Insolvency: The problems with Retention of Title (ROT)

John Bradshaw Cropped

John Bradshaw recently wrote this article which appeared in the East Anglian Daily Times on 1st July 2014.

Retention of Title (ROT) is the term used to describe an attempt by a seller of goods to incorporate terms into a contract for the sale of goods which have the effect of preventing ownership of the goods from passing to the buyer until certain conditions, typically payment in full, have been met.

In the lead up to a formal insolvency appointment pressures on cash-flow are frequently experienced and accordingly, creditors and Insolvency Practitioners often find themselves having to assert or respond to ROT claims.

In Blue Monkey Gaming Limited -v- Hudson & others [2014] EWHC (Ch) the High Court has recently provided guidance which will be of assistance to insolvency practitioners (in that case Administrators) and ROT creditors alike. The defendants were the Administrators of various companies within the Agora Group. MDM Leisure Ltd (“MDM”) had supplied gaming machines to the Agora Group since 1995. The gaming machines were supplied on terms which purported to reserve title to MDM “until full and final settlement” had been made by Agora.

The judgment is lengthy and deals with a number of issues, the following of which are of particular note in relation to insolvency related ROT claims generally:

• Given that Administrators are strangers to a business, absent their assuming specific responsibility for identifying the goods to which an ROT claim is asserted, that obligation lies with the creditor in question;
• An Administrator’s obligations are: to allow a creditor access to the goods for the purposes of identifying, marking and segregating them; and thereafter to determine the validity of the ROT claim in light of all the available information;
• A creditor asserting an ROT claim should act swiftly in compiling a detailed list of the goods claimed (including identifying features) and attending the premises urgently in order to inspect, identify and segregate goods. Thereafter, they should ensure that any request for delivery up or conditionality as to the continued use of the goods properly identifies the goods in question and is clear and unequivocal as to the creditor’s position and demands. The creditor’s subsequent conduct should be consistent with those demands;
• The reasons for any refusal to deliver up the goods should be well documented to ensure that if a creditor makes a Court application they do so in full knowledge of the Administrator’s reasoning; and
• On an ongoing basis, a debtor should specify the invoices against which the payments are made so as to attempt to restrict the scope and effect of any ROT terms.

ROT claims remain a thorny issue for creditors and Insolvency Practitioners alike. Documentation, practical steps, early action and advice are often the key to resolving issues without the need for the Court’s intervention.

John Bradshaw is an Insolvency & Business Recovery solicitor at Barker Goteleesolicitors in Ipswich

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