Retention of Title Claims

It is often the case that on the insolvency of a debtor [an individual has become bankrupt or a Company who has become insolvent] there is no money left to pay unsecured creditors.

Unsecured creditors are lenders who did not get a form of security over something when lending money to the borrower. These creditors will rank below those who did obtain security for the loan they provided

A retention of title clause is a form of protection for creditors. It means you can get your goods back if you aren’t paid. The clause will be part of a sales contract which will say that the supplier of goods remains the owner of these goods until full payment is made.

There are many different types of retention of title clauses and many cases will depend upon their individual facts.

For anything further, please contact Angus Ashman, Partner and Head of Dispute Resolution.

What does a Retention of Title Clause look like?

In its simplest form the retention of title clause will say that if you are a supplier you will own the goods you have supplied until full payment is made.

The term will let the supplier enter the buyer’s premises to recover the goods once payment is overdue.

This will mean that the seller cannot be accused of trespassing when they enter the premises.

For more complicated circumstances such as where the buyer has processed the goods in some way or where they have sold the goods on, a more complicated clause will need to be included into the supply contract.

How would claims for retention of title take effect if the Company I work for is in Liquidation, Administration or where a Receiver has been appointed?

If a buyer enters administration or liquidation and is holding goods which have been supplied under a retention clause these clauses will generally be effective.

The goods will not belong to the buyer and so the liquidator will have to surrender assets to the supplier.

However, if there is a clause in place for more complicated circumstances as described above there is a danger that a supplier will not be able to recover money or goods.

In receivership, if the receiver wants to include the goods in a sale for in a package deal, it is unlikely that they will make an agreement to pay over the proceeds of sale of the goods.

What if the buyer becomes bankrupt – how will this affect me getting my money back?

Simple retention of title clauses will be enforceable against a trustee in bankruptcy who was appointed to deal with a bankrupt individual’s assets.

Again there are different types of clauses for different circumstances.

If you require advice as to how you are able to get your money or goods back in this instance we will be able to provide advice.

How would claims for retention of title take effect in “Voluntary Arrangements” which have been agreed with persons who are owed money?

A voluntary arrangement is where a company or an individual enter into an agreement with their creditors [persons or companies they owe money to].

If there is a simple retention of title clause in place there is nothing stopping a supplier from repossessing goods before the voluntary arrangement has been agreed.

Again as described above if the retention of title clause is more complicated, we can advise you as to the risks this creates in either repossessing goods or if you are a buyer having the goods you bought being repossessed.

We can advise on protection strategies.

How can these clauses be ended?

The supply agreement should provide a list of insolvency-related events which will trigger the supplier’s right to end the contract and which allow them to demand payment or repossess the goods.

As a supplier you should also be given the right to terminate if you “reasonably believes” that a listed event such as liquidation may be about to occur.

The idea behind retention of title clauses is simple but they tend to be widely drafted and this can cause problems.

We have extensive experience in dealing with a number of disputes regarding retention of title clauses.

We can assist with any queries you may have regarding your contract.