Archive for November, 2013

26
Nov
13

Consultation to be launched into late payments

Small businesses who struggle to get paid on time should be aware that the Government is to launch a consultation into the issue.

According to YouGov research, 85 per cent of small firms had experienced late payments over the last two years, despite the Government-backed Prompt Payment Code, which was established in 2008 to help small suppliers get paid on time.

Although around 1,500 firms are signed up to this scheme, it has been claimed that some have still managed to stretch out settlement periods to 120 days, despite an EU directive which says business-to-business payments must be made within half that time.

Now, Prime Minister David Cameron has pledged to launch a consultation into late payments, asking for views on areas such as encouraging greater responsibility for prompt payment, highlighting firms who are good payers and those who are not, how existing legislation can be better enforced and whether firms should be fined for making late payments.

Late payments can have a crippling impact on the cash flow of many smaller businesses, so it will come as welcome news to many that the Government is now looking into the matter.

The consultation is due to be launched later this year and it remains to be seen what the outcome will be. However, in the meantime, businesses who are experiencing cash flow difficulties or struggling to budget effectively may benefit from seeking expert advice as soon as possible to ensure that any problems are identified and addressed before they get out of hand.

For further information, please contact Christopher Brown, Business Recovery & Insolvency Partner on T: 0114 251 8850 or email: chris.brown@hartshaw.co.uk.

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18
Nov
13

2014: From Rescue to Recovery

As the end of 2013 is fast approaching we can look back and see that it has again been an uncertain year in the insolvency profession.  The last couple of years has seen the number of insolvency appointments falling, as indicated by statistics released recently by R3, putting the number of companies going into Administration during the first nine months of 2013 at 16% less than in the same period last year.  All of which supports the Treasury’s comment in the summer that the UK is “moving from rescue to recovery”.

One outcome of this recession is the existence of “zombie businesses”.  These businesses have managed to survive whilst making losses because of low interest rates and the patience of their creditors. In some instances this they are only just able to service their debts on a month by month basis.

It has recently been reported in the Financial Times that the estimated number of zombie businesses is currently 432,000, which is a year on year increase since 2010. Of this number many will be able to take advantage of the opportunities of the signs of growth that are being reported, but unfortunately the weakest of the zombie businesses who are already struggling with their cash flow won’t have the working capital requirements to be able to fulfil orders as the markets improve.  It is these businesses that will have to take advice from insolvency professionals.

In previous recessions the number of insolvencies has always increased in the early stages of recovery for these reasons and 2014 may see this trend continue with higher insolvencies than seen in 2013, with the surviving businesses finding new opportunities as their competitors reduce.

If your business is in need of recovery advice please contact Emma Legdon, Business Recovery & Insolvency Partner at Hart Shaw on T: 0114 251 8850 or email: emma.legdon@hartshaw.co.uk.

 

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07
Nov
13

Retention of Title

When two parties enter into a contract of sale for goods, there will come a point in time when the legal title to those good transfers from the seller to the buyer. The basic rule under English Law is that, unless the parties to the contract agree otherwise, title will pass, at the latest, at the point of delivery.

If the buyer becomes insolvent just after delivery and the goods are still there, the seller won’t be allowed to recover their goods, as they are no longer its property. This can obviously be very frustrating for the seller. In response to this, in the late 1970’s the Retention of Title Clause evolved.

Quite simply, a Retention of Title Clause is a clause in the contract of sale which allows the seller to retain the legal title or ownership of the goods being sold until the happening of a future event, usually the receipt of payment by the seller.

There are three stages to a successful Retention of Title claim: firstly, there must be a valid Retention of Title Clause. Secondly, the clause must be incorporated into the contract of sale. Finally, the seller must be able to identify its goods.

There the two general types of clause – a Simple Clause and an All Monies Clause.

 

Simple clause

A Simple Clause could be as follows:-

“Title to the goods remains vested in the seller and will not pass to the buyer until the purchase price for the goods has been paid in full and received by the seller.”

