If There are No General Terms and Conditions Between Supplier and Buyer
The main rule is that if no retention of title has been agreed upon between the supplier and the buyer, the ownership of the goods automatically transfers to the buyer upon delivery, even if these goods have not yet been paid for. You are therefore no longer the owner of those goods after delivery!
This may seem illogical, but it has far-reaching consequences: in fact, the buyer can continue to sell their property (read: “your” goods), even if they do not pay you or pay late. In short, the advice is to always agree on a retention of title with your buyers. The most common way to arrange this is through the general terms and conditions.
What are the Pitfalls of a Retention of Title?
Agreeing on a retention of title may seem simple at first glance, but there are several points to consider. To begin with, the retention of title must be clearly agreed upon between the seller and the buyer. As mentioned, this usually happens through the general terms and conditions. However, simply including it in your terms and conditions is not enough. First, the applicability of the terms and conditions must be agreed upon between both parties, and there is also the possibility for the buyer to nullify the applicability of the general terms and conditions after concluding the agreement. This can happen if they were not aware of the content of those general terms and conditions. In some foreign countries, there are also specific requirements before you can invoke the retention of title against certain parties (such as a landlord). As if this were not complicated enough, there are also different types of retention of title (extended and limited), and in foreign countries, there may be variations (such as extended retention of title in Germany or Belgium) that we do not know in the Netherlands.
In all of this, it should not be forgotten that a retention of title is often invoked in practice only when the buyer is in serious financial trouble or even bankrupt. In the latter case, the retention of title must be enforced against the trustee, who is usually also a lawyer. It goes without saying that you must present the right legal arguments, as these will be scrutinized by the trustee!
A Practical Example
To further clarify the above, let’s look at a practical example.
The Dutch fashion company Fashion is going to deliver a batch of clothing to a buyer in the Netherlands. To mitigate the risk for the supplier, a retention of title is agreed upon as standard in the general sales conditions.
A few weeks after delivery, the buyer goes bankrupt, and the clothing has not yet been paid for. Fashion requests the return of the goods from the buyer’s trustee because a retention of title applies. However, to Fashion’s disappointment, the trustee indicates that they do not recognize the retention of title because it was only referenced on Fashion’s invoices (and not on the order confirmation), and the buyer never received a copy of those general terms and conditions. Fashion’s claim can be placed on the list of concurrent creditors, but the outlook is that they will not receive any payout from the bankruptcy. Regrettably, with a valid and well-formulated retention of title, Fashion could have retrieved the still-present goods or received compensation for the goods sold during bankruptcy.
And What About the WHOA?
The Dutch Act on the Confirmation of Private Restructuring Plans (WHOA) has been in effect since January 2021 and contains the rules for a debtor in financial distress to offer a restructuring plan to their creditors. This proposal can, if necessary, be enforced through the court, provided all conditions of the regulation are met. If the plan becomes final, the remaining debt is forgiven. It is important to know that creditors with a valid retention of title must be placed in a different group of creditors than the concurrent creditors without retention of title. Normally, the group with retention of title will receive a higher offer than those without.
Trade credit Insurance and Financing
In addition to significantly strengthening your legal position, a retention of title also helps to limit damage. This is precisely why credit insurers require a valid retention of title in their policies as part of general sales conditions. Additionally, (working capital) financiers will also set this as a condition.
Conclusion
It is important to be well-informed about how to best formulate your retention of title and how to maximize its use. This applies not only in the Netherlands but also if you conduct business internationally. If you have credit insurance, the credit insurer will also require you to agree on a valid and well-formulated retention of title with your buyers. Modint Credit & Finance can help you with this and is happy to provide advice and assistance to ensure you get the maximum benefit from a well-formulated retention of title.
