Local lawyers argue that Ireland has taken its 'austerity medicine' and is re-emerging as a stronger economy. Anna Scott looks at what an exit from the bailout programme would mean for the country

"It's difficult to imagine where the Irish economy would be without the bailout programme," says Alan Murphy, managing partner of Eversheds' Dublin office. While Cyprus' government faces public outcry over accepting an EU bailout and Greece's rescue package appears to grow, Ireland's legal sector is beginning to see positive results from its drastic austerity measures.

The country has now fulfilled 190 commitments to the European Commission (EC), European Union (EU) and International Monetary Fund (IMF) – the Troika – as part of its austerity programme.

Ireland's finance minister Michael Noonan and minister for public expenditure and reform Brendan Howlin announced in February that it had successfully completed the programme conditions for Q4 2012, which included the enactment of the Fiscal Responsibility Act.

Ireland has drawn down 84% of the available funding from the €85bn (£72bn) bailout it received in November 2010. The European Financial Stability Facility (EFSF), IMF and European Financial Stability Mechanism (EFSM) each contributed €22.5bn (£19bn), while €17.5bn (£14.8bn) came from Ireland's National Pension Reserve Fund.

In addition, the UK, Denmark and Sweden gave bilateral loans to assist the country after the property bubble burst in 2008 and a series of banking crises destabilised the economy.

The raft of tax rises, public sector job and wage cuts, and new legislation have been met with protests around the country, while significant financial hardship has slowed economic activity.

"Many sectors of employment have suffered badly and many businesses have been pushed to the brink," says Sean Twomey, managing partner at Dublin firm Eugene F Collins. "Persistently high unemployment, unserviceable mortgages and houses in negative equity have had a demoralising effect over time."

Industry impact

The legal sector has not been immune to the property crash, recession and subsequent austerity measures. Neil Keenan, partner and head of corporate and commercial at LKG Ballagh Solicitors, says: "Most lawyers became over-reliant on property-related work and this work disappeared overnight. The property crash led to a raft of claims against lawyers, which led to huge rises in insurance premiums at a time when fee levels were reducing. This is only now stabilising."

Katie da Gama, regional senior partner for DAC Beachcroft Dublin, adds: "We are aware of a number of firms that have reduced their numbers in the past few years. But there has as yet been few (if any) significant casualties among the largest law firms in Dublin."

However, smaller firms bore the brunt of the recession and subsequent austerity measures. Keenan says: "Rural and high street practices, and those that were very reliant on conveyancing, have found the going very tough. Commercial work was affected by banks not being in a position to lend for transactions."

And according to Twomey, there are large numbers of lawyers without employment: "Many small firms are working on a break-even basis. The medium and large-sized firms would be faring better in that they would have skillsets that would be aligned with the economic cycle and would be better able to offer their clients the expertise in the relevant areas that are required at this point in time."

He adds that such firms also have exposure to an international client base, meaning they are less exposed to the purely domestic economy: "Most firms will adapt their offering to put them in a competitive position."

Matheson, one of Ireland's largest firms, has had to "cut costs, reconfigure capacity and focus on improving productivity and financial management," according to the firm's managing partner Liam Quirke (pictured).

"That said, because of our long-term strategy to focus principally on the legal needs of international companies and financial institutions doing business in and through Ireland, we have largely been safeguarded from the worst aspects of the downturn."

Eversheds' Dublin office has also made changes due to difficulties that arose during the crisis. Murphy says: "We have broadened our sector expertise in food and distribution, financial services, energy, retail and pensions, and have seen interesting opportunities to offer multi-jurisdictional offerings to clients and overall."

Larger commercial law firms are perceived to have fared quite well, picking up state and bank restructuring work, as well as large commercial court cases.

"One would have expected a bit of merger activity among law firms as a result of the economic downturn," says Keenan. "But such activity has been quite limited. This may be due to concerns over potential claims and the fact that law firms in Ireland cannot trade as limited liability partnerships."

However, there has been downward pressure on fees. According to Da Gama: "It is clear that the market will no longer accept 'boom-time' rates and therefore all law firms – from the top five down to the smaller practices – will have had to consider decreasing their hourly rates for fee earners in order to maintain historic work and win new retainers and projects.

"But what we have not yet seen is a push by clients towards more innovative pricing such as risk and reward models."

