Suppliers are often surprised by their customers' insolvency and only at that moment discover that the goods that they delivered are unpaid.
Even when a reservation of title has been inserted into the contract, the repossession of goods can be difficult in practice.
Further, the creditor-owner could, in the framework of insolvency proceedings, be confronted with privileged claims, such as unpaid bills for property rent.
The guidelines set out below can help in the recovery process and should limit the effect of competing claims.
In principle, the Belgian legal framework regarding the sale of moveable goods provides that there is a final contract between the parties once they agree on the (qualities of the) goods to be sold and the price to be paid, even if delivery has not yet taken place and the price has not yet been paid.
However, the parties can deviate from this standard rule and agree that the property passes to the buyer only when the price has been fully paid. Such a reservation of title clause in the sales contract between the parties can be invoked to obtain the return of the goods if the price is not paid by the buyer.
These principles are generally not affected if a company applies for judicial protection in the framework of the Business Continuity Act of January 31 2009. As the Business Continuity Act, in the case of a serious contractual breach, does not prevent a creditor from terminating its agreement with the company that obtained the protection from its creditors, the creditor can – after termination – also claim the return of unpaid goods. However, there is some discussion about whether an attachment on these goods is possible.
If the buyer is declared bankrupt after delivery of the goods (but before the payment of the price), stricter rules apply. In that case, Article 101 of the Insolvency Act of August 8 1997 sets out the legal framework that follows for a claim concerning the return of unpaid goods to be valid and enforceable against the bankrupt estate.
First, Article 101 of the Insolvency Act concerns only moveable goods. If, after their delivery, the goods were incorporated in an immoveable structure (and, as a result, also became immoveable), their return will not be possible.
Second, the parties must agree – in writing and at the latest at the moment of the delivery of the goods – that the goods would remain the creditor's property until full payment has been made. As a result, a clause concerning the reservation of a (property) title that is only set out in the general conditions on the invoice sent after delivery cannot be invoked against the receiver of the bankrupt estate.
Finally, the unpaid goods must be identifiable. The creditor must prove a direct link between the unpaid claims and the goods in question. In this regard, it is advisable to mark the sold items with a unique code and to state this code on the delivery documents and invoices.
If all of these conditions have been met, the creditor can claim the return of the goods from the bankruptcy receiver. However, the creditor should act swiftly, as the claim must be filed with the receiver before he or she drafts the first bankruptcy report (around six weeks after the bankruptcy). The receiver can require that the creditor pays the incurred costs (eg, regarding the storage of the goods since the bankruptcy) before the release.
Further, the owner of the unpaid goods can have the return challenged by the landlord of the premises of the bankrupt company. The latter can invoke a right of preference on all assets that are present in the building rented out to the bankrupt company, even if these unpaid goods still belong to another creditor on the basis of the reservation of title clause. Only if the landlord was supposed to be aware of the third party's rights regarding the unpaid goods will the claim prevail on the basis of the reservation of title.
On July 11 2013 the Act regarding Securities on Movable Assets was adopted (the Securities Act). The Securities Act was supposed to enter into force on December 31 2014, but this date has been postponed several times. It now seems that the entry into force will be postponed again until January 1 2018. The Securities Act provides that a claim on the basis of a reservation of title clause is possible in all kinds of contract, not only in the framework of sale and purchase agreements. Further, the Securities Act will make a claim regarding the return of goods possible, even if the goods in question have been used in a manufacturing process. If the unpaid goods were made immovable (eg, because they have been incorporated in a building), the seller's claim can still be awarded if the reservation of title had been previously registered (in the securities register that will be opened once the Securities Act enters into force).
However, given the delay, the Securities Act will at present not affect reservation of title clauses.
To ensure the enforcement of a reservation of title clause, the following guidelines are key:
- Make sure the reservation of title clause is clearly drafted and included in written documents that are received by the buyer at the moment of the delivery of the goods at the latest (eg, include the clause on an order confirmation documentation).
- Each single good must be identifiable. The goods' unique serial numbers should be stated on the documentation.
- When dealing with frequent buyers, it is advisable to notify a buyer's landlord of the fact that goods will be delivered while retaining property. As a result, in the case of possible bankruptcy, the landlord will not be able to exercise his or her right of preference over the goods in question.
- If the initial buyer resells the goods before payment, a system could be installed obliging the reseller to inform the initial seller of the identity of the second buyer. In that case, the initial seller (retaining title) can undertake steps to exercise his or her rights on the payment claim between the reseller and second buyer. The initial seller, in principle, cannot claim the return of the goods themselves from the second buyer.
For further information on this topic please contact Alexander Hansebout or Bart Heynickx at ALTIUS by telephone (+32 2 426 1414) or email (email@example.com or firstname.lastname@example.org). The ALTIUS website can be accessed at www.altius.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription