Secure Your Goods in the Event of Insolvency – Retention of Title
26 August 2016
Question. If one of your customers didn’t pay for goods, which you supplied, what do you think your chances of getting them back are if they became insolvent or simply didn’t pay?
Answer. Unless you have a retention of title clause within your terms of business, the chances are slim!
A retention of title clause is a clause that allows a supplier to retain ownership over the goods supplied until such time as certain conditions are met (usually payment in full). This provides the supplier with a form of security against the purchaser in the event of default or insolvency. There are two types of retention of title clauses. The first is a simple clause meaning the clause relates only to specific goods as defined on specific invoices. The detailed and more secure clause is an all monies clause, meaning it can be applied to any goods supplied across any invoices regardless of which amounts remain unpaid.
Here are two tales of woe in recent BRI cases where suppliers have got their terms incredibly wrong in such a simple way.
Wholesaler of alloy wheels
We were appointed liquidators of a wholesaler of alloy wheels and held hundreds of thousands of pounds of wheels in stock. A significant proportion of these wheels were supplied by one creditor who advised us that they had retention of title. A liquidator must always ascertain the validity of such a claim and so a claim sheet was sent to their requested solicitors to establish the facts. Upon receiving the completed form back, the solicitors had indicated, in writing, that they believed they had valid retention although they would be unable to identify their goods.
Immediately the supplier’s claim has failed. By confirming that they are unable to identify their goods, how can a liquidator be certain that the goods being claimed are theirs? They cannot and so the claim failed on that ground.
Before supply commenced the supplier should have carried out a simple step to incorporate their mark, or unique identity number, into the product which would enable them to clearly identify their goods in circumstances like these.
Extraction of precious metals
We were appointed liquidators of a precious metals extraction company. An expensive and integrated ventilation and extraction system had been installed at the premises. The supplier had not been paid for the system and asserted retention of title. Upon review of the claim and associated paperwork it was clear that the company had no signed terms of business with the supplier. However, the supplier’s invoices did state that the goods remained their property until paid for in full.
The suppliers claim failed on the grounds that there were no contractual terms which included a retention of title clause. Simply noting a retention clause in an invoice, which is supplied after the contract has been entered into, is a post-contractual term and not one that is deemed to have been formed within the original agreement. The only exception to this being a post-contractual term is unless the term can be demonstrated to be a part of a regular course of dealings, which it could not in this case.
Ensure that you have properly drafted standard terms of business which incorporate a retention of title clause. Also ensure that these are signed by the client before an order is placed so that the terms are incorporated into any orders placed.
Tips for success
- Ensure that your clause is properly drafted and that it is an all monies clause.
- Ensure that the clause is incorporated into your terms of business and signed by the customer before the order is placed.
- Ensure that your goods are marked and identifiable at all times and insist that they are kept separate to other goods on site.
- Incorporate a proceeds of sale clause in case the goods are sold to ensure you are entitled to receive the proceeds of sale.
- Ensure that the clause covers risk so that the goods remain safe and insured (at the buyers expense) to your benefit.
- Incorporate a suitable termination clause so that upon insolvency you have a right to remove the goods.
If you are concerned about the security of goods supplied or for any other related matter please do call one of the management team at BRI Business Recovery and Insolvency today for a free and no obligation discussion.