Title: Retention Of Title
A Retention of Title (ROT) is a written contract between the seller and the buyer that states that the seller retains possession of the goods sold until the buyer completes full payment.
Having insolvency specialists to advise and assist throughout the litigation process is essential to obtaining the best possible outcome.
Our experienced solicitors can help you with the ROT procedure, ensuring that your goods are protected and that you retain title ownership until the debts have been settled.
Retention Of Title Explained
A Retention of Title is a way of protecting the seller from experiencing non-payment, which can cause a lot of financial damage, especially if the buyer is their key client.
So, if the goods are not paid for, the ROT can help the seller to obtain the goods back.
However, for a Retention of Title claim to be accepted the contract needs to have been signed by both parties to prove that there has been a written agreement, and the goods are clearly identifiable. The case can then be presented to the appointed liquidator, who will file for the repossession of the good
Our experienced insolvency solicitors at BTMK can advise you on how to proceed and assist you in drafting the Retention of Title clause.
Should a dispute arise due to the ROT clause, we will advise you on what steps to take.
What Is a Contractual Document In Terms Of An ROT?
For a Retention of Title claim to pass, the ROT clause needs to include the terms and conditions within the contract. The recipient of the contract would know what the contract stipulates. Therefore, the document should be detailed enough that the ROT clause is accepted by the courts.
Reasonable Notice
The receiver of the goods should be given notice that the contract will be made and what conditions will be contained in the contract. Once receiving the contract, the buyer must be completely satisfied with all conditions of the Retention of Title before agreeing to sign.
Why You Should Get A Retention Of Title
There are a couple of reasons why you should draft a Retention of Title into all your contracts.
These include situations where a client refuses to pay, their company becomes insolvent, or you are owed money from outstanding invoices.
So, it’s imperative to take steps to minimise potential losses.
The ROT clause serves two key purposes: it allows a seller to reclaim possession of goods if payment is not received, as well as giving the seller priority over secured and unsecured creditors.
BTMK will help protect your interests in two ways: interpreting Retention of Title Clauses and writing them into your contracts.
Types Of ROT
For a Retention of Title claim to be valid, the clause must be drafted into the contract between the seller and the buyer. The ROT clause can be either Basic, All-monies, Proceeds of Sale or Mixed clauses.
Basic Clause
A Basic clause allows the seller of the goods to retain ownership of the goods until full payment is made to them. With a Basic clause, it is essential that it outlines that the seller retains the legal and beneficial title to the goods. However, it is important to note that a Basic clause should be accompanied by additional clauses such as the right for the seller to repossess the goods if non-payment occurs.
Despite this, the Corporate Insolvency and Governance Act 2020 prohibits the enforcement of a Retention of Title clause unless an exception applies.
However, if the buyer is not experiencing insolvency, then another clause can be acted on along with the Basic clause, which prevents the buyer from selling or using the goods. This right extends to the seller being permitted to enter the buyer’s premises to repossess the goods.
Our BTMK experts will work to make sure that your goods are protected and that you can retain ownership by drafting the right ROT clauses into your contract.
All-monies Clause
An All-monies clause allows the seller to retain ownership of the goods they have supplied until the buyer has paid for all the goods.
Therefore, the All-monies clause gives security to the seller and allows the seller to transfer the title of the goods once they have been fully paid for.
Similarly to the Basic clause, the All-monies clause allows the seller to repossess the goods by entering the premises of the buyer.
Moreover, with our expert legal guidance, we can help you reclaim your goods immediately following a non-payment (if the buyer is unable or unwilling to settle their debts.)
Proceeds Of Sale Clause
A Proceeds of Sale clause allows a seller to claim rights over the sale proceeds of goods to satisfy an unpaid debt.
Yet, recent case law makes it difficult to draft a Proceeds of Sale Clause without it being regarded as a charge over the goods, which benefits the buyer. However, the charge is not enforceable unless it is registered at Companies House.
Mixed Clauses
Mixed clauses are suitable to insert into the contract between the seller and the buyer if the buyer intends to use the goods for manufacturing. In this case, the Basic ROT clause is insufficient to repossess the goods because their ‘identity’ has changed after being used in the creation of a new product. As a result of the product’s identity change, the seller will lose ownership of the goods.
Yet, a Mixed goods clause can supplement a Basic ROT clause, permitting the seller to claim ownership of the new product.
However, similar to the Proceeds of Sale clause, this creates a charge which is only enforceable if registered.
Our solicitors will guide you through considering alternative routes so that your goods remain protected like credit insurance.
Ultimately, a Retention of Title offers sellers financial protection, allowing them to hold onto their goods if full payment has not been made.
But an ROT won’t just require the buyer to pay the invoices in full, it can allow the seller to control how the buyer stores the goods, even to the extent of inspecting the storage facilities.
The Claim Being Accepted
If the official receiver attempts to sell goods subject to the ROT clause, they will be liable for damages to the seller. However, if the buyer acknowledges the claim, the goods must be returned to the seller as soon as possible, with any necessary costs covered.
Yet, if the buyer becomes aware of the ROT clause after the goods have been sold, and the claim is found valid, the buyer must allocate part of the sale proceeds to cover the amount owed to the seller.
Likewise, if the supplier has seized goods, they cannot resell them or dispose of them until the official receiver validates the claim.
Limitations and Enforcement Of ROT Clauses
There are clear limitations to enforcing a Retention of Title, particularly in case of insolvency. In the event that the buyer goes into administration, the seller cannot cease the goods and must obtain permission from the administrator or the court to repossess them.
Additionally, the Corporate Insolvency and Governance Act 2020 offers protection to companies that are undergoing financial distress. Therefore, the seller cannot reclaim the goods without permission, rather the courts may allow the buyer to conduct a sale of the goods to recover the company from financial trouble.
Also, a Retention of Title clause may be ineffective if it conflicts with the nature of the business, for example, if the goods have little value or the contract specifies that the goods will be resold immediately.
Our Expert Legal Advice
With court rulings and the laws regarding Retention of Title clauses constantly changing, it is essential that you speak to an expert at BTMK solicitors.
We can advise you on how to protect your goods and interests.
Our BTMK solicitors will make sure that you get the very best advice, and we will move to insert a Retention of Title with an express clause into all your contracts.
A well-written ROT clause will protect your business and could return the goods to you as owed. However, they require a skilled professional like at BTMK, to interpret and enforce them, and to avoid other disputes.
For more information or to speak with one of our insolvency solicitors.
