Page 68 - Print21 Jan-Feb 2020

Business
Risky business:
selling on credit
Commercial lawyer Wal Abramowicz says inserting a Retention of Title clause in your T&Cs is strongly beneficial, especially if the client falls over.
the goods, and retention of title provides the leverage needed to negotiate in that situation.
In order to protect your business, it is a good idea to have a retention of title clause in your terms and conditions of sale. However, that alone is not enough. Once the
credit application is complete, but before anything is delivered, the security over the goods must be registered on the Personal Property Securities Register (PPSR). If it is not registered, the retention of title is not legal, and will not be accepted by a receiver or liquidator.
It is a small thing to do in advance – but it’s not something you can add later after the problem comes up, and it could save you a lot of money. If you have a retention of title clause, and you register your interest, you have one less risk to worry about. 21
For more information contact Wal at Fox & Staniland Lawyers, Pymble, NSW Phone: 02 9440 1202 Fax: 9440 1205 Email: wal@foxstaniland.com.au
Every business of any size makes sales on credit. Loyal customers gain trust and ask for time
to pay as a convenience. Seven, 14, 30, 60 days, or even longer, are common. However,
this creates a risk for the business making the sale. The customer receives the goods immediately, but the payment may not come through for some time. Instead of exchanging goods for payment, goods are exchanged for a promise to pay later.
What happens if the customer decides not to pay? What happens
if they are struggling or go under? The seller no longer has the goods or the payment for them, and may have suffered a significant loss. The issue is who owns what. Since purchases on credit are done in exchange for
a promise to pay, upon delivery the goods belong to the purchaser while the seller’s only asset in return is in accounts receivable.
There is a way around this
risk, though – and it’s something that needs to be in the terms and conditions of sale from the start. It’s called a ‘Retention of Title’ clause or, among lawyers, a Romalpa clause. This is named after one of the companies involved in the first case where such a clause was used, Romalpa Aluminium.
In that case, Romalpa Aluminium bought aluminium foil from a supplier on credit. The supplier delivered the foil, but before payment was made Romalpa went into receivership. The supplier had a clause in its contract which said that until the goods were paid for, they still belonged to it. When the case went to court, the receiver tried to argue that the foil belonged to Romalpa and could be sold for the benefit of all of the company’s creditors. The supplier argued that the clause in its contract meant that it still owned the foil until Romalpa paid for it, which it had not.
Wal Abramowicz: Retention and register – one less risk to worry about
Having correct T&Cs can avoid arguments over who owns unpaid goods
The Court found that, unlike the usual course of events, due to that clause Romalpa would not become the owner of the foil until it paid for it. Until that time, the foil might be in Romalpa’s warehouse, but Romalpa was just holding it on behalf of the supplier.
The outcome was that the supplier got its foil back and avoided being caught up in Romalpa’s insolvency, whereas without that clause the foil would have been sold by the receiver and the supplier might have only gotten back a few cents on the dollar, which would have been almost a complete loss.
This is perfect for goods like paper and ink which can be
resold if recovered, but it also works on custom orders, as any administrator seeking to trade out of insolvency will want to keep
Clarity:
68 Print21 JANUARY/FEBRUARY 2020