Fashion stores closed, who pays the suppliers?

2 min.

Within the Spanish fashion industry, it is quite common to find retailers with a legal form known as an “SCP”, which stands for “Sociedad Civil Privada”. Its Anglo-Saxon equivalent is formally known as a “Partnership”. This institution is ruled by the Spanish Trade Code (“Código de Comercio”) and can be found in articles 125 to 144.

Compared to 2019, 2020 has ended with a decline of 40% in sales within the fashion retail sector, according to Acotex, the Spanish fashion and retail association. The reason is sadly well-known to everyone. In this article, we will focus on the retailer with the same legal form, and how they deal with debt.

What can we expect?

As a result of the decline in sales in the fashion retail sector, it is common to find situations where the retailer shuts down its stores without paying off its debt towards their fashion suppliers. When its supplier claims payment, the debtor simply says that the SCP no longer exists and that there is nothing he or she can do. That is if they reply at all.

What is the legal response?

The law establishes a solution for such similar cases. The above-mentioned regulation states that members of an SCP have unlimited personal joint liability for the debts of the SCP. For example, a clothing brand “X” sells 10.000 euros worth of clothes to a retailer “Y, SCP”. The members of “Y, SCP”, let's say for narrative sake, Carmen and Juan, will both respond to the 10.000 euros together with “Y, SCP”.

In practical terms, this means that the clothing brand “X” can choose to claim the 10.000 euros to either “Y, SCP” or to Carmen or to Juan, or to all three of them. Individually they are all liable for the payment of the entire amount of 10.000 euros.

As a consequence, should “Y, SCP” be dissolved and disappear, then the clothing brand “X” will still be able to claim, with or without court intervention, to complete the payment of invoices against Carmen or Juan or against both at the same time.

What does this mean for suppliers?

The Spanish case laws are clear in this regard. We may quote as an example of the recent judgment from the Barcelona Appeals Court nr. 50/2020 dated March 3, 2020 (SAP Barcelona 50/2020, 3 de Marzo de 2020), which confirmed a 1st instance court judgment that condemned both members of an extinguished retailer's shop under the SCP legal form to pay its supplier. Even in this case, both members had internal agreements splitting which members were liable for the payment of which supplier. The court ruled that internal agreements cannot be opposed to the supplier who is a third party, and therefore both members were jointly liable for the full amount of the debt, regardless of their internal arrangements.

More information

Are you dealing with a similar case and would you like more information on this subject? For more information, you can contact us. With fluent Spanish speaking lawyers with experience with the Spanish legal system, we can help you resolve your case. We will be happy to help you.