The recent Pre-Pack acquisition of House of Fraser by Sports Direct has again raised the plight of the supplier.
House of Fraser collapsed with an estimated £484 million worth of debt owed to its suppliers. Sports Direct owner, Mike Ashley, has stated he will not pay for debt incurred pre-takeover, leaving many creditors with no option other than to take the hit. However, brands such as Jigsaw and Karen Millen have taken the bold step of removing stock from the department store chain in response to pre-takeover goods not being paid for.
Most credit insurers insist that their UK policy holders incorporate a valid “all monies” Retention of Title clause in their terms of sale. We take a look at the types of situations where this security works and those where it probably doesn’t.
First, what is Retention of Title? Putting it simply in an administration, the clause allows the seller to retain ownership of all remaining goods until they are paid for. If the insolvency practitioner wishes to sell goods after you have exercised your rights they will have to pay for them.
Why “All Monies” rather than a simple clause? An all monies clause specifies that title to the goods only passes when payment has been made to all goods supplied by the seller. The importance of this can be demonstrated in situations where the goods cannot be easily differentiated from goods specified in an earlier paid invoice.
For Retention of Title to work the buyer must have been made aware and accepted these terms. It is very important to ensure that you are trading on your terms and conditions rather than the buyer’s terms. An example of large insolvencies where the buyer’s terms were imposed was T J Hughes, but many suppliers were able to negotiate inclusion of their ROT clause.
Establishing your rights is only the first step. As soon as you are aware of the appointment of an administrator you need to move swiftly to enforce your rights and in particular remove the right of the administrator to sell, process or manufacture using your goods.
ROT is specific to goods and clearly its value is greater where the goods have a resale value and can be readily differentiated from other stock. Perishable goods bring their own set of problems to the mix with issues over refrigeration, traceability etc, but you should remember that the insolvency practitioner is primarily concerned with selling the business on.
Trade Credit Insurance protects businesses from bad debts caused by the insolvency or default of a business customer. To find out more on how Credit Insurance can assist your business, contact us today.