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.

Marsans Sold For Six Hundred Million Euros

The troubled travel concern, Grupo Marsans, has been sold to a company called Posibilitum Business. This is controlled by a Valencian businessman Ángel de Cabo who is involved with the real estate market in the Valencia area and has a reputation for taking on companies in difficulty.

Included in the sale is, of course, Hotetur, the hotel chain of which Bellevue (and Lagomonte) are a part. With the sale, one would imagine that rumours as to Bellevue’s future should subside. Nevertheless, it will take a while to see how the new owners tackle the problems that surround Marsans. Typically, businesses that specialise in taking over companies in distress look to reduce costs as a means of extracting profit, slimming them down with the possible intention of selling them on at a later date. The exact strategy for Marsans, and therefore for Hotetur, is not known as yet.

The Rumour Mill: Bellevue

Rumours. It was the regularity with which rumours surrounding Bellevue in Alcúdia surface that was one of the reasons why I spoke with the assistant director last year. Rumours are always circulating about Bellevue. Unfortunately, the contact is no longer there, but even were he it is doubtful that I would get far in asking a question about the current rumour that’s doing the rounds – that Bellevue will not be open next year.

There have been previous rumours along these lines, and they have all proven to be false. What is fuelling the current one is nothing directly to do with Bellevue or indeed Hotetur, the chain which operates the hotel. It has to do with the financial problems at Grupo Marsans, the ultimate owner of both Hotetur and the hotel complex. I have referred to these problems before, both here and in “Talk Of The North”. Marsans faces demands from creditors, one of which is the travel group Orizonia. A guarantee against a debt of some 40 million euros is Bellevue. Orizonia is demanding payment of this debt and the execution of its mortgage on Bellevue.

It is from this, one assumes, that the rumours are stemming. In the reports of the court hearings into Marsans and its difficulties, there has been nothing about Bellevue closing. The rumours would appear, as so often, to be the result of taking facts (and one can’t even be sure that facts are being taken) and moulding them into something without any basis in truth. I have asked people about the sources from which they have heard about Bellevue’s alleged closure. They go along the lines of someone who spoke to someone in a bar near to the hotel.

Bellevue stands on some 200,000 square metres of prime real estate in Alcúdia. It can, at a stretch, accommodate 6,000 guests. Orizonia, as with many a hotel or travel group, would love to get their hands on it. It has a hotel division that was created in 2008, into which Bellevue might well fit, though if you go to the website – http://www.luabay.com – and read the over-the-top narrative about how they will “seduce” you, you might be forgiven for thinking that Bellevue might not fit after all.

Of course, there is also a question as to quite how well Bellevue (as with many other hotels) is shaping up under the current difficult circumstances. But this is a separate issue. One finds it hard to believe that there is substance to the rumours.

And who knows, maybe a “new” Bellevue might become the destination for the much-longed-for Russian tourist market. President Antich has been in Moscow, wooing tour operators and predicting that Russia will become the third most important foreign market for Mallorca and the Balearics after Germany and the UK. Germans do not go to Bellevue in huge numbers, which is probably as well. You think there might be a bit of British-German antagonism, well according to some of my German sources this is nothing compared to that which exists between the Germans and the Russians. Hey ho, perhaps it’s as well that Russia aren’t in the World Cup.

Any comments to andrew@thealcudiaguide.com please.