A retention of title clause lets a supplier keep ownership of goods it has delivered until it is paid, so that if the customer becomes insolvent the supplier can recover goods that are still identifiable instead of proving as an unsecured creditor. Simple clauses over specific, unaltered goods usually work; clauses that reach into resale proceeds or goods mixed into new products risk being treated as unregistered charges, which are void against a liquidator or administrator.

What does a retention of title clause actually do?

Under section 17 of the Sale of Goods Act 1979, property in specific or ascertained goods passes to the buyer when the parties intend it to pass. Section 19 allows the seller to reserve the right of disposal until conditions are fulfilled, in which case property does not pass on delivery but only when the seller’s conditions are met. A retention of title clause is the contractual term that sets those conditions, typically payment in full.

The Insolvency Act 1986 recognises these arrangements. Section 251 defines a “retention of title agreement” as an agreement for the sale of goods to a company which does not constitute a charge on the goods, but under which, if the seller is not paid and the company is wound up, the seller has priority over all other creditors as respects the goods or any property representing them. The supplier is not a secured creditor in the usual sense; it is claiming its own property back.

Which types of clause work?

Clauses are usually grouped by how far they reach:

  • Simple clause. Title in the goods supplied under a contract stays with the supplier until those goods are paid for. This is the clearest use of section 19.
  • All monies clause. Title stays with the supplier until the customer has paid everything it owes, not just the price of those goods. This is still a condition about when property passes, but it needs careful drafting and clear evidence that the customer agreed to it.
  • Proceeds clause. The supplier claims the money the customer receives on resale. Once the customer owns and has sold the goods, a claim over the money looks like security over the customer’s property rather than the supplier keeping its own.
  • Mixed goods clause. The supplier claims new products made using its goods, such as resin turned into finished components. Again the claim is over something the customer has created.

The section 251 definition only covers agreements that do not create a charge. If a clause in substance gives the supplier security over the customer’s property, it is a charge. Under section 859A of the Companies Act 2006 a company charge must be delivered to Companies House within 21 days of creation, and section 859H makes an unregistered charge void against a liquidator, administrator and creditors. Suppliers almost never register their terms of trade, which is why proceeds and mixed goods claims often fail in practice. See registering a charge.

How does a supplier make a claim?

The supplier must prove three things to the office holder: that the clause was part of the contract, that the debt for those goods is unpaid, and that the goods in the customer’s possession are the goods it supplied. In practice that means:

  1. producing signed terms, order acknowledgements or other evidence that the terms were incorporated before the contract was made, not just printed on the back of an invoice sent afterwards;
  2. matching goods to invoices using serial numbers, batch codes, labels or delivery notes;
  3. writing to the liquidator or administrator promptly, listing the goods and asking for them to be preserved;
  4. attending a stock count if offered, and recording what is found.

Office holders take these claims seriously because section 234(3) and (4) only protect an office holder who seizes or disposes of property that is not the company’s if they believed, on reasonable grounds, that they were entitled to do so, and even then not for losses caused by their own negligence. A well evidenced claim removes that reasonable belief. The supplier should not enter the customer’s premises to take goods without the office holder’s agreement.

What changes in administration or a moratorium?

In administration, paragraph 111(1) of Schedule B1 says a “hire purchase agreement” includes a retention of title agreement, and paragraph 43(3) says no step may be taken to repossess goods in the company’s possession under a hire purchase agreement without the administrator’s consent or the court’s permission. The supplier’s ownership is unaffected, but it cannot simply collect the goods.

The administrator can go further. Under paragraph 72 the court may allow the administrator to dispose of the goods as if the company owned them, if that is likely to promote the purpose of the administration. The order is conditional on the net proceeds, topped up to the amount the court determines would be realised at market value, being applied towards the sums due to the supplier.

The same restriction applies in a Part A1 moratorium: section A21(1)(d) prevents steps to repossess goods under a hire purchase agreement without the court’s permission, and section A54 again includes retention of title agreements in that definition. See the Part A1 moratorium and administration.

Can the supplier stop supplying the insolvent customer?

Often not on the ground of insolvency alone. Section 233B of the Insolvency Act 1986 says a term in a contract for the supply of goods or services stops having effect if it would let the supplier terminate, or do any other thing, because the customer enters a relevant insolvency procedure, including administration, a moratorium, a CVA or liquidation. The supplier also cannot make payment of pre insolvency arrears a condition of further supplies. It may terminate with the office holder’s or company’s consent, or with court permission on hardship grounds. Retention of title protects goods already delivered; it does not give the supplier a way round section 233B for future supplies.

What happens to goods the customer has already sold?

Section 25 of the Sale of Goods Act 1979 allows a buyer in possession with the seller’s consent to pass good title to a third party who acts in good faith and without notice of the seller’s rights. A customer’s trade buyers will usually be in that position, so goods already sold on cannot be recovered from them. Unless the supplier has a valid claim to the proceeds, which is difficult for the reasons above, the unpaid price for those goods becomes an unsecured claim in the insolvency.

How do VAT and bad debt relief fit in?

Retention of title does not delay the VAT supply. Paragraph 1(2) of Schedule 4 to the Value Added Tax Act 1994 treats the transfer of possession of goods under an agreement for their sale, or under an agreement contemplating that property will pass later and no later than full payment, as a supply of goods at that point. The supplier accounts for output VAT on delivery as normal.

If the customer does not pay, VAT Notice 700/18 allows bad debt relief once the debt has been written off in the VAT accounts and has remained unpaid for six months after the later of the date of supply and the due date, with claims made within four years and six months. Relief is based on the amount still outstanding, so if the supplier recovers goods and credits the customer’s account, the claim is reduced accordingly. See bad debts in accounting and tax.

How might a claim play out?

Illustration only. A timber merchant supplies a joinery company on terms with a simple retention of title clause, signed when the account was opened. The customer enters administration owing £18,000 across six invoices. The merchant writes to the administrator the next day, listing the batch numbers on each delivery. At the stock count, timber worth £7,000 at invoice price is identified from three invoices. Timber worth £5,000 has been cut into window frames and £6,000 has been sold.

The merchant cannot collect the £7,000 of timber without the administrator’s consent, but the administrator agrees either to return it or to pay for it to keep the business trading. The cut timber and the goods sold cannot be recovered under a simple clause, so £11,000 becomes an unsecured claim. The merchant credits the £7,000 and claims bad debt relief on the VAT element of the remaining debt once the conditions are met.

What mistakes do suppliers make?

  • Relying on terms first sent with the invoice, after the contract was formed.
  • Failing to label or record batches, so goods cannot be matched to unpaid invoices.
  • Waiting weeks to notify the office holder, by which time stock has been sold.
  • Assuming a proceeds or mixed goods clause will work without registration.
  • Removing goods during administration or a moratorium without consent or permission.
  • Not reviewing credit control early enough, when a statutory demand might have been the better route.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.