Spanish property - Polaris World runs in to trouble

Polaris World has finally admitted to having massive financial problems, owning up to what it calls "a lack of liquidity."

On the 22nd December, the day on which the focus of the nation was occupied with the El Gordo lottery, Polaris World petitioned for a period of negotiation for several of its companies, with their creditors to which they are entitled to under Article 5.3 of the insolvency act, the same route that other development giants with liquidity issues such as Nozar and Proinsa followed.

The petition went to Commercial Court Number 2 in Murcia, and news of the action was only released this afternoon.

The insolvency process being followed is basically a process whereby a business lodges its intention to negotiate with its creditors, buying itself a period of time with which to negotiate an amicable agreement with debtors, rather than being forced into bankruptcy proceedings by one of them.

Polaris now has three months in which to negotiate settlement of its debts.
If it does not reach agreement with all its creditors by that date, it will be forced to enter into a voluntary bankruptcy action, a concurso voluntario de acreedores.
Were this to happen, a court judge would then appoint a bankruptcy trustee, charged with summarizing all the debts of the company, within 15 days.

Until that time, the company will continue to have control of its assets and continue to trade normally.

Polaris World has debts which are rumoured to be around 900 million euros, its principle creditors being Bancaja, CAMBank, Banco Popular, Banco de Valencia and Cajamurcia.

In June the company was in negotiations with these entities to reduce its indebtedness to zero, by handing over ownership of its 6 residential Murcian complexes to the banks, whilst continuing to manage the hotel and management services itself.

Although the company, which began in 2001 with the Torre Pacheco residential complex, had reported massive sales and succeeded in delivering a quality product which fulfilled the needs of those wishing for a quality residential and holiday development, in a secure and attractive environment, sales had not reached projected targets although massive investment in infrastructure and development continued.

In 2006 the company had predicted 800 million euros worth of sales, but closed the year with a total of 468 million. Although 2007 figures still reached 530 million, these figures still fell short of financial projections, and in 2007, one of the two co-founders of the group, and owner of 50% of the shares, Facundo Armero, sold out to credit Suisse DLJ Partners, Banco de Valencia and EMTWO investments.

The other partner, Pedro Garcia Merono, retained his 50%, which was valued at around 600 million euros.

The company has continued to build and invest in new developments, investing 350 million euros in continued construction in 2009, although as the property market started to implode, progress on the last development at Condado de Alhama slowed noticeably and residents are now faced with the very real possibility that the resort will not be completed to the spec that was promised at the time of purchase.

The company is said to have lost 300 million euros in revenue alone from the non-completion of this project, which some have said should never have even commenced, the 2 year delay in construction coinciding with the bubble of the construction industry bursting almost as soon as work had begun.

For more information on how you can reclaim your deposit or execute a bank guarantee, visit www.spanishpropertyactiongroup.com