Security against a deal that collapses
Published 12/07/2008 | 07:00
QUESTION: I am currently supplying goods to a customer on 30-day credit terms, but in the current economic climate, is there anything I can do if my customer becomes insolvent and cannot pay for the goods I have supplied?
MICHAEL NEILL, partner with solicitors Cleaver Fulton Rankin replies: The short answer
is yes. It is possible to obtain a form of security against your customer's default
or insolvency by properly incorporating a valid "retention of title" (ROT) clause
into your terms and conditions of supply.
For the uninitiated, an ROT clause is commonly included in a supplier's contractual
terms and conditions where it supplies goods to its customers on credit terms, in
order to minimise its exposure for non-payment.
Given that the alternative approach to minimise risk for a supplier would be to demand
cash on delivery - an option only open to the most dominant of suppliers - it is easy
to see why an ROT clause is commonly used.
An ROT clause allows contracting parties to agree the time at which title to goods
will pass. In the absence of this provision, title to goods will normally pass when
they have been delivered. However, by including this clause, suppliers can seek to
retain ownership of goods until payment is received.
Therefore, the supplier is entitled to reclaim the goods, or reimbursement to the
full value of the goods. If, however, the ROT clause is invalid for whatever reason,
the supplier will be left with an unsecured claim.
QUESTION: I'm a sole trader and thinking of selling my business. How best do I proceed?
GORDON McELROY, senior partner with MKB Russells Solicitors, replies: When selling
your business it is important to understand what you want to get out of the sale and
plan to achieve that. This could be as simple as getting the right price but could
involve transferring certain business contracts you no longer wish to continue.
Therefore, selling your business can be either relatively straightforward or potentially
complicated depending on a number of factors pertaining to your own circumstances.
In preparation for a sale, you will need to determine what is being transferred -
goodwill, equipment, stock, vehicles, contracts, property, employees etc.
Documentation relating to each of the businesses' assets should be compiled because
a buyer will want to review this to check that you own the assets and to understand
what they are acquiring.
If you are selling your business as a going concern you may also be asked to provide
financial accounts. As you are personally selling the assets the sale may have tax
implications for you and you should obtain tax advice at an early stage.
While preparing for a sale you should also consider how you wish to sell your business.
Whether by auction, open advertisement or privately to an interested party/competitor,
the method of sale will have differing implications for you, which should be understood
before beginning the process.
Thorough preparation, taking sound legal and tax advice beforehand and being prepared
to sensibly work through the necessary stages, will greatly help to secure your desired outcome.