A thorny issue in administrations, and liquidations for that matter, is the question of retention of title. Office holders are wary of the risks of interfering with the property of third parties for which they might be personally liable. A recent case* provides some well-received comfort for office-holders.
The case centred on a number of issues, in particular the use and ownership of over 500 fruit machines by an operator who specialised in the gaming industry. That operator (and other group companies) went into administration. Another company appeared to hold the benefit of title to the gaming machines supplied to the operator, based on a clause which provided that “legal ownership of goods herein is retained by [the supplier] until full and final settlement is made’.
In this case, the Administrators traded the businesses (at a loss) and subsequently agreed a sale of certain of its business and assets. The sale documentation included the usual terms about title and excluded ