2021.8.6

Mondragon, Failure of Fagor Electronics, and the Future of a Cooperative
By
Hideo ISHIZUKA
Institute of Nonprofit Health Care Cooperation, INHCC, Japan

Abstract

Fagor Electronics, a flag ship industrial cooperative of Mondragon

Cooperative Group in Spain, collapsed in 2013. Some who believe advantage ofcooperative company astonished and wondered potentiality of cooperative in the
global market. Some say this is end of myth of Mondragon cooperative group. This
paper emphasizes failure of Fagor Electronics does not mean a death of cooperativism,
but it must clear a way of a quest for sustainable development of cooperative. This
paper notes how Mondragon group deal with this difficult situation keep incooperative principles. The lessons are cooperative must select its suitablemanufacturing sector. Important thing is to create and maintain employment anddecent work, not to continue a cooperative unsuitable to the market. A cooperative
is a human orienteering enterprise.
Key words: insolvency, global market, membership. subsidiary, cooperative principles
JEL-Code: Y

1. Introduction
The Fagor Electrodomesticos (FED), a household appliance manufacturing
cooperative, big pillar of the Mondragon cooperative group ( MCC) in Basque, Spainapplied for liquidation (bankruptcy) procedure to the commercial court of San
Sebastian in October 2013. This was big news of surprise into the cooperative sector
in the world. Moreover, the media in the world also presented the question over
failure of a workers' cooperative and the validity of a cooperative in general.
How to consider the meaning of bankruptcy of Fagor Electrodomestics?
Mondragon's value or Principles of MCC has been globally elated as social economy
enterprise group which established the headquarters in the Spain Basque Countryp. 1

and made workers' cooperatives form the core and which was formed of various
cooperatives and the subsidiary of those (refer to Table 1, Table2). Four pillars, theindustrial sector, the distribution sector, the financial sector, and an educational andresearch & development sector carried out common solidarity and have put up forthe purpose of economic democracy and a social concern and social contribution. The
idea is shown in the Mondragon principle enacted in 1991 by MCC Conference.
Historically, founder Don. Jose Maria Arizmendiarrieta, a catholic priest, began from apreparation period called the educational cultural activity to the young men of middle
and lower class in the town of Mondragon area from 1941, and made the engineeringtechnologies school. The first industrial cooperative Ulgor was founded by some ofthose young men in 1956. This Ulgor became a Fagor household appliance. Therefore,
the history of the success of Fagor household appliance started in 1956 and greetedwith frustration in 2013.
By bankruptcy of this Fagor household appliance (FED), although the Mondragongroup (MCC) has experienced one big failure, it has not necessarily greeted the
conjuncture with the Mondragon group itself. However, by this failure, irrelevant ofMondragon's itself will, a tendency of idealization or mythicization of Mondragon will
be stopped. Moreover, it is also a foolish thing to deny the Mondragon cooperative
movement extensively vice versa. Probably, we need to arrange what kind of problem
there is in the light of the value and the principle of a cooperative movement.
For the moment, we have few information enough to judge why the FED groupchosen a petition for bankruptcy. At first, it is said that FED sought refinancing talkwith Spanish financial institutions, such Santander, BBV, Caixa Bank (Financial Times,
November 3, 2013)as it is said that Basque government also did not desire bankruptcy
of FED group and to intend financial support to FED, and MCC itself to think to support
financially FED until last minute continuation was offered. As a point of argument, it
seems that there are (1) raising-of-money problem, (2) marketing strategy problem,(3) management's judgment problem, (4) a structural problem of cooperative
company, (5) cooperative labor, a local employment problem.

2. Bankruptcy of FagorBrandt
When the FagorBrandt, subsidiary cooperative company of FED became bankruptcy,
it occurred astonishing in the world and people's first concern was why the FED wentbankrupt. People thought two kinds of the reason of the failure of FED. The first reason
they thought is a question over the validity of the cooperative in general, namely ap. 2

failure of cooperative principles. The second is makes a mistake of FED in
management, so it does not to be what means failure of cooperative itself.

The

example of representation of the failure theory of a cooperative is an article of Le
Monde journal in France (2013.11.6). From the article we summed up this article asfollows.
“About 6000 employees were in FED by the entire world, and there were 2000
persons in France. The possessory MCC refused funding for FED.

FED became

hopeless and struck the door of the U.S. speculation funds,( such as Elliot, Cerberus,and Fortres). Needed 170 million euros as an urgent fund in the FED. The ChineseHaier canceled the proposal of the refrigerator factory in Poland with a FED on
November 4. 2013.

Four factories in France had already become an operation stopin October 2013. However, Lorain Prevost of a labor union (CFDT) has judged “cut off
the bridge" off to the subsidiary in France (FagorBrandt) for the reason the FED
currently faced with its conjuncture differs in a French legal system. Can FagorBrandt
separated from the main building be survived? The Industrial Minister of the France
government eased workers noting that he took a certain relief measures, noting thatwas promising, since 14% of the France market was formed. However, we are anxious
about the ability to compete with the Chinese-made product of a cheap price. In thehousehold appliance market, Arssetik(Turkey),Samsung(South Korea),Haier (China),
Whirpool (USA), Electrolux (Sweden), Bosh(Germany) and Siemens(Germany),etc. areobserving the situation of FED. , "Although it became somewhat long quotation, the Europe household appliancemarket is shown the fact of the Manufacturer of Asia also entering in recent years andhaving become a violent competitive market. FagorBrandt became a subsidiary of
FED in 2006. There was also the theoretical problem how to think of the subsidiary ina cooperative (overseas and domestic). FagorBrandt is originally based on in 1994 of
French Law of SAS (Société action simplifee), simple incorporated company. This
French company law has the two-faced that it is utilizable also as the holding company
of a multinational company, and a personal company (limited liability company) ofsmall and medium-sized enterprises, in that capital and decision making do not link
directly. Here, we will become the argument whether it should be the corporation
form of the subsidiary of a cooperative should be a cooperative or not, i.e., the formof incorporated company, a limited company, and others.