Concerns about fees, and a perception that the legal sector is anti-competitive, are partly behind the Legal Services Regulation Bill 2011 – fast tracked as part of the austerity measures.

The bill aims to introduce more transparency on fees, greater competition and access to legal services, multi-disciplinary practices and legal partnerships. It also proposes to introduce the Legal Services Regulatory Authority, which will take over regulation of the legal market from the Bar Council of Ireland and Law Society of Ireland.

Aidan Carr, partner at Berrymans Lace Mawer's Dublin office, says: "Self-regulation of the professions has understandably attracted criticism in the past, although concerns have been raised that the proposed regulatory authority lies too close to Government and risks the fundamental principle of independence in the administration of justice."

Though based in London, Berrymans chose Dublin as the first city for its expansion, opening up a branch last October. "Our expansion was prompted by numerous requests from UK insurers writing business in Ireland, brokers working with multinational corporate clients and self-insured corporate organisations who expressed a desire to work with us in Ireland," says Carr (pictured).

Vital signs

The signs of growth are there. Keenan points out that while litigation and insolvency work have remained strong throughout the recession, there has been a definite sense of improvement in some sectors in the past nine months.

"There has been more corporate and commercial activity particularly in M&A, private equity and venture capital and a limited improvement in property conveyancing – though this has been confined to certain parts of Dublin," he says.

Opportunities for the legal sector are also emerging from the sale of €3bn (£2.5bn) state assets that Ireland agreed to as part of the austerity package, with the aim of investing in the economy as well as paying off some of its debt. The Review Group on State Assets and Liabilities from Ireland's Department of Finance covered a lengthy list of state assets to be sold.

"The state sale processes are really only getting underway now," says Bryan Bourke, head of the corporate and M&A department at William Fry. "All of the big firms are aligning themselves with bidders from various jurisdictions."

The sale of Bord Gais Eireann's (BGE) energy business handed roles to McCann FitzGerald for BGE, while A&L Goodbody is advising the New Economy and Recovery Authority on the sale, which was established to centralise management of the Irish Government's interests.

John Cronin, chairman of McCann Fitzgerald, says that as this is the first disposal of state assets under the Government's New Era programme, it represents a notable appointment for the firm.

"We are very pleased that our clients, and indeed new clients, have engaged us in a series of significant transactions, disputes and legal and regulatory issues facing them during the last 12 months," he says.

The firm has advised on a series of publicly offered bond issues by Irish corporates in Q4 2012, namely BGE, AIB Mortgage Bank and the Electricity Supply Board.

It has also played a central role in advising the Central Bank of Ireland on the country's new special liquidation regime; the unwinding of the Central Bank's funding arrangements with the Irish Bank Resolution Corporation (IBRC); and the exchange of the Ministerial Promissory Notes (provided by IBRC as collateral to the Central Bank) for a portfolio of Government bonds.

Firms are still waiting to hear who will win more business as a result of the state asset sale. While the Government has also announced that it may sell both its forest company Coillte and its 25% state in national flag airline carrier Aer Lingus when market conditions are favourable, according to Arthur Cox corporate partner Geoff Moore, no mandates for legal advice have yet been issued. His firm has been heavily involved in crisis-related work since 2008.

"We are advising the Department of Finance on the special liquidation of the IBRC, and we were legal advisers to the Irish state and state entities in implementing policy relating to the Irish banking crisis."

This has included the refinancing arrangements between the Irish state and the IMF, the EFSF and the EFSM, as well as the recapitalisations and equity structuring of Allied Irish Banks, the Bank of Ireland and Irish Life & Permanent.

Dillon Eustace, another Dublin firm, has also advised the Government. Managing partner Mark Thorne says: "We have been lucky to advise on a number of significant transactions over the course of the past couple of years arising from the deleveraging process in the Irish and non-Irish banks, and the establishment of Ireland's National Asset Management Agency (NAMA)."

These include acting for the purchaser of the 'Project Kildare' portfolio of Irish real estate-backed loans from EBS/Allied Irish Bank, and advising South African investment group Prescient in its acquisition of AIB Investment Managers from Allied Irish Bank.

Business as usual?

In Thorne's view, the country has never closed for business and certain areas of the economy continued to perform very well throughout the recession, bailout and subsequent Moody's downgrading of the country's debt rating to junk status.

