Updated: 8th February 2021
Retention of Title (ROT) can be a complex affair unless the clause is unambiguous in its content, and delivered in a manner that cannot be disputed by the debtor. It often forms part of a written contract between the supplier and their purchaser, and is likely to have been discussed at some point during negotiations.
Problems can arise, however, when a creditor assumes that they have a right to reclaim unpaid stock, but the debtor company refuses to recognise the clause, or claims to have no knowledge of its existence.
Begbies Traynor has wide experience in this area, and can work on behalf of creditors attempting to enforce a retention of title claim.
But what can creditors do to enforce a claim they make against an insolvent debtor? The Official Receiver or insolvency practitioner appointed to deal with the insolvency will request more information:
Documentary evidence could take the form of a contract that includes the clause, signed by both parties, and would provide irrefutable proof that the creditor has a valid claim. Sometimes a clause is included in an invoice specifically sent before the goods are delivered, and incorporates a statement that receipt signifies acceptance of all terms.
In some cases a document may not have been signed by the debtor, but the retention of title issue was pointed out to them as an available route should the purchasing company become insolvent.
Although some industries commonly use retention of title to protect suppliers, it is always the responsibility of the creditor to provide the information needed to prove its existence.
This is an important document that allows creditors to explain the circumstances of their claim, why the clause was introduced, and their expectations in recovering the stock. This helps to establish a creditor’s rights to ownership, and allows the Official Receiver or appointed IP to fully understand the background to their claim.
The content of this questionnaire can take various forms, and is designed to cover different business scenarios. The office-holder will use their knowledge of each case to tailor the questions, extracting the information needed to make a sound decision.
Without a detailed retention of title clause that addresses all potential issues, it is unlikely that creditors will see success in their attempts to recover unpaid stock. There are various issues inherent in this system that reduce the chances of a beneficial outcome for suppliers.
Clearly, the possibility for rejection of a claim is very high. This is a complex area that requires professional input when the clause is first formulated, as well as when attempting to reclaim stock.
It is a good idea to contact the liquidator as soon as you know the purchaser is insolvent. Along with a covering letter, you should send a copy of your terms of trade, a statement showing the extent of their debt, and copies of any relevant invoices.
Begbies Traynor can advise on all aspects of retention of title, from the wording of a clause to the inclusion in a contract or other document. We operate from offices around the country, and can arrange a same-day meeting with one of our licensed IPs.