Retention of Title (“ROT”) is where the seller of physical goods attempts to protect itself against non-payment by retaining ownership of those goods until payment is received, even after the goods have been delivered.
There are two types of ROT clause:
Simple clause
The goods supplied under a specific invoice remain the property of the seller until all such goods on the invoice have been paid for.
All monies clause
This means that all goods supplied by the seller remain theirs, until all sums have been paid, protecting themselves against non-payment.
If the purchaser has at some point in time cleared all debts to that seller, then title to all those goods supplied prior to that date will pass to the purchaser.
If a buyer begins an insolvency process the impact can be significant on a seller who has contracted with them to provide goods. If the contract between the parties contains a Retention of title (ROT) clause, then, depending on the insolvency process being entered into by the buyer, the seller may have a right to reclaim possession of the goods.
What happens when a company enters Administration?
If a company enters administration, the seller cannot repossess goods despite there being a ROT clause in their contract. This is due to the company being protected by the administration moratorium.
The only way that a seller can repossess goods is if the administrator consents to it or an order is made by the court. This restriction also applies during the pre-administration period once a notice of intention to appoint an administrator has been filed in Court, which in effect creates an interim moratorium.
What happens when a company enters Liquidation?
In liquidation the existence of a ROT clause means that the seller may have the chance to reclaim the goods. If an ROT clause is not present, then the seller will rank as an unsecured creditor.
Seek legal advice
ROTs are a complex area of law, so you should seek legal advice when dealing with ROTs. There is much case law about the validity of clauses, when it was brought to the customer’s attention and the enforcement of a ROT. Depending on what you supply, the goods may have been converted, so cannot be claimed or the goods may no longer be held by the company, as title may have been passed to another party. Your legal advisers will be able to advise you on whether you still have a claim.
How do ROTs impact Landlords?
A landlord can enforce on their arrears against assets that are left at their premises, often referred to as Commercial Rent Arrears Recovery (“CRAR”). Therefore, you need to act quickly, ensure you have a valid ROT and seek legal advice where necessary. Take the opportunity to liaise with the Insolvency Practitioner (“IP”) and get out on site as soon as possible, they will ensure you are given the opportunity to view your goods to establish if they are identifiable and recoverable. If you are unsure on your position, you could seek assistance from an independent IP.
Can a ROT be helpful tool?
- There are benefits of having a valid ROT clause. For example, it can be used as a negotiating tool with an IP. The IP wants to realise the assets for the benefit of the estate and storage of the goods come at a cost, r so it is wise to consider the cost benefit analysis for the IP
- It is an excellent way to legitimately reduce your liabilities owed by a company that is in an insolvency process, but it does require a proactive approach and an IP who allows access to you to identify the goods in question.
- If you supply goods and do not have a ROT clause, it could be a good idea to incorporate them into your T&Cs.
If you feel unsure about ROT clauses and their impact, feel free to contact us.
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