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How Does Retention of Title Work and What Happens in Insolvency?

13th August, 2019
Robert Moore

Written ByRobert Moore

Marketing Manager


Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.

Rob is now working with the Board at KSA Group Ltd to develop strategic marketing programmes to support the business plan and drive more company rescues.

Robert Moore
  • What is a Retention of Title clause?
  • Why is this needed?
  • Limitations to ROT clauses

When customers are given credit on goods, there is always the risk that the company will not receive the payment, even when it is agreed. If the customer becomes insolvent the supplier becomes an unsecured creditor and may not receive anything.

One way this risk can be managed is by the implementation of a Retention of Title (ROT) clause within the contract of sale. This ensures that the supplier retains ownership of the goods prior the sale. Be sure that when you do this you take professional advice, as the process of drafting a ROT clause can be complex.

What is a Retention of Title clause?

This clause allows ownership of any good within the contract of sale, to be with the supplier, rather than the customer, until full payment for the goods has been received.

So long that the clause is clearly defined, and the contract is signed by both parties, it can be used as documentary proof to the appointed insolvency practitioner, that a retention of title claim can be made.

Why is this needed?

For businesses, insolvency is a threat but for suppliers especially, insolvency of a key customer is a more significant threat to their survival. Hence, such a clause is used by suppliers, to protect them and limit their chances of not being paid for goods delivered. It acts as a form of security against the buyers default.

ROT clauses are used by many industries. It is customary to be used for clothing and record industries. For example, the ownership of rights for a pair of Nike trainers, remains with Nike, until they are sold to the customer. Additionally, it is often used in the construction industry, especially if materials have been delivered to the site, but not yet used.

What types of retention of title clause are there?

  1. Simple – a basic clause which states title to specific goods is retained by the supplier until full payment has been received. This works on an order-by-order basis.
  2. All Monies – this is more expansive and included separately, but in addition to, a simple ROT clause in a contract. It allows retention of title until all monies due from the debtor are paid to the supplier.
  3. Proceeds of Sale – this addresses the issue of goods already being sold on; hence it can give the original supplier the proceeds of sale.
  4. Mixed Goods – if the goods supplied were used in the manufacturing process or mixed with any other goods, this clause allows the supplier to claim the right of ownership over the original raw materials. The issue here is that it depends if the goods are able to be separated without damage being caused to third parties.

Sometimes the types of clauses are combined. This is so that if the liquidator decides a part of the clause is invalid, the supplier is still able to recover the goods, just under another element of the clause.

Limitations to ROT clauses

  • Perishable goods make a ROT clause unenforceable
  • If a buyer enters administration, the supplier is unable to enforce such a clause because of the moratorium period which protects insolvent companies from any legal action
  • Only the goods which are delivered after the date of a nil or credit balance on the buyers account are eligible
  • If the supplier is aware that their goods are used in the buyers’ normal course of business, naturally being sold on before payment is made, the ROT clause is ineffective

Important Tips:

  • When posing the clause, it must be clearly worded and ambiguous. To ensure it is effective, the clause should regularly be evaluated and assessed.
  • The customer needs to be aware of the clause before, or when a contract is agreed or else it is not enforceable. Rather than putting this clause in an invoice, it should be among the terms and conditions of trade. This is because if it was within the invoice, the customer would need to sign it before the goods were delivered.
  • To prevent the liquidation of goods among the ROT clause, the appointed IP must become aware of its existence as soon as possible. Office holders may request a retention of title questionnaire to be completed by the supplier as well as documentary evidence, to give them an understanding of the situation, to see if the clause meets the necessary requirements and to support their claim.

Worried Director What Will Happen To Me After Liquidation?

in Company Liquidation What is …?

"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director.  If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020.  Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly.  I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim.  This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork".  It isn't worth the risk.  If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP)  or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at 

Worried Director What Will Happen To Me After Liquidation?

Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

Notice of Intention To Appoint Administrators
Man with umbrella

What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

What Is A Winding Up Petition By HMRC or Other Creditor

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