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retention of title - getting it right

23 January 2009

As a general rule, a company subject to a formal insolvency process may own goods you have supplied, even if they havent been paid for.

A retention of title clause is a term in a contract that prevents title in goods from passing until those goods have been paid for in full. These clauses can protect the interests of suppliers against a customers insolvency.

As the number of insolvencies is increasing quarter on quarter, retention of title clauses are becoming more important than ever before. However, a recent survey of senior decision makers in hundreds of companies around the UK found that only 27 of companies use retention of title clauses effectively. Unfortunately, from our experience, a substantial proportion of these clauses fail. This leaves a huge proportion of companies in the UK without adequate protection in the event that a customer becomes insolvent.

In an attempt to remedy this situation, here are our top five tips:

1. Check the wording

Do you know whether your clause is a simple or all monies clause? An all monies retention of title clause provides the best protection as, if properly drafted, this ensures that title in goods supplied will not pass until those goods have been paid for and all other amounts owed by the purchaser to the supplier have also been paid in full. With a simple clause you have to identify specific goods to specific unpaid invoices - a big problem if each item doesnt have a unique identifying number.

2. Sign them up

A retention of title clause will be invalid if it is only communicated to a company at the time or after the goods are delivered. Including them on the reverse of your invoices only will not usually be enough! To ensure that your retention of title clause is incorporated into your contract, it is important to ensure that the clause is included in a contractual document signed by both parties before you deliver the goods. It is a good idea, for example, to include them on a credit application form. If this is not practical, then ensure your terms are on the last document passing between you and your customer prior to delivery and on as many other documents as possible. If they are included on the reverse of a document you fax to your customer, ensure you also fax the reverse.

3. No trespassing

Make sure that your retention of title clause allows you to enter your customers premises lawfully in order to remove your goods.

4. Act quickly

If your goods have been sold on by your customer in the ordinary course of business, your retention of title claim is likely to fail and you will have to prove as an unsecured creditor in the insolvency. If this is the case, as soon as you discover that your customer has become insolvent, you should contact the appointed insolvency practitioner, by telephone and in writing, to explain that you will be relying on the retention of title clause.

It is important to have all of the relevant paperwork such as the contract, terms and conditions, quotations, purchase orders, delivery notes and a statement of account to hand, as the insolvency practitioner will want to see this before your claim will be acknowledged.

You should then attend your customers premises as soon as possible in order to find out what goods are on the premises and complete an inventory of those goods for the insolvency practitioner to sign. It is unlikely that you will be able to take the goods away at this point as the insolvency practitioner will want to consider your claim in detail and he will expect you to fill out a questionnaire and return it to him.

5. Call us

Our experienced insolvency team can provide advice and assistance in the event that you experience any difficulties in obtaining access to your customers premises, or if the insolvency practitioner rejects your retention of title claim.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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