Spanish appliance maker Fagor has filed for bankruptcy protection after years of economic crisis caused a dramatic drop in sales.
The company, part of the Basque region's Mondragon cooperative, said Wednesday it was unable to find financing to pay off an unspecified amount of debt, reported to be around €800 million by the Spanish press.
Fagor has around 5,700 employees and estimates sales have dropped by 37% since 2007, just before Spain's economic crisis began with the collapse of the country's real estate sector.
As has been reported widely Spain has been in recession for most of the last four years and has an unemployment rate of 26.3%.
Fagor claims to be Europe's fifth-largest appliance maker now has four months to try to reach an agreement with creditors, reportedly talks were opened with creditors Wednesday ina bid to try to avoid bankruptcy.
The maker of everything from small appliances to washing machines, fridges and kitchen furniture said it had started negotiations to restructure its debt, estimated by the Spanish media at €800 million (£677.7 million).
"The company has up to four months to negotiate an agreement with its creditors," said a statement issued by Fagorr, going on to say that it had informed the commercial court in San Sebastian of the negotiations.
Initial talks began weeks earlier between the Mondragon group, the Basque government, creditor banks and other lenders with the aim of enabling Fagor to deal with immediate payments due and to normalise its business activity, it said.
The pre-bankruptcy procedure was recently introduced into Spanish law to give businesses extra time to avoid filing for bankruptcy.
Basque regional government spokesman Josu Erkokera said rumours of a Fagor bankruptcy amounted to the "worst financial news" of the year for the region, where 2,000 of Fagor's 5,700 workers are based.
The Mondragon group was founded in the 1950s by local priest Jose Maria Arizmendiarrieta as a small workers' cooperative and is now an international conglomerate.
Its various branches, present in 20 countries, include industry, distribution and finance.
Foreign sales reached nearly four billion euros in 2011, accounting for two thirds of the corporation's industrial division, which produces consumer electronics, car parts, machinery, sports gear and more.
Despite its international presence, Mondragon's cooperative structure has kept most of its jobs and production in Spain, with 35,000 employees in the Spanish Basque Country, 35,000 elsewhere in Spain and about 13,500 abroad.
As Fagor is a cooperative, most of its workers are partners in the firm, voting to elect the bosses and make sensitive decisions.
+++++UPDATE: Press Release :: Fagor UK+++++
Fagor Electrodomesticos Spain in Negotiations to Restructure Debt
As part of ongoing negotiations with the Basque government and the Mondragon Corporation (MCC), Fagor Electrodomesticos based in San Andres Spain, has requested protection from its creditors in order to reach an early agreement on the restructuring of its debt to normalize the company’s activity.
Fagor Electrodomesticos is part of the Mondragon Corporation and is responsible for the manufacture and sales of Fagor branded white goods in Spain.
Fagor branded business in the UK is operated as a separate legal entity and remains autonomous from these negotiations. The UK business has maintained profitability for the past seven years and the company continues to be successful.
“Paramount to the UK business is to support our customers and consumers and that is our key priority at this time.”