There are especiallyrestrictions that a foreign subsidiary follows the legal system of the foreign country.

p. 3

In the first place, is adoption of cooperative form possible as a subsidiary? There aresome conditions in it. It must be based on the cooperative law of a local country if it
is. A cooperative is based on a member's (workers) participation (investment, labor,decision-making). Moreover, it also become the question whether it is appropriate toa subsidiary if it cannot make from cooperative form. For example, may incorporated
company be sufficient? An incorporated company is not good and to set up a social
economy company is good for a cooperative. Then, was FagorBrandt of France asocial economy company? An answer is yes. The president was a cooperative principle
person and wished the continuation as a social economy company. However, questionis whether the idea of being a social economy company was widely shared by theemployees of FagorBrandt or not.
The answer is yes. The president of FagorBrandt was a cooperative principle person
and wished the continuation as a social economy company. However, it is doubtful
whether the idea of being a social economy company was widely shared by theemployees of FagorBrandt. Now, the insolvent procedure of FagorBrandt isprogressing at the Nanterre Court. Cevital, Algerian enterprise group, is demanding
buying over FagorBandt by 250 million euros, and waiting the judgment of the court.
Cevital said they will reemploy 1,400 persons among 1,800 employees. FagorBrandt
produces at four factories, such as kitchen equipment apparatus (Vendome), gas
ranges (Orleans), a washing machine (La Roche), a microwave oven (Aizenay). The
labor union is anxious about whether Cevital would keep the promise of employment.
Bankruptcy of FagorBrandt shows that FED bankruptcy problem is not only limited
to the internal problem of a cooperative. If you think it as inside problem of acooperative, you must carry out a question that the subsidiary problem of acooperative, i.e., the domain where a cooperative is concerned, can be extended how
far. It is self-contradiction theoretically that a cooperative includes profit-making
capitalist company. However, there are also many cooperatives which own joint stockcompany as a subsidiary. And to do not recognizing and not arguing about the
problem of the various legal persons forms of subsidiaries of a cooperative would
leads to a self-naysaying of a cooperative. Can you sure enough from such a viewpoint
to catch the subsidiary problem of the FED which makes FagorBrandt bankruptcy? If
it says simply that FagorBrandt was forcibly driven into bankruptcy in response to theby-blow of FED. In short, probably, it is the ultimate cause of bankruptcy that the
blood circulation of the raising of money broke off. Probably, it is reason how to catchthe French journal le monde wrote of "having severed the bridge”.
A tragedy of subsidiaries is that a holding company has the strong controlling powerp. 4

over them. It seems that the problem of FagorBrandt should have been based on
decision-making centering on the employees of FagorBrandt if it stood on thecooperative principle. It will call it formally serious consideration of the talks with thepressure from a labor union, or social dialogue with a labor union. Then it was possiblethat the policy of debt payment of the financial deficit of 170 million euros ofFagorBrandt might be resolve with a labor union. Furthermore, if it goes back to an
opposite direction, FED itself might have consciousness of "a subsidiary company" of
MCC. So, it is also able to say that the dependence nature of FED to MCC caused
bankruptcy of FED. It is what is called chain reaction bankruptcies.
The external factors of judgment that bankruptcy of FED is not avoidable are as
follows, namely, (1) Europe household appliance market drop and saturation of homeelectric products demand, (2) The global economic crisis in 2008 and afterwards. (3)Disadvantages of FagorBrandt as a cooperative company (factory relocation,
personnel reduction, raising-of-money, labor conditions), (4) Change of consumer
needs, and competition with a capitalism company in the market.
Why FED choose the way of bankruptcy? That is because they are cooperative. It can
say being cooperative is an internal factor of bankruptcy. Hereinafter, we list as follows.
(1) Keep the cooperative principle. Keep decision making participation of worker
members. (2) Dependence to an MCC group, namely injection of the -MCC solidarity
fund of 300 million euros into FED. (3) Failure of Business plan 2013-2016 of FED. FED
could not adapt foreign market expansion strategy and capitalist company action). –Annual business sales fell from 2009 and annual business reports showed deficit
accumulation.

3. MCC and the conjuncture of FED
Organic relation or combination between MCC and FED is composed by man,materials, and money circulation among them as an associated group. MCC forms thecomplex as a business union and human union in the form of a cooperative. Therefore,
like human's body, even if a somewhere had got an illness, they cut off the focus, or I
make it recover, and can continue the sound body itself. However, in the case of acause of a disease which influences the whole system, it become an illness which itdies of. One is a disease of blood circulation called money. Bankruptcy of FED is having
determined by not supported financially any more by MCC, although MCC was
directly covering a deficit of FED in 300 million euros till then. It is not clear whether
this determination was good or bad. However, it is clear to have decided at the MCC

p. 5

executive board meeting on October 23, 2013, that FED cannot continue its businessmoreover.
There is the fact that the Basque government and the partial management of FED
had wished continuation of FED against a decision of MCC. Moreover, it seems that
MCC itself was not enough to consider the meaning and influence of bankruptcy andliquidation process of a cooperative by judiciary.

Table 1. MCC (2012) million euro (compare last year)
Item
Total asset

35,887(+10.6%)

Business

12,903(-7.6%)(Industry,

Export4,004

Distribution)
Numberof289

enterprises
Cooperative

Cooperative

Subsidiary

110

179

Basque CA.

Other Spain

Overseas

42%

40%

17%

(33,734)(32,128)(13,655)

Fagor,

About 100

MemberothersCooperativ

s

es

86%

110

Subsidiary

179

Employees,

80.321 persons

Workers
Industrial Sector

Distribution Sector
Financial Sector

36,963 persons

39,839Eroski,

Personsothers2,486

CL, Lagun Aro,

Personsothers

Education/Training

1,033

Mondragon

Students

Sector

Persons

University,

11.248Others,

Persons

Research/

2,096

development

Persons

15 centers

SectorToral Investment

331

Members

1,838

Share

p. 6

Capital
Source: Informe Anual 2012、MCC
Table 2. MCC, Industrial Sector (Million Euro)
2011

2012

Total Sale

5,929

5,812

Export

3,973

4,004

335

307

Investment

Source: Informe annual 2012, MCC.

