Chain Reaction: Bankruptcies and non-payments

Spain's economic woes are receiving plenty of airing, but what about what is happening on the ground? The crisis is such that one has an impression that much economic life in Mallorca is all but grinding to a halt, brought about by a lack of credit, non-payments, negative cash flows and bankruptcies.

Businesses in Mallorca are caught in the chain reaction of the absence of liquidity in both the private and public sectors. Of the latter, those affected are suppliers to town halls and other governmental bodies and those linked directly to government agencies. Take chemists, for instance. Some had started posting notices to the effect that they could not supply prescriptions through the local health system because the health agency, IB-Salut, was not paying them. IB-Salut, and its problems have been known about for months, is another division of regional government, like the tourism ministry, so in debt that the government is having to bail it out. The government has at least sought to reassure the chemists and patients of the health system that prescriptions will be guaranteed.

The town halls, notorious as bad payers even in the good times, can typically take six months or more in honouring invoices. The Council of Mallorca has had to reach into its pockets to give the town halls some cash that they cannot otherwise raise because central government has imposed restrictions on their capacity to borrow and thus get into further debt.

It's not all bad news. One town hall, Alcúdia's, is being reimbursed by central government, following a protracted legal battle to get back IVA which was wrongly charged to its services agency, EMSA. The 600,000 or so euros that the court has so far agreed to could rise. In the meantime, the repaid IVA will help to clear debts the town hall has to suppliers.

If only all town halls or businesses could benefit from such windfalls. If only, especially for smaller businesses, there were mechanisms to prevent their bankruptcy when faced with what is an increasingly common occurrence, the protection of voluntary administration by larger businesses which then do not make payments while they buy time to try and sort out their affairs. For the smaller businesses, their suppliers, there simply isn't the time. And so they try and come to agreements with their own creditors or go bust and then find themselves blacklisted by banks.

The main business sectors affected have been construction, hostelry (in its widest sense, to include hotels as well as restaurants etc.) and transport. And there have been some big names that have got into difficulty. One of these is Marsans, formerly the ultimate owner, through the hotel chain Hotetur, of the Bellevue complex in Alcúdia. The sale of Marsans' businesses earlier this year looked as though it might have brought salvation. The problems have persisted, though the new owners seem to have arrived at a solution that will see creditors paid and so stave off a court order that was to place Hotetur in voluntary administration, one that creditors had not sought when urging the court to force bankruptcy in pursuit of the money they were owed.

Even if a solution is found, there is also the effect on local business confidence to be taken into account. In the case of the huge Bellevue, any uncertainty sets the rumour mill ablaze, one not helped by staff being paid only 70% of their October salaries (as was being reported in the middle of November). Just the threat of administration for a major employer and purchaser of services, to say nothing of supplier of tourists, is sufficient to drain even more life from the sick body of the local economy.

Lawyers have expressed concerns about the bankruptcy law which came into force in 2004. It was one, they say, drafted at a time when things were good and when bankruptcy was relatively uncommon. Since 2008 the trickle has become an avalanche. While voluntary status has its benefits for the company facing bankruptcy, it does little for suppliers.

One lawyer has described the system as an abuse of the law, and the overwhelming majority of companies that enter administration subsequently fail, some of them emerging later under new names with new owners, for example, a son or daughter, thus getting around the banks' blacklist. It has been said that the law makes it easy to simply close and disappear but also to get re-established in a different guise. And then perhaps to set the same chain reaction in motion, of smaller businesses, the suppliers, being left unpaid and ending up going to the wall all over again.

The chain reaction is likely to continue, likely to get worse. You can also describe the situation as a vicious circle, and the question is when or if the circle will be broken, because there is no sign of it being so.


Any comments to andrew@thealcudiaguide.com please.


Index for November 2010
Bankruptcies, non-payments and - 30 November 2010
Capdepera, new agriculture and - 13 November 2010
Catalonian independence, Joan Laporta and - 16 November 2010
Celebrity advertising, Rafael Nadal and - 3 November 2010
Chinese tourists - 24 November 2010, 25 November 2010
Christmas, spending and - 15 November 2010
Dunes in Can Picafort and Playa de Muro - 2 November 2010
Ensaïmada - 8 November 2010
Euro, Europeanism and Ireland - 23 November 2010
Facebook and tourism promotion - 4 November 2010
German versus British tourism - 9 November 2010
Golfers in Balearics, low number of - 27 November 2010
Graffiti artists face prison sentences - 28 November 2010
Guardia Civil and Catalan incidents - 18 November 2010
Hotel over-supply - 1 November 2010
Hunting - 11 November 2010
Inca hospital and patient information - 12 November 2010
Loneliness, expatriate - 5 November 2010
Mallorca identity and resorts - 22 November 2010
Muro employees paying salaries back - 25 November 2010
Playa de Palma regeneration - 20 November 2010
Pollensa and local tourism - 21 November 2010
Pope and Spanish secularism - 7 November 2010
Pumpkin, Muro fair and - 14 November 2010
RNE3, Siglo 21 and - 26 November 2010
Royal wedding (Kate and William) - 19 November 2010
Surnames and spelling rules, new - 6 November 2010
Tourism secretary-of-state and ministers - 29 November 2010
TripAdvisor and review sites - 10 November 2010
Underage drinking in Spain - 17 November 2010