In an interesting development Adidas has insisted that if Sports Direct were to buy some JJB Stores in a pre pack administration they would need to pay full price for the Adidas stock. This is likely because Adidas may have retention of title or an ROT clause. The stock is still effectively "owned" by Adidas until it is sold. This allows the brand to control pricing and stop discounting.
In insolvency the "ROT" clause is important and is always a topic that generates debate in the insolvency world, particularly when the Courts pass judgement on a case.
If a supplier is owed money on products supplied can they demand them back under their ROT clauses! It makes sense for a supplier to seek to protect his position as best he can until he is paid for goods supplied but once goods are supplied the old adage of possession is nine tenths of the law does invariably come to the fore. Not only do suppliers have to contend with issues of conversion, incorporation and identification in insolvency they now clearly have to consider the actual prevailing circumstances of the trading arrangements with a customer.
At KSA Group we are always prepared to adopt a pragmatic approach in the event of insolvency however there is the overriding principle that the assets of the company should be applied equally for all creditors and not just one. If ROT is applicable and the goods are readily identifiable and returnable then we would seek to reach a compromise with the supplier and/or return the goods in question. If not and the goods are of value to the company then they should be applied to the benefit of all creditors. ROT clauses are a protective mechanism for a supplier but once again we see that they cannot always be relied upon should a customer enter into insolvency.
Knowing your customer, keeping in regular contact and abreast of the situation will help minimise risk. Should the worst happen, keep your fingers crossed and hope your ROT prevails. If one of our insolvency practitioners is involved then please pick up the phone and talk – we will always be prepared to listen and to seek a pragmatic solution.