Buying a business in administration: You own the company, but do you own the goods?

The desired outcome has been achieved: the company has been acquired and has exited administration. The new owners will now be working hard to restore debt levels to an acceptable level, grow profit and regain the trust of its customers (amongst other things). It is also possible that the purchasers will have a list of suppliers knocking at the door looking to pursue retention of title claims.

What is retention of title?

Retention of title (ROT) is a way for suppliers to retain ownership of goods until they have been paid for by the customer in full. In order to assert ROT, a supplier must have included a ROT clause in either their terms of conditions of sale, purchase order, or similar. Well drafted ROT clauses will be extremely protective of the supplier and may state that the supplier retains ownership of the goods even if a change of ownership of the customer occurs. Within this article we take the bull by the horns and define what a retention of title is, what the risks are and how to combat any issue you may face with your legal time by your side.

Is there a risk I will have to give the goods back?

Once a company enters into financial difficulty and is unable to pay their debts, suppliers are likely to come knocking for payment or recovery of goods as soon as word gets out. However, it is possible that ROT claims continue whilst the company is in the administration process and even after the company is successfully acquired out of administration. For the purpose of an ROT claim, the company will be treated as though the sale had not happened and the new owners will be treated in the same way as the previous owners of the company.In order to successfully bring an ROT claim, a supplier will have to evidence that the ROT clause was properly incorporated in the supplier’s contract for sale of goods or terms and conditions of sale. There are limits on the effectiveness of an ROT claim for instance, if the goods are not readily identifiable as belonging exclusively to the supplier.

If an ROT claim is successful, a supplier may have the right to:

1. Enter the premises to recover the goods; or2. Bring an action for damages if the goods have been sold or are unable to be recovered.

Whether or not a supplier is successful in bringing an ROT claim and therefore able to recover their goods, will ultimately depend on how well the ROT clause has been drafted and a number of elements being satisfied. Upon receipt of a retention of title claim, it is therefore important to seek expert legal advice.

Need help?If you would like any help and advice on an ROT claim or regarding the acquisition of a business, please contact our specialist corporate team on 0151 305 9650 or email hazel.walker@glenvillewalker.com

This article is not intended to be interpreted as advice.