What this means in practice is that a seller wanting to take back its goods must identify specific goods to a specific unpaid invoice. Depending on how the supplier operates its business that might be difficult. If the seller supplies on a regular basis, how does it prove to a liquidator that the items of stock remaining are from an unpaid invoice rather than from an earlier one that has been paid? This can be difficult.

 

All monies clause

In response to this, the All Monies Clause evolved. Such a clause could be as follows:-

“Title to the goods remains vested in the seller and shall not pass to the buyer until:

(a)  the purchase price for the goods has been paid in full and received by the seller, and

(b)  all outstanding amounts due from the buyer to the seller have been paid in full and received by the seller.”

What this means is that title only passes from the seller to the buyer when all monies owed by the buyer have been paid, irrespective of whether specific goods have been paid for.  If the seller trades regularly with a customer on credit, the account between them may never reduce to nil in which case title will never pass. In recovering its goods the seller would only need to prove that it supplied them.

 

To be effective, a Retention of Title Clause has to be agreed to by both the seller and the buyer – and it has to be incorporated into the contract of sale.

Often, a supplier might only print the clause on the back of their invoices or delivery notes. That on its own may not good enough since an invoice or delivery note is a post contractual document. The clause needs to be in the contract of sale before the sale is agreed.

In certain circumstances it can be possible for a seller, who only has the clause printed on an invoice or delivery note, to argue that there has been a sufficient course of trade between the seller and buyer for the clause to have been incorporated. From a seller’s point of view, this is an argument of last resort, but it can sometimes work. However, if a seller is going to the trouble of printing a clause on their invoices, why not  do things properly and ensure its incorporated into the contract at the start?

 

Incorporating the clause

One way to incorporate the clause is to have a credit application procedure. Before buying on credit the buyer fills in and signs a credit application form which includes the Retention of Title Clause.

Another way would be to require the buyer, when ordering, to use the sellers purchase order form which incorporates the Retention of Title Clause. This could either be a paper form or an online form.

 

Identifying goods

Whichever type of clause a seller is relying on, it will need to be able to identify the goods it has supplied if it hopes to recover them under Retention of Title. Can the seller take steps to improve the identification of its goods – use of serial numbers or distinctive packaging?

On a practical point, as soon as a seller hears that its customer is in trouble, that a liquidator or administrator has been appointed, or is going to be appointed, it needs to go to its customer’s premises as quickly as possible to identify its goods. It should take an inventory and have someone in authority sign to confirm what was there. The seller should then make its claim and keep the pressure on until it has been dealt with.

 

How ROT Claims Can Fail

So what things in practice can mean a Retention of Title claim does not succeed?

Even if a seller has a validly worded clause incorporated into a credit application form signed by the buyer, the claim may still fail due to lack of incorporation. The problem can be if something has changed since the forms were originally signed. Other paperwork may have been used, or agreements made between the seller and buyer after the credit application form was signed which means that the clause is no longer incorporated. For example, if the buyer orders goods using its own purchase order form which includes its terms, one of which may be that title passes on delivery, then the original Retention of Title Clause will no longer be incorporated.

Other reasons for the failure of an ROT are to do with the goods themselves.

  • The seller may fail to identify its goods to the satisfaction of a Liquidator or Administrator. This may be due to the goods being mixed with goods supplied by other suppliers or simply because the packaging, which would have identified it as the sellers, has been removed.
  • The goods may have been sold on and are no longer there. However, if buyer also uses Retention of Title and has not been paid it may be possible for the seller to recover its goods direct from the buyers customer.
  • If the goods supplied have changed their form, the claim will probably fail. For example, if sheet steel has been supplied, as soon as it has been worked on –  cut, drilled or bent, value will have been added by the buyer and the goods supplied are no longer the same.
  • If the goods have been incorporated into a product it may not be possible to recover them without causing damage to the product, in which case the claim will fail.

 

In conclusion, if the type of goods you supply are suitable, then having a Retention of Title Clause is something you should consider. But if you are going to have one, do it right and review your systems to ensure it works when you need it.

For further information please contact Christopher Brown, Business Recovery & Insolvency Partner at Hart Shaw on T: 0114 251 8850 or email: chris.brown@hartshaw.co.uk.

 

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