4. Bankruptcy of FED and Household products Market
FED group went bankrupt in October 2013 and entered with debtors-creditors a priorconsultation by the commercial court of the Guipuzkoa province. There is almost no
possibility that FED could continue in an old form. FED has formed 3.2% of the grossdomestic product of the Basque country, 7.4% of its industrial production, 3.5% of its
employment and 8.4% of employment of the industrial field and 12.2% of export ofthe Basque country, and 5% of the number of employees, 8.1% of the business salesof the Mondragon group (Annual Report, MCC, 2013.). FED was the 4th big company
in Spain, and, in the 5th home electronics manufacturer in Europe marketplace. FED
had occupied 17.7% of share in the Spain market , 14% in France market and 7.9% in
Poland Market.
FED group is a member of Fagor Group with Fagor industrial machine group (Fagor
Arasate, Fagor Ederlan, Fagor Assembly, and Copreci which are cooperatives). FED
has reached about 10% of business sales in an industry and distribution sector andabout 5% of employees in the MCC. Therefore, this Mondragon's failure is theoccurrence in the household appliance section. What is called white home appliances
produced by FED are a refrigerator, a washing machine, a kitchen system, and othersmall home appliance products. Television, AV equipment, a personal computer is notcontained.
According to the chairman of the board of directors of FED, first direct cause of
selecting bankruptcy is the downturn over five years of household appliance market
in Spain and the Europe. MCC bulletin TU Lankide( October-November 2013). It is anexternal factor of a household appliance market. In Spain and Italy, the economic
slump of the financial crisis continued after so called Lehman shock in 2008. Total

p. 7

Sales in the overall market of household appliance of Spain were half sized down over2007 to 2012. (The Spain household appliance manufacturing industry association
ANFEL, 2013). One of the big changes in the period of the depression in and after
2007 of the household appliance market in Spain and Europe is that the import from
China increased. This brought product price reduction competition and brought theEurope home electronics maker problems, such as deterioration of the added valueof a household appliance product, and a relative rise of labor costs-expenses. Since
the household appliance market in Europe is traditionally rooted in the European
lifestyle, so the manufacturers of Europe have occupied its market. However, the salesof the household appliance manufacturing industry of Spain began to shrink since2007 the peak, and declined the labor force contracted, and the decreased thenumber of manufacturers. Thus, it can grasp from a business report that such an
external factor made the deficit of FED accumulated.
How did FED correspond to the depression? At first, for continuation, FED tended tocorrespond financial support by receiving financial support from the MCC, private
financial institutions, and the Basque government. On the other hand, FED made"2013-2016 Strategic planning", and decided it at the general meeting in December
2012. At this time, it turns out that FED tried to make it develop by a positive
expansion plan, despite its cumulative deficit ( TU Lankide, June 2012). According to
the Strategic Planning, FED will expand East Europe Market especially in Poland wheredevelopment will be expected in future, and to promote by expanding production abusiness tie-up with Chinese company HAIER and other Asian Manufacturers to
Middle East Market selling De Dietlich brand, for hold up the target to increase 200
million euros sales for four years by 2016 in an oversea market. The Spanish
household appliance market went in a narrowing trend. Nevertheless, or that’s why
FED decided to adopt an aggressive expansion strategy of production expansion andinternational tie-up with foreign companies. At the same time, this strategy might
embody another intention of corporativism to maintain and expand cooperative
continuous employment within the social economy company in the world. Moreover,
FED had developed newly technological products including ecology friendly products
to meeting the needs of the consumers of Europe Market. That is, FED held up twotargets of globalization and the advancement of products.
Table 3. FED Group Balance (thousand Euro)
Fixed

2010

2011

702,625661.620

Fixed

2010

2011

496,355

378,604

p. 8

Assets

Liability

Current

707,565

618,815

AssetsCurrent

687,199

746,844106.434

106,434

1,410,190

1,300,435

Liability
Subsidiary
Investments

Total

1,410,190

1,300,435

Assets

Total
Liability

Source: Cuentas Anuales 2011, Fagor Electrodomesticos,S.Coop,
Table 4 FED Group Total Sales (Million Euro)
Year

Value

Last year

Overseas

2000

1,031

118.2%

438(40%)

2:005

1,639

143%

893(54%)

2007

1,947

99.7%

1,227(63%)

2009

1,576

86.9%

1，０８７
(69%)

2012

1,245

2013First

491

93,4%

946(76%)

Quarter
Source, : MCC(CM)Each Year’s Informe Annual

Table 5. FED Group Employees, Workers
Person(Cooperative Members)

2011

2010

Direct employees

3,511(2,2,19)

3,733(2,325)

Indirect employees

3,130

4,527

Total employees

6,641

8,260

Source: Cuentas Anuales 2011, Fagor Electrodomesticos,S.Coop,
Table 6. FED Group Total Benefit (1,000 Euro)
2011

2010

Cooperative

24,651

3,860

Fagor Brandt (France)

1,331

3,805

Fagor Mastercook (Poland)

223

155

Other subsidiaries

2,636

2.049

Total Benefit

25,7339,870

Source: Cuentas Anuales 2011, Fagor Electrodomesticos,S.Coop,p. 9

Table 7. FED Main Brand
FagorBrandt, De Dietlich (European market)
Aspes, Edesa (Spanish Market)
Sauter, Vedette 、Thompson (French Market)
Ocean, SanGirogio、 (Italian Market)
Mastercook (Polish Market)
Source:Informe Anual,2004 , Fagor Electrodomesticos,

Table 8. Main Subsidiaries of FED(2004)

Name

ObtainEmployees,

year

Workers

Morroco

1994

212

Poland

1999

1,254

Basque1998

272

France

2001

4,644

Country

Extra
Electromanager(Stock Company)
Worzmat(StockCompany)
Gayer-Gastech S.A.
(Stock Company)
FagorBrandt (Stock
Company)
Source:Informe Anual 200,4Fagor Electrodomesticos,

What is the reason FED which intended to challenge in the household appliancemarket with by idea of globalization and the advancement in products went bankrupt,
and the other colleagues’ multinational companies did not go bankrupt? Withincompetitors

against

FED,

they

are

Electrolux(Sweden),

BSH(Germany),

Whirlpool(United States), Merloni Electrodomestici (Italy), etc. are capitalist
enterprises, and each of them have avoided the financial crisis by methods, such as
factory relocation to Asia ,etc., closing of a factory, and personnel reduction, that islayoffs. For example, Electrolux is doing closing-of-a-factory reduction from 2007 to2013 (a table9).
Table 9. Factories Closed of EloctroLax
Place

Country

Main product

ClosedYear

p. 10

Torsvik

SwedenSmallelectric

2007

Dish

2007

Domestics
Neremberg

Germany

Washer,washerAdedaide

Australia

Dishwasher

2007

Frederecia

Denmark

Cooker2007

Adelaide

Australia

Washer2008

Spennymoor

UK

Cooker

2008

Zhangsha

China

Refrigerator

2009

Scandicci

Italy

Refrigerator

2009

Sr. Petersburg ﾞ

RussiaWasher

2010

MotalaSwedenCooker2011

Webster City

U.S.A.

Washer

2011

AlcalaSpain

Washer2011

L’Assomption

CanadaCooker

2013

Source;Anural Report 2012, Electrolux

Table 10.

Household Appliance Manufacturers in Europe (2012)

Country

Manufacturers

Employees

Sales(Million Euro)

Germany

270

53,589

8799

Spain

287

18,7863380

France165

14,470

2704

Italy

602

55,274

11439

Poland239

15,943

1656

UK

398

18,209

3278

EU 27

3422

237.300

36.900Source:Enterprise manufacturing subsectors annual, 2012. Eurostat,

Table 11. Industrial Labor Cost in Main countries in Europe
Country/An hour

Spain

23.0

Italy

27.3

France36.6

Poland7.4

Germany

35.4

UK

23.3

Source:CountryEuro(2011)/An hourEnterprise manufacturing subsectors annual, 2012. Eurostat

Note: Labor cost is wage plus social security costp. 11

Moreover, the manufacturers which export their home-electronics products into theEurope market in 2007 are such as, South Korea 7%, United States 3%, 58% of China
58%, and Turkey 16% (Dadacomex Europa, Europe census of commerce). The
household appliance article sales ratios of Spain are 14.5% of a refrigerator, and 10.6%of a dishwasher 27.5% of a washing machine, 30.9% of a kitchen counter (cooker), andoven 16.0% (ANFEL, the Spain household appliance association.2007). The sales of
the Spain household appliance market fell 56% from 2007 to 2013. Each homeelectronics maker corresponded by methods to the declining market, such as
personnel reduction and factory relocation. However, FED did not adopt suchmethods. That is because FED is a cooperative company. FED is seemed to challenge
as a cooperative against the big economic depression and economic recession ofEurope and Spain. It can say that FED considered that the matter is an internal
problem of a cooperative company.
Table 12. Export-Import of Household Appliances in Spain (Million Euro)
2000

2005

2007

Export1129.21246.71128.8

Import1299.6

1713.7

2000.8

Balance-170.4-467.8-872.2

Export/Import

88.9%

72.7%

56.4%

Source: DataComex. Ministerio de Industria, Comercio y Turismo, Spain
Table 13. Main Import Countries of Household Appliances in Spain (Million Euro)
2000

%

2007

%

2011

%

China

114.3

8.8%

489.7

24.5%

474.0

34.2%

Germany

273.2

21.0%

350.6

17.5%

191.5

13.8%

Italy

326.0

25.1%

315.5

15.8%

140.0

10.1%

France

167.0

12.8%

163.1

8.2%

76.5

5.5%

Turkey

32.5

2.5%

141.7

7.1%

138.4

10.0%

Poland

1.7

0.1%

97.8

4.9%

99.7

7.2%

South Korea

55.4

4.3%

86.7

4.3%

25.7

1.9%

UK

76/7

5.9

52.2

2.6%

25.2

1.8%

Source: DataComex ,Ministerio de Industria, Comercio y Turismo, Spain
Table 14. Fluctuation rate of Domestic Household products numbers

p. 12

2003

2006

2008

2009

2010

2011

2012

2013

Refrig+11.36+7.87%

-

-

-

-

-

-

erato

%

14.75%

11.30%

11.19%

11.58%

20.49%

11.17%+10.42--5.43%-4.11%-7.07%--4.64%%

13.61%+1.70%--+12.46--22.87%

12.35%%

23.21%

28.44%---1.22%--

12.11%

16.51%

10.94%

12.25%----7.04%--

17.51%

19.30%

31.09%

31.88%

17.91%---3.14%---3.49%

16.59%

20.00%

12.95%

14.05%r
Wash+4.83%

er
Dryer+24.13%Dish+8.72%+3.27%

was

10.98%-6.32%-8.87%

herCook-6.65%-9.90%

er
Oven

+3/30

+2.01%

%
Other

----

---

---

---

---

---

---

---

+10.34+8.20%---4.01%---

17.62%

15.48%

14.44%

13.86%

6.412%s
Total%
Source:Estadicas 2013, ,ANFEL, Associación Nacional de Fabeicantes eImportadores Electrodomésticos

