Buying the business of an insolvent company – retention of title

The seller may possess stock which it does not own. If consideration has not been provided by the former, they will almost certainly be subject to retention of title. The insolvency practitioner will normally inform the buyer of any retention of title claims that have been made and will let them acquire possession of the stock if certain conditions are satisfied. The buyer would need to indemnify the insolvency practitioner and the seller. They should also appreciate that they do not have title to the stock and must agree to return it if asked by pertinent entities.

The buyer will usually agree to handle any new retention of title claims that crop up after completion has occurred. In any event, both parties should be notified and this must be expressly articulated in the sale agreement.

It is imperative for the buyer to carry out a comprehensive appraisal of the seller’s business and prior to completion, urge the insolvency practitioner to request the seller’s largest suppliers to provide notification of any retention of title claims. Any kind of agreement between the insolvency practitioner and the buyer pertaining to a partial refund of the purchase price will not last very long. Consequently, the latter must act swiftly and unearth as many retention of title claims as possible.

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