Spain's Bankruptcy Epidemic Slays Giants, Dwarfs

Washing machines, fish fingers and football teams: not even household names are safe from a Spanish bankruptcy epidemic ravaging big and small businesses alike.

The number of companies filing for bankruptcy in Spain rose from 1,147 in 2007, the year before Spain's real estate bubble disastrously burst, to nearly 6,200 in 2009, according to the National Statistics Institute.

It topped 9,000 in 2012 and "I think that in 2013 we are going to get close to 10,000," said Carlos Sancho, a lawyer and expert in financial management at IESE Business School.

One big name after another has succumbed in recent months.

Real estate developer Reyal Urbis went under in February, sunk by 3.6 billion euros ($4.9 billion) of debt.

The giant frozen fish maker Pescanova, which employs 10,000 people, followed in April. In November it was the turn of Fagor, one of Europe's biggest maker of household appliances such as washing machines.

The bankruptcy reaper has also come knocking on the door of more glamorous businesses, such as Deportivo A Coruna league football club and the organizer of the Miss Spain beauty contest.

About a third of recent bankruptcies have affected real estate firms -- the sector whose collapse in 2008 triggered Spain's financial crisis and double recession, driving unemployment up to nearly 26 percent currently.

Brokerage Axesor is forecasting an increase of about 25 percent in bankruptcies in 2013 and a slight easing in 2014, said Javier Ramos, its research director.

The companies formally filing for bankruptcy reflect only a part of the toll from the crisis, however.

"In Spain the rate of bankruptcies is still very low," accounting for just a quarter of all business shutdowns in January to September this year, Ramos said.

Spanish industry is largely composed of small companies, which "are very afraid of filing for bankruptcy", said Celia Ferrero, vice-chairwoman of the small business federation ATA.

"What the small businessman normally does is close down the business directly," settling its affairs without applying for court supervision in a formal bankruptcy procedure, she said.

Although a bankruptcy procedure, in which a judge regulates negotiations with debtors, offers hope that a company may be saved, in practice fewer than one in 10 firms that make the filing in Spain avoid being liquidated.

"We all rather have the feeling that if a company files for bankruptcy protection, it is clearly not going to be able to carry on," said Sancho.

He said bankruptcy laws should be reformed to "hold out an umbrella to the businessman so he can weather the storm".

Spain's official economic figures show that it technically emerged from recession in the third quarter of this year, with timid growth of 0.1 percent.

But "we are now seeing the judicial consequences of the crisis," said Sancho.

After the crisis erupted in 2008, many companies took out more loans to try and keep them afloat, which are now due for repayment.

Spanish banks -- who themselves had to tap 41 billion euros ($56 billion) from a eurozone rescue fund last year -- are less willing than before to extend new ones.

"I think that if we could hold on a little longer, if credit started to flow again, then a lot of the companies that are on the verge of shutting down could survive until the economy gets a bit better," said Ferrero.

Some of the public authorities contracting services delay their monthly payments for up to five months, worsening the difficulties of small businesses, she said.

"One in four small businesses has had to close precisely because of this defaulting by public administrations," Ferrero said.

"Nearly half a million small businesses have disappeared during the crisis."

Enrique Bujidos, a restructuring specialist with consultancy PricewaterhouseCoopers, forecast: "2013 is going to be the year with the most bankruptcy filings in Spain's history, without any doubt."