5. Bankruptcy of FED
FED wanted to overcome a financial crisis positively just before resulting inbankruptcy. FED considered its continuation based on the "20013-2016 strategicplanning" of FED group made on December 13, 2012 (TULakide). The plan was asfollows. Namely, to fight against household appliance depression in the whole market,
FED aimed at external fund introduction,

put a lot of energy into new productdevelopment, gaze at a revivification in the Spain market, oversea market division,
Asia, East Europe, and the Middle Near East market, and pursue an expansion roadcalled a production rise. FED will invest 10,8 million euros in first quarters of 2012 totechnology development. FED will invest 55 million euros to China Haier and 56
million euros to Poland, respectively. In the plan aggressively enough, FED will get the
total business sales of 200 million euros by 2016 (117 million euros in 2012).
However, it is that the abrupt turn occurred in September 2013. It is because the sales

p. 13

in the first half of 2013 were low contrary to the prefiguration. For this reason, it seems
that the reliability over the direction shown by the 2013 to 2016 strategic planning of
FED till then collapsed at a stretch.
We list progress simply below (based on the TU Lankide, October to November 2013).
May 2013.

MCC group meeting decided FED loan support of 70 million euros as areconstruction member employment fund (FRES).
September 2013. FED requests to MCC more 50 million euros as support fund.
October 15, 2013. MCC group meeting unanimously decided to reject support of 50
million euros to FED. Because MCC judged that even though to give 50 million euros
for FED, it could not secure the future of FED.
October 16, 2013, FED applied for the procedure of a prior creditor's meeting to thecommercial court of the Gipuzkoa. It is seemed that FED wish to seek the way for its
financial reconstruction in the creditor procedure for four months.
October 30, 2013. MCC group announced that it is impossible more support to FED,
because, due to have supported about 300 million euros in the past several years, andthat each cooperative of MCC cannot pay any more for FED.
October 31, 2013.

Mastercook of Poland, subsidiary of FED, also requests thecreditor's meeting to a judicatory, to protect employment of both FED and Edesa.
However, the court did not accept the suit due to the head office of the company is
not located in Poland. For understand the details it may refer EU regulation or
directive of insolvency.
November 6, 2013. For French subsidiary FagorBrandt, creditor procedure is shownby a court. (We do not know the details.)
November 13, 2013. FED applies a court insolvency process.
November 24, 2013. Edesa applies insolvency process to a commercial court.
December 17, 2013. Province official gazette (BOE) notification. The Gipuzkoa
commercial court starts of the creditor's meeting (liquidation procedure) both of FED
and Edesa. Commercial court appoints as insolvency administrator (trustee), threepublic accountant offices, EVE Admistracion Concursal, SLP-Howarth Auditores, and
SLP-Consultores Sayma.

(Spanish law of insolvency, Ley 22/2003)

6. Creditor's meeting of FED
In the creditor's meeting by a Guipuzcoa province commercial court, the insolvency
process to FED and Edesa to clear each financial situation, amount of debt, andp. 14

identify of creditors will be done. It seems that dealing with FagorBrandt in France,
Mastercook in Poland and Gurmal in Spain are to be discuss after clearing the financial
situation of FED itself. We do not know at this moment of the insolvency process of
EU insolvency legislations.
Moreover, Province official gazette announced that creditor’s application should bedone in an arbitrary prior creditor's meeting, although about creditor's sequence
priority, and capability of repayment of debt, and particularly about whether FED
should be abolished or not or continue them partially can not tell after the progress
report of the creditor’s meeting. Among the creditors, there exist the Basquegovernment, MCC, commercial banks, suppliers for FED. It is also unclear the handlingproblem of capital participation(share) and voluntary reserve fund of workers
members in FED and Edesa. The problem is derived from the fact that FED itself can
not decide about the destiny of members share and cooperative fund in a case ofbankruptcy. By application for an insolvency court, a cooperative cannot make handle
their asset by own hand. Commercial court call cooperative members share and theirreserve fund "secondary investment", so the question of whether workers members
can do their share capital or account retrieval or not will discuss in the national
reconstruction assessment committee.
As of October 2013, the view of the problem of repayment of members share isdiffered with between MCC and the management of FED. The chairman of the boardof directors of MCC I bulletin TU Lankide said that members share, or an investment
may refund to workers members. On the other hand, an executive of FED said it may
not refund to. Anyway, amount of debt of FED is too large in actual condition andthere is almost no cash in FED, so it is very few possibilities of being returned
investment to workers members, and even if the right of investment refund approve,
there is few possibilities to refund, because of low priority of workers members as acreditor. As for what kind of judgment unlike Japan, in Spain that cooperative capitalor social capital and members investment, are defined as assets or liabilities in thebalance sheet. In Japan, it is liabilities, in Spain it may be assets. Social committee (aworker organization, a formal organization) of FED recognizes that worker members
also have responsibility to cooperative management and is claiming that a curt orinsolvency official receiver should accept a worker member as a creditor, based on thefact of 87 million euros of members share capital and voluntary reserves. But thechairman of the board of directors of FE afraid it is impossible to refund to worker
members. It seems that the national securities market committee (CNMV) and Social
Economic Affairs Bureau of Basque Government will judge this problem.

p. 15

7. Support by MCC for worker members in FED
Regardless of the conclusion of creditor meetings, it is inevitable of dissolution of
FED. At this moment, among 1865 worker members, 799 persons had removed toother cooperatives within MCC, and 500 persons entered early retirement. It is surethat FED had tried their internal effort for improved management at just before
resulting in bankruptcy.

Specifically, FED performed reduction of expenses and asalary cut. In 2012, Fagor group decided 7.57% cut of the annual wage for workers
members of the industrial machine group and 8.81% cut (approved by 87% of voters)of the wage of FED at each general meeting.

Moreover, each cooperative of MCC

decided to do the 5% cut of wages to allot for FED support. This is a spirit ofcooperative solidarity in the Mondragon group, and is being unable to do, if it is nota cooperative group. MCC overall, had continued the financial support for FED fromthe 2008 fiscal year, and became 100-million-euro accumulation by 2012. This was
performed through the cooperative solidarity fund, the educational promotion fund,the investment funded reserves of MCC. The technology development centers also
assist FED and Lagun Aro, mutual aid organization, promote change of job for
tentatively 1200 jobless worker members within in the Mondragon group.

