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Retention of title disputes

We have extensive experience on advising and representing liquidators, prospective buyers, directors of insolvent companies and unpaid creditors who are either involved or otherwise have an interest in a retention of title dispute.

What is retention of title (“ROT”)?

It is a concept whereby a supplier of goods attempts to protect itself against non-payment by retaining ownership of the goods until payment is received.

A properly drafted retention of title clause in a company’s trading terms means that the business can take back the goods it has supplied should it not be paid in full by those taking delivery of them.

Making a successful retention of title claim requires you to:-

  • Prove that the buyer accepted your terms of trade; and
  • Identify your own goods.

The intention as to when title will pass must be agreed or be deemed to be agreed by both parties and not just the supplier.

Unless otherwise agreed in the contract/terms of business, title to goods passes on delivery and the onus is then on the supplier to incorporate other terms.

What should I do if I have delivered goods to a company that has gone bust?

Subject to any contrary conditions, a supplier that has entered into an agreement to sell but has retained title to the goods until payment is made, is entitled to recover its goods if the customer is unwilling or unable to make payment (e.g. if the customer is insolvent). However, if the goods are no longer identifiable this may not apply.

If you have delivered goods to a company that has become insolvent, you may be considered an unsecured creditor (especially in the absence of a retention of title agreement and/or clause), or, if you have registered security in respect of the goods delivered, you may be considered a secured creditor.

If you (as the supplier) become an unsecured creditor and take your place at the bottom of the payment ‘hierarchy.’ This introduces further issues, with the strong possibility of being able to secure little or no return. Including a retention of title clause within a contract of sale or supply contract mitigates this risk.

It is crucial to obtain legal advice when drafting a clause of this type, as retention of title law is a very complex, made more complicated by the many possible scenarios that could occur especially when your customer becomes insolvent.

There are different types of retention of title clauses and you will need to think ahead when trying to determine which clause may protect from potential future scenarios. The most common types of retention of title clauses include (but are not limited to):-

  • Standard retention of title clause – which states title to specific goods is retained by the supplier until payment has been received in full.
  • All monies clause – which allows for retention of title until all monies due from the debtor are paid to the supplier.
  • Proceeds of sale clause – which addresses the problem of goods having already been sold on and may entitle the original supplier to the proceed of sale.
  • Mixed goods clause – which applies if the goods supplied were used in the manufacturing process and mixed with other goods. This clause allows the supplier to claim right of ownership over the original raw materials.

To prevent the liquidation of goods you have supplied included in a retention of title clause situation, the Official Receiver or registered liquidator should be notified as soon as possible of its existence. The liquidator will usually the ask you to complete a retention of title questionnaire in order to give them a better understanding of the situation and establish whether the clause meets the necessary requirements to return the goods ahead of secured and priority creditors. The supplier will also need to provide documentary evidence to support of your retention of title claim. It is therefore crucial that you have the right retention of title clause in your contract from the outset and a further clause confirming that it is enforceable in instances where the customer has gone into liquidation as this is not just an automatic right.

As a matter of practice, a liquidator will, as soon as possible after his/her appointment, seek to identify and deal with as many retention of title creditors as possible. However, it is always possible that assets are still sold by the liquidator that are subject to retention of title claims. It is therefore important to deal with your retention of title claim as quickly as possible. A buyer buying from a liquidator/administrator could ask them to obtain a court order permitting the sale of any goods free from retention of title claims. If granted, it can be very difficult and costly to reserve this decision.

In many cases the buyer will be required to take the assets subject to any potential retention of title claims that may exist. There will also usually be certain requirements placed on the buyer to give back such assets to a supplier should a valid retention of title claim be made.

How do I instruct Brett Wilson LLP?

If you are involved in or anticipate a ROT dispute we recommend that you seek urgent legal advice.

Where possible, we recommend that you contact us before asserting or responding to any claim.  We can advise you on whether you can seek to recover your unpaid goods from either an individual, a solvent limited company or an insolvent company.

Get in touch with one of our specialist insolvency solicitors by sending us an emailcompleting our online enquiry form or calling us on 020 3813 5006.  If emailing or using the online form, please provide a short outline of your situation.

Costs information will provided following your enquiry.

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