The difficult economic climate means that it is more important
than ever for businesses to protect themselves against the risk of
key customers or suppliers becoming insolvent. A simple measure
that can be taken by suppliers of products to protect themselves
against the risk of customers or distributors becoming insolvent is
to ensure that the relevant supply agreement or terms of trade
includes a properly drafted retention of title clause.
A retention of title clause (also known as a Romalpa clause) is
a contractual provision used in supply agreements under which the
supplier retains ownership of goods supplied until payment is
received. It is common for these clauses to create a trust in
favour of the supplier under which the purchaser holds proceeds
from the sale of the products supplied as trustee for the
The intention of these clauses is to give a supplier a right to
repossess products supplied in the event of non-payment. Retention
of title clauses need to be very carefully drafted to ensure that
they are effective in achieving the desired aim.
Even if a supplier is unable to repossess the products supplied,
the Corporations Act provides some comfort to suppliers that use
retention of title clauses where customers go into external
administration. Under section 442CC of the Corporations Act,
suppliers that have supplied goods subject to a retention of title
clause will rank ahead of other unsecured creditors in an
All suppliers should consider conducting a review of their
credit arrangements and trading terms to ensure that they are
adequately protected against the risk of customers or distributors
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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