8. Bankruptcy of FED
FED of course MCC has cooperative principles including members participation.
Participation has three functions. Namely, (1) share(investment) participation, (2)labor(work) participation, and (3) management participation. The example ofbankruptcy and closing, or the financial crisis of a cooperative existed within the
Mondragon group until now. However, in these cases, since they were small-scale, it
can say that MCC could resolved within their safety network inside a group. In
experience of the strike of Fagor in 1974, the deviation of some worker members'
cooperative principle became a problem and brought it about the conclusion that itwas caused by a defect of cooperative company articles of association and a by-law.
Then Fagor Group took as solution by institutionalizing cooperative participation
more. When worker members did return to work, it solved the strike also in personnel
affairs. However, that was members participation problem in the inside of acooperative company, within the limits of the so-called argument on economic
democracy. That was not the problem of bankruptcy of Fagor. You can not to say thep. 16

cause of bankruptcy of a cooperative company is only an external factor. There exists
an internal factor naturally. Does the bankruptcy of a cooperative company itself
become a naysaying of the essence of a cooperative company, namely cooperative
principles? We can not say yes because the bankruptcy of a capitalism company also
cannot be becoming a naysaying of the essence of a capitalism company. However,
we must ask whether bankruptcy of FED is caused by deviates from the essence or
the principle of a cooperative company or not. In the first place, a general meetingof members of FED decided to select bankruptcy. Although the members ratio in theemployee(workers) in a mother cooperative of FED was 80%, on the other hand, FED
group, members ratio was only a third of employees (workers). Application of thecooperative principle in the increase in a nonmember workers ratio did not develop
theoretically in the process in which FED did takeover French Brandt, and expand ascale quickly, and advances globalization.
Since the 1990s, FED had changed or developed what is called a transformationinto-owned-subsidiaries problem. Moreover, FED did not or could not to remove therefrigerator factory and the washing machine factory in Mondragon area to foreigncountry.

This was a weak point for FED to fight in the international competition

market. Cooperative principle of the work creation to the area of their community is
one of causes of Bankruptcy of FED.
Fagor group has said the corporate culture of Fagor is comprised by internal diversity
and heterogeneity, correlation of economical efficiency and social value. It has been
managed as a different thing with the management system of the capitalism company
having priority of stockholders, and waged employees’ system. In the competitivemarket economy, for a cooperative company to continue, there are some which do
not take the same technique as a capitalism company. It is management democracy.
In globalization, FED had hung up in cooperation with the social economy sector in
the world as an idea.
One of cause of failure of FED may be that social economy companies which should
work together in a global market hardly exist in the foreign country. If we weredeveloping the social economy sector in each country, FED were not needed to go
bankrupt. Bankrupt of FED is caused by to keep cooperative principles to competewith capitalist competitors in capitalism market. If FED tried to lay off their employees
like capitalist companies, FED could possibly survive as an enterprise but would lose
an identity of a cooperative. We think that MCC will newly create the cooperative
company which keeps industrial democracy, and a new field by exploitation of the
new advanced product field, making secured wage or remuneration for the workers

p. 17

who lost their job. For that MCC hangs up an innovation in principle and they have
12 technical research centers.
We list the reexamination issues of a cooperative theory derived from the failure of
FED below.
(1) Handling of the members investment and reserves in liquidation,(2) The role and range of an MCC solidarity fund,(3) Selection of an international market or a segment of industry for a cooperative,(4) Cooperative and subsidiary problem. Employee conditions and social security
system.
(5) Cooperative as a global company and, international and domestic legislations.
(6) Management and governance of a cooperative,(7) Community development and a cooperative,(8) Upgrade collaboration between cooperatives,(9) Formation of a global social economy sector

9. Future of FED
At this moment it is not clear what kind of conclusion of insolvency process by the
court. FED is seemed to wish to continue to produce household appliances, especiallya kitchen system field because of this field is a field into which a foreign Manufacturer
is hard to enter. The option of FED would be as follows.
(1) The cooperative of FED; it shall be continued, or sale or, abolition,(2) Subsidiary companies: it shall be separated, or do independence, or abolition,(3) Overseas factory: it shall be sold, or continuation,(4) Worker members; rearrangement, re-training, unemployment, retirement,

10. The necessity of making a subsidiary by a social economy company.
Bankruptcy of FagorBrandt shows that a FED bankruptcy problem is not only limited
to the problem of a cooperative. If you restrict to as a problem of a cooperative, youmust carry out problem of subsidiary of a cooperative, i.e., the domain where acooperative is concerned, can be extended how far. It is self-contradiction
theoretically that a cooperative includes profit-making incorporated company.
However, there exist also many cooperatives which own incorporated company as a
subsidiary. Without not recognizing and arguing about the problem of the various
company laws with contextures of a cooperative and its subsidiary, we can not

p. 18

understand cooperatives movement in the market. FagorBrandt was forcibly driven
into bankruptcy involved a trouble of FED cooperative. Prime cause of bankruptcy ofFagorBrandt is that the blood circulation of the raising of money from FED broke offor "having severed the bridge", le monde wrote. A holding company has the strong
controlling power to its subsidiary company. If it stood in cooperative principle,
FagorBrandt should have been based on decision-making centering on theiremployees.

FagorBrandt should have took social dialogue with labor union.

Repayment of the financial deficit of 170 million euros of FagorBrandt might be raised
from various means. If FagorBrandt was not subsidiary or had independent decision
making, FagorBrandt could continue their business. They are what is called chain
reaction bankruptcies.
Bankruptcy of FED is having determined not supporting financially any more MCC.
Although MCC was covering a deficit of FED in 300 million euros till then directly.
There is no telling whether this determination was good or bad, well at present.
However, in fact, MCC decided to shut down of FED at the MCC executive board
meeting on October 23, 2013.
On the other hand, the Basque government and some management of FED wishedcontinuation of FED against MCC decision. We do not know how much MCC itself isconsidered about the influence of bankruptcy spread over sphere of cooperative.
The external factor of judgment that bankruptcy is not avoided is as follows.
(1) Europe household appliance market drop.
(2) The global economic crisis in 2008 and afterwards.
(3) Saturation of home-electronics demand,(4) change of consumer needs,(5) Cooperative disadvantage in competition with a capitalism company: factory
relocation, personnel reduction, a raising of money, labor conditions, decent work

11. How a cooperative goes bankrupt. However, since other home electronics makers have not gone bankrupt, why only
FED went bankrupt and left from a market? Between a capitalism company and acooperative company, there exists different response to external factors. It is easy to
say that the cooperative lost in competition of price against other competitors. Firstly,
a cooperative cannot easily apply layoff and wage cut for workers. This is one ofessence of cooperative principle. Secondly, a cooperative cannot easily remove theirfactory to foreign country where labor cost is cheaper.

It concerns a mission ofp. 19

cooperative to their community development.

Especially in the case of Basquecountry. Thirdly, FED had adopted the foreign expansion strategy and big investment
strategy even after 2007 recession of Lehman Brothers Bankruptcy shock.

This ismanagement failure of a cooperative.
To call off price competition, FED avoided production of cheap barrelful products,
adapted the strategy of focusing products with higher added value and targeted thespecific consumer layer, like its capitalism competitors.

Pressure of falling into thebog of a bargain sale battle from the cheap products by Asian home electronics
makers was equal to all European manufacturers.

So, it cannot say only FED had afatal defect in the diversification strategy of customer needs. FED did not produce
television but produced products based on a life culture pattern such as white things,
a refrigerator, washing machine, small home appliance products, and kitchen products.
These products are not especially the product fields which Asian maker’s favorite.
Then, does the cooperative principle of not lowering labor cost serve as big
restrictions? When it becomes so, it will be said that the production field in which a
cooperative cannot be engaged in so called bargain sale industry. However, theinternational division of labor of production is premised on the wage differential in
the world. Therefore, do not simplify and argue about advance of the overseas factoryof a company, and the problem of exploitation of labor. With relationship of theoverseas expansion of a company and decline of domestic industries as a problem of
the domestic labor market, the fact of no uniform wages in the world are importantfactors also for a cooperative. We cannot discuss uniformly the problem of the
exploitation in labor existed in capitalism company and a cooperative company.
Therefore, do not carry out applying this to the problem of the labor in a cooperative
simply. The validity of a cooperative having a subsidiary in a foreign country isfrequently considered in the negative from a thought that the cooperative is belong
local community. However, is a cooperative unrelated and can be in economic
globalization having brought about globalization of the relocation of a company?
Then a cooperative will say that it has not turned to a globalization problem and will
say that it is economic one-country-like business unit. It only carries out reflecting
the actual condition that many people limit and live in a domestic area, and thesphere of activity of a cooperative becomes very determinative, because many of
products which the people enjoy are imports. Conventionally, many of cooperative
methods limit the kind of cooperative, and they make the sphere of activity specific.
That is because many of cooperative methods are made by the era of before
globalization. Therefore, whether the working class can join globally whether ap. 20

cooperative can join globally, must develop a theoretical subject for a cooperative.
MCC has challenged globalization as a cooperative. The many industrial cooperatives
were successful. However, FED went wrong now. Can't the cooperative be adaptedfor globalization after all? That is not right. FED is a pioneer of globalization of acooperative, and it is a network of the global enterprises of a cooperative that thecooperative world is not having. FED, like Cordoba, lejana y sola. FED has isolated
and done it best. If there exists a social economy company network in the field ofhome appliance market globally, FED might not need to choose bankruptcy. Or an
industrial cooperative must survive in the fields outside of mass production andconsumption market. Certainty FED has produced a series of small units of domestic
products such as a refrigerator responding consumer’s needs. Globalization of acooperative sector or social economy sector is inevitable to survive in future. In
financial, industrial, distribution, service and industrial sectors, a cooperative mushseek making global networking in future. A cooperative must run both in local
community and global community as one of pillars of social solidarity economy
sector. A Cooperative is a human orienteering company. Because the important
thing is not keeping a going concern but keep decent work or creating employment
and workplace in the various field of which a cooperative run well based oncooperative principles.
To survive an enterprise by lay off is bad manner of capitalism. Capitalism neglects
their unemployed. Public security system saves the unemployed. MCC has own
security system for their worker members. One of the most important mission of acooperative sector is to create job or work. Bankruptcy of cooperative is happened
by inner factor and/or external factor.

But important thing is to create and keep

employment.

12. Cooperative and stakeholder
Commercial curt of San Sebastian process FED cooperative and Edesa cooperative
located in Basque country. For two factories of FED, Eskoriatza -- a kitchen household
appliance making, and Garagarza -- kitchen equipment etc. making, CATA Group of
Catalunya wishes to purchase for 16 million euros (it will be 90 million euros in four
years) (El pais, junio 29,2014). CATA group promise to secure 520 persons'
employment. CATA Group is carrying out household appliance sale by a brand called
Cata, Nodor and Apelson. CAN established in 1947, has a factory in Catalunya, and in
Brazil and in China, and exporting to 86 countries. At present, whether two factories

p. 21

of FED are permitted to buying over by CATA by the Commercial court has undecided.
CATA is not a cooperative.
Even if FED is liquidated, many worker members can change of job and keep income
within MCC based on solidarity function in MCC group. However, some worker
members will be employed by CATA as a wage worker. It may be the beginning ofanother story at it. For MCC, they must look sideways at capitalism enterpriseconverted from a former FED cooperative in the town of Mondragon every day.
Probably, this is defeat for MCC clearly. That is, when it continued in another form,
the idea that the choice of continuing as a cooperative company was possible musthave occurred anew. We find in the articles of bulletin TU Lankide of MCC that when
FED decided to opt for select bankruptcy, at first, some reports relevant to FED
problem showed their confident of continuation of FED. From November 2013, whena commercial court started liquidation procedure, reports concerning FED in TU
Lankide have been decreased considerably till now time. That is, the initiative ofproblem solving will already leave from MCC and will be left to the commercial court.
It is a new problem how a cooperative should respond to the function not todemonstrate the initiative of a cooperative at the time of liquidation of a cooperative.
Surely, although the solidarity function inside MCC will fully fulfil, the portion which
is not covered by it comes out. It will be the problem that a cooperative cannot
demonstrate sufficient initiative to the involvement or responsibility for many
stakeholders other than members if it carries out from the stakeholder theory of acooperative. Stakeholders can assert a right only in the qualification of a creditor
legally in the case of bankruptcy of a cooperative. In the ex post facto processing after
bankruptcy, the cooperative cannot perform a cooperative principle. Specifically, it isa problem to the individual financial investor (or financial members, except financial
institution), the retirement members, worker nonmembers (wage workers), subsidiaryand its wage workers, subcontractors, and its workers, of a cooperative. What
responsibility and duty does FED have to them? Who can decide the contents?
Furthermore, moral obligation may also become a problem.
Generally speaking, when a cooperative expands an enterprise, it needs to efforts toplot consideration about a legal system and problems also including a noncooperative domain. It must not limit concern only to the matter of the systems of acooperative. It will be necessary to specifically extend and think by a range called asocial solidarity economy sector.
For whole MCC, the failure of FED itself may be able to be absorbed by expansion of
the future new business field about a revivification of a workers and the business inp. 22

the MCC group. So, we can say that bankruptcy of FED is not a crisis of MCC or failureof MCC. The lesson of a failure of FED for a cooperative movement is that acooperative must not consider only the matter of its cooperative. It also must take a
stakeholder's existence into consideration.

13. Should MCC continue cash injection to FED?
Whether it was good or bad that Judgment of stop of the financial support from
MCC group to FED? The Basque government, the Gipuzkoa province government andVizcaya province government wished bankruptcy evasion of FED.

Moreover, themanagement of FED also considered continuation at first. The four-year plan of FED
of December2012 showed it. One year after in November 2013, MCC executive board
decided to stop financial support for FED, so FED also decided bankruptcy. But a
choice called stopgap measure of financial support by MCC, and authorities andinstitutions must also have been possible.
Of course, now, it is the argument on "historical if." It is because the difficult problem
how to repay the cumulative deficit 800 million remains. However, although a problem
cannot specifically be pointed out, it will be necessary to consider more widely
whether there was any cooperative solution. That is because EROSKI is also faced withthe same structural problem. The structure of EROSKI is what is called a three-layer
contexture. That is, the first layer of a core has a cooperative, the second layer has asocial economy company, and a subsidiary (capitalism companies) exists in the thirdlayer. Employees are also classified with the member workers of a cooperative, theworkers of a social economy company, and a common wage earner. EROSI also has
been developing the market expansion route in enterprise. The same problem as FED
may occur in EROSI group. Probably, it will be then important whether they solve theproblems by what kind of cooperative correspondence in the future.

14. Initiative of a cooperative
In June 2014, FED has entered in the process of the insolvency procedure by thecommercial court of San Sebastian(June29, Radio Bilbao, Caderna SER). Sustentationof the initiative of a cooperative will be difficult and independent reconstruction in
the liquidation process of a cooperative will be also difficult. A cooperative must admit
the initiative of judicatories and trustees and will lost capacity of being a party
remarkably. That is, the determination by the exterior of a cooperative will be

p. 23entrusted and the self-determination by a cooperative becomes impossible.

15. Conclusion
It is only what is said after a problem occurs. FED had declined to dependence toMCC. Therefore, FED had continued the bold business expansion route. FED shouldhave taken the business contraction measure by the cooperative businessrestructuring scheme from 2009 after the financial crisis 2007’2008 (Bankruptcy ofLehman Brothers). For that purpose, MCC should have advanced examination of not
only a cooperative principle but also the value as a social economy company, todevelop missions, and business in whole MCC. To prevent another fail, it needs tostrengthen appropriate measure of social economy by the MCC solidarity system.
Probably, MCC can expand in the other industrial fields and new innovate technology
field. It will be necessary to carry out the self-definition further as a social solidarity
economy sector widely. The workers of a workers' cooperative are protagonists of acompany, also when good and when bad, they are owners of a cooperative. Since it
is a stakeholder type company, there is also large social responsibility. It will benecessary to also consider collaboration or partnership with a state government,
province authorities, etc. in respect of reservation of local employment. it is necessary
to deepen research for the cooperative sector and the social solidarity economy sector
to correspond to globalization. FED disappeared, but Fagor group is developing as acooperative group in global market.

Bibliography.

Le monde, 6.11.2013, France
Financial Times, 3.11.2013
CM Anuario, 2012, MCC
Informe anual, 2000, 2005, 2007, 2009, 2010,2011,2012, 2013, MCC
Informe Anual 2011, 2013, 2014, Fagor Electrodomesticos,S.Coop.
Cuentas Anuales 2011, Fagor Electrodomesticos,S.Coop,Annual Report 2012, Electrolux
Enterprise manufacturing subsectors anual, 2012. Eurostat
DataComex. 2000, 2005, 2007, Ministerio de Industria, Comercio y Turismo, Spain,
Estadicas 2003, 2006, 2008, 2009,2010, 2011, 2012, 2013, ,Anfel, Associaciión

Nacional de Fabricantes e Importadores Electrodomésticos, Spain

p. 24

TU Lankide Junio 2012, , octubre-noviembre 2013, diciembre 2013,
El País, Junio29, 2014,
June 29, Radio Bilbao, Cadena SER;

p. 25