Effect of retention of title

Retention of title means, in essence, that the seller of an item continues to own the item until his invoices have been paid. A number of varieties of retention of title exist.

In some cases, the agreement is that retention of title continues for as long as any invoices remain outstanding, regardless of what the invoices relate to; in other cases, retention of title only continues until the price of the product covered by retention of title has been paid. In other words, if you sell a bicycle then the bicycle only becomes the buyer’s property when he has paid for the bicycle. If you supply services together with software, cables etc, then you can provide that the software remains the property of the ICT company that supplied it until the amount charged for labour has also been paid for.

The effect of retention of title becomes apparent when the debtor becomes insolvent. If someone who has not paid a bill becomes insolvent, from that time on a trustee takes over his authority to decide what happens to his property and which payments

will still be made. Ownership rights (retention of title) can still be exercised against a trustee as though the insolvency had not occurred. If the trustee cannot do without the software supplied, he will have to pay the bill to avoid having to hand over the software, cables etc. In some cases, trustees benefit from confusion about which items fall under the retention of title.

If a trustee of a company discovers stock originating from various deliveries by the same supplier and a number of those deliveries have become the buyer’s property following payment, it may be unclear which stock should be covered by the retention of title. This is known as improper mixing of goods. An undesirable situation because it means that it is no longer possible to exercise retention of title. This can be prevented by clearly labelling items with not just the name of the supplier but also the delivery date and/or number. Something to remember when supplying goods to companies in financial difficulty!

Retention of title therefore means that even following insolvency goods can be removed or demanded (if retention of title can be proved). It is a powerful tool that can sometimes persuade even a trustee to make payment. Given that a trustee’s statutory task involves paying as few invoices as possible, retention of title can sometimes prevent (or reduce) significant losses.

If the trustee does not pay and you are able to remove the goods then, as a supplier, at least you won’t come away completely empty-handed.