Ireland continues to attract an above-average percentage of foreign direct investments from overseas, and exports are at record levels. Quirke agrees: "Following the bailout, it was understandable that the international business community would have concerns as to whether Ireland would continue to be an attractive domicile for international business.

"However, the country's response to the Troika's intervention has dissipated those concerns as evidenced by the increasing number of international businesses establishing or expanding their activities in Ireland."

The decrease in rents for commercial property and falling commercial property prices, together with downward pressure on salaries, has improved Ireland's general competitiveness in sectors such as financial services – "an area in which the country's reputation continues to go from strength to strength", according to Thorne.

Equally, there has been a refocus on inward investment to generate new business and create more jobs in the past three years.

Da Gama (pictured) says: "IDA Ireland – the semi-state body tasked with attracting foreign investment into Ireland – has had considerable recent success, particularly in the technology sector, in marketing and establishing Ireland as a key centre for global business. PayPal, Hewlett Packard, IBM and Nextag have significantly expanded their existing operations in Ireland."

The main reasons for this are the favourable corporation tax rate – currently 12.5% – attractive grants/funding for research and development, and a young, well-educated and motivated workforce, according to da Gama.

Highly commended

However, the country's diligent response to its Troika commitments has also affected growth. There have been protests in response to austerity, but the implementation of reforms has won plaudits and improved overall business.

"Ireland's willingness and ability to 'take its austerity medicine' has had a positive effect on investor sentiment, and has led to the country being perceived as the model for austerity," says Bourke. "The most recent example of this has been Ireland's ability to successfully return to the bond markets."

Murphy adds: "Unsolicited comments from both international clients and our international offices suggest that the perception of Ireland abroad is very positive and all respect the efforts Ireland is making in dealing with its problems."

He points to the continuing increased level of exports throughout the period of the crisis as "proof that the rest of the world continues to believe in Ireland's ability to deliver quality products and services, as well as the belief in the country's ability to work its way out of the crisis without disruption".

This is a different situation to that of Greece, whose 2010 bailout totalled €110bn (£93bn). Former prime minister George Papandreou's planned referendum and the subsequent political wrangling over austerity have not made the country's relationship with the Troika a comfor-table one.

In Ireland's case, however, EU finance ministers have commended its "strong commitments to its adjustment programmes", and discussions are underway to adjust the maturities of the EFSF and ESFM loans in order to "smooth the debt redemption profile" of the country, according to Ireland's Ministry for Finance. The Government's objective is for "all parties to position Ireland to emerge successfully from the programme at the end of this year".

Market return

Ireland has already made a limited return to the financial markets and the deal on debt related to the former Anglo Irish Bank, which spreads the debt over a longer period, will assist this process, Keenan points out. But he adds: "It is necessary for the country to stick to its budgetary targets so that the Government deficit can be reduced and the longer austerity continues the more difficult the process becomes."

Bourke agrees, adding that the National Treasury Management Agency's (NTMA) issuing of €5bn (£4.2bn) of 10-year bonds with an interest rate of 4.15% on 13 March is the latest step towards an exit from the bailout programme.

"This demonstrates that Ireland has regained access to the international debt markets. The NTMA is now well-placed to give investors the comfort of having 12 to 15 months' advance funding in place when the EU/IMF programme reaches its scheduled end."

However, da Gama is not quite so optimistic that Ireland can see out its commitments this year: "It is understood that there are significant (circa €30bn, £25bn) bailout loans that remain to be paid before 2020.

"While there have been some positive indications that Ireland is renegotiating the maturity dates of these loans, this country will not be in a position to exit its IMF or EU commitments this year."

Either way, some question what an exit from the bailout programme would mean for Ireland. Twomey says: "The exit will probably be relevant for the politicians. We will still have to deal with the economic realities of day-to-day living."

But he points out that Ireland's response to the bailout crisis has generally been positive: "I think Ireland has fared quite well. We are now seeing the economic indicators move in the right direction, and as the economy improves so will the fortunes of the Irish law firms."

For Murphy (pictured): "We can't say whether or not more work has been generated for lawyers in Ireland as a result of the country's commitment to economic reforms than in the other bailout countries.

"All we can say is that Ireland's firm focus on fixing its problems in the shortest possible timeframes has benefited the business community in general and the legal profession in this country."