."

Indeed, following the presidential elections in February, there have been a number of changes to legislation that will contribute to market activity.

Vasil Kisil & Partners managing partner Oleg Makarov says: "There have been a number of legislative changes this year in light of the election. One of the most prominent of these is the adoption of the new tax code that will involve a lot of work on the tax front next year as businesses adapt to the changes."

And with that in mind, Ilyashev adds: "We believe that next year will be a year of growth."