Prosper Spring

BUSINESS FINANCE SPOTLIGHT
Stealing a march in
customer insolvency
Why Higgs LLP says retention of title is important
All businesses, large and small, are aware of the impact Covid-19 and other global
events have had on the UK economy. The Bank of England anticipates the UK will face
a protracted recession, with the number of corporate insolvencies predicted to rise
throughout 2023. It is, therefore, more important than ever that businesses protect
against non-payment of goods to prevent unwanted cash-flow issues.
Here Suky Mann, Principal Associate in the Higgs LLP Restructuring and Insolvency
team, and Tracy Lake, Head of Commercial, offer key advice to ensure you are not left
at the back of the creditors’ queue.
Suky Mann
Robust terms and conditions
Terms and conditions provide clarity
about what should happen in any given
situation.
Having an agreed set of terms can help
businesses manage client expectations with
regards to delivery and payment and also
provide certain rights in the event of
non-payment or customer insolvency.
To rely on the contents of any terms and
conditions, it is essential that these are
properly incorporated into any agreement
between a business and its customers. It
may be appropriate for terms and
conditions to provide for retention of title
over goods that have not been paid for, the
effect of which if drafted correctly can
enable a creditor to assert security over
those goods and steal a march on other
unsecured creditors.
Retention of title clauses:
Retention of title clauses protect the
supplier of goods against non-payment by
retaining ownership of the goods until
payment is received.
A basic retention of title clause will state
that legal ownership, or title, to the goods
will not pass from the seller to the buyer
until the buyer has paid for the goods.
A right for the seller to enter the buyer’s
premises to repossess the goods should be
included to ensure that the seller is not
committing a trespass when doing so.
In an insolvency event, the Insolvency Act
1986 defines a ‘retention of title agreement’
as: an ‘agreement for the sale of goods to a
company, being an agreement – (a) which
does not constitute a charge on the goods,
but (b) under which, if the seller is not paid
and the company is wound up, the seller will
have priority over all other creditors of the
company as respect the goods or any
property representing the goods’.
A significant benefit of retention of title
clauses is that, as a supplier, there is scope
to escape the constraints of the Insolvency
Act, namely the strict order in which you
would be paid as a creditor in the event of
customer insolvency.
Ensure terms and conditions are
robust and provide clarity about what
should happen in any given situation.
44 PROSPER SPRING 2023