Dubrovnik remains the Balkan's jewel in the tourist crown, glittering in the sun-drenched Adriatic, and the Croatian Chamber of Economy is trying hard to shrug off the effects of the recession. Although with over a quarter of Croatia’s GDP coming from tourism and construction, it cannot hope to escape completely. The lovely walled city still seems thronged with tourists, but there are fewer local ferries plying their trade to nearby islands and coastal locations than when I was here only two years ago.
Looking down from the walls onto the terracotta-tiled roofs below, it seems that the massive reconstruction task after the Balkan wars is near to completion, with few sites still unfinished. Sadly, the ending of the building boom is coming as the prime source of Croatia’s tourist trade, Europe, is reining back on its holiday spending. Some 46% of Croatia’s 2008 tourists came from badly recession-hit European locations, such as Germany, the UK and France. Now restaurants are not full, nor are souvenir shops.
Dubrovnik was hosting a meeting of insolvency experts, looking at how to transfer much-needed experience and expertise into Eastern and Central Europe. Given the background of severe economic problems in Latvia, which is threatening to destabilize a whole range of inter-connected currencies and economies, notably Hungary and the other Baltic states, the timing was opportune.
An unexpected theme emerged. It seems the commercial courts of Europe are awash with applications to wind up tens of thousands of evocatively named ‘Empty Companies’, each one needing a decent burial for its unpaid liabilities but with no assets to pay for the process. These days, only the assets in a company are limited and their annual accounts should surely be re-named ‘Imbalance Sheets’. As a result, there is no money to reimburse insolvency practitioners for their costs, never mind their time.
Even worse are insolvent companies with assets, which represent another ambush awaiting unwary insolvency practitioners. The problem is arbitrary and uncommercial fee scales, set by courts and other institutions. Speakers from all over Europe lined up to plead commercial poverty, despite being overwhelmed with work.
A lawyer from the Netherlands admitted that there were times when he prayed he would not be appointed as trustee to asset-rich insolvent business teetering on the brink. A leading Germany insolvency trustee admitted that long-term restructuring assignments, designed to rescue businesses and save jobs, were unprofitable for his firm. PwC has just announced the closure of one of its personal insolvency units in the UK.
Nobody in the non-business media or general public will be shedding tears at this scenario, but wiser heads will worry that like politicians, nations get the business rescue culture they deserve. Paying peanuts for insolvency work will only make professional monkeys turn their simian hands to more remunerative but infinitely more parasitic tasks, like selling wildly over-priced trinkets to Dubrovnik's declining flow of tourists.
This is the latest missive from the travels of our some-time correspondent Nick Hood, a partner at UK insolvency firm Begbies Traynor.
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