Can I repossess my stock from a trade customer who hasn't paid?

31 August 2012

In the current economic climate many business owners find themselves in financial difficulties and can't - or won't - pay for stock which has been supplied in good faith.

The current economic climate has highlighted the importance for businesses to have written terms and conditions of trade,  which include a well drafted retention of title clause.

Such clauses ensure that ownership of goods supplied does not pass to a customer until payment is made for those goods.  They also give the supplier priority over creditors if the customer becomes insolvent.  The supplier can assert ownership to an insolvency practitioner and threaten legal action if that practitioner attempts to deal with the goods.

There are different types of retention of title clauses which need to be considered in the context of the supplier’s trading operations but a general guideline is:

Basic Retention of Title – limited to retention of ownership for one particular order until payment is made.

All Monies – provide that ownership of goods supplied does not pass until all the debts owed by customer to the supplier are repaid. This enables the supplier to recover any goods from the customer regardless of whether the customer’s indebtedness relates to those goods or to other goods previously supplied.

Proceeds of Sale – provide that if a customer sells goods on to a third party before paying the supplier for them it must hold the proceeds of sale as a fiduciary, i.e. with a duty of care, for the benefit of the supplier.

Retention of title clauses should be accompanied by provisions granting the supplier rights of access to the customer’s premises to recover the goods and obliging the customer to store the goods separately and maintain them in collectable condition. There are legal and practical limitations to the effectiveness of retention of title clauses and they should be used as an addition to rather than a substitution for an efficient credit control system.  However, they are an important part of a business’s debt control/recovery procedures and specialist legal advice should be sought to ensure you and your business are adequately protected.

Celia Worthington at Worthingtons Solicitors Belfast regularly advises business clients and new start ups on  the importance of having clear and reliable Terms & Conditions at all times and are increasingly tasked with reviewing existing terms to ensure they are as effective as possible in these straightened economic times.

 

 

 

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