Retention of title ("ROT") clauses are useful to creditors if their customers become insolvent. When such terms are validly incorporated into a contract, goods are delivered but the supplier retains legal ownership of the items until they are paid.

A supplier will also need to take practical steps to ensure that its rights are maintained, for example ensuring the packaging clearly demonstrates origin and requiring the goods to be stored separately from other goods, so that on insolvency, the supplier's goods are clearly identifiable

Goods subject to a valid ROT clause are not the customer's property and therefore not available to creditors generally on insolvency. The supplier will be able to collect its goods or negotiate for their sale.  Where an Administrator or Liquidator knowingly sells such goods, the supplier has a remedy against the office holder, although a supplier's ability to enforce its contractual rights is subject to the moratorium which applies in Administration or any stay of proceedings which may apply in Liquidation.

If the goods have been used or incorporated into some other structure or product, the supplier will only retain title where the goods maintain their identity and can be removed without causing damage. Title cannot be retained where  goods have become "mixed" with other items to create a whole new product.

Where an ROT clause is validly incorporated and relates to identifiable goods which are unused or can be removed without damage, then suppliers are likely to be in a much better position than unsecured creditors on the insolvency of its customer.

For more information, please contact Katie Farmer on K.Farmer@ashfords.co.uk