HAVE YOU ASKED YOUR CLIENT THE QUESTION?
01 09 2007
HAVE YOU ASKED YOUR CLIENT THE QUESTION?
When was the last time you asked your client whether they had “Retention of Title” on the supply of their goods? It could make the difference between your client being an unsecured creditor in an insolvency situation with little prospect of receiving a dividend as compared to your client being entitled to recover its goods in full from the insolvent debtor.
As Liquidators, we are amazed at the very limited number of suppliers who have taken the step of inserting a Retention of Title (“ROT”) clause into their terms and conditions of supply. A ROT clause generally provides that title or property in the goods does not pass to the buyer until either:
- the buyer has paid the supplier in full for the goods the subject of the invoice (a simple clause); or
- the buyer has paid the supplier all monies owing for all goods supplied to the buyer (an all monies clause).
The advantage of having an all monies clause as compared to a simple clause is that under a simple clause the supplier has to be able to identify the goods to a specific unpaid invoice. Under an all monies clause the supplier has to be able to identify it as stock supplied by it.
Many suppliers rely on their ROT clause being on their invoices or statements as acceptance by the buyer of that clause. The mere presence of an ROT clause on an invoice delivered to a customer at the time of or following delivery does not prove that the buyer agreed to the goods being subject to ROT.
To improve your clients’ recovery chances, you should be recommending that your client also inserts the ROT clause into its credit application form and have an official (e.g. director) of the buyer sign off on the credit application form before commencing trade.
Remember that if your client changes its name or wishes to vary its terms of trade it should provide the buyer with the amendments (including the ROT clause) and have the buyer sign off on such changes as agreed.
Identification is not the only hurdle for suppliers who have a ROT. There is also the question of whether the buyer has agreed to the clause being part of the terms of trade, whether the clause is clear and not ambiguous and whether the goods are still in a collectable condition (e.g. not on-sold, mixed or affixed).
Having a ROT clause, such as an all monies clause, may not provide your client with a guarantee of recovery of the goods it has supplied, as against a Liquidator, but your clients’ prospects are significantly increased as compared to where a suitable ROT clause does not exist.