Transfer of ownership in insolvency
In July 2020, we reported that the Government had announced its intention to bring forward legislative changes which would have the effect of enhancing the rights of consumers who have pre-paid for goods, including in the event of a retailer’s insolvency.
By way of update, The Law Commission has recently published a draft Bill on the subject which proposes the transfer of ownership of goods to consumers at the point where the sales contract is made, in the case of goods which are identified and agreed on at the point of purchase, such as physical goods in an in-store purchase or a specific product in an online store.
For all other goods (i.e. those which are not identified and agreed on at the point when the sales contract is agreed) the draft Bill provides that ownership should transfer to the purchaser at different points dependent upon the item in question. For example transfer should be effective when items are “labelled with the consumer’s name in a way that is intended by the trader to be permanent”; when “alteration of the goods to a specification agreed between the trader and the consumer is completed”; or, when “manufacture is completed, if the goods are to be manufactured for the consumer to a specification agreed between the trader and the consumer”.
Currently, if a retailer enters formal insolvency, goods which have been paid for in advance but which remain in the company’s possession are, subject to various factors, likely to be treated as assets belonging to the retailer and may be realised by the insolvency office-holder for the benefit of creditors generally.
R3, the Association of Business Recovery Professionals, has expressed concerns that the proposed new rules are “likely to present practical difficulties for insolvency practitioners in every scenario when they are trying to establish where ownership of the remaining property lies” and lead to a significant increase in costs for the insolvent estate.
To read the full draft Bill, entitled Consumer Rights (Transfer of Ownership under Sales Contracts) Bill, click here.
Sarah Mower specialises in business insolvency and restructuring within the Business Services department at Barker Gotelee Solicitors in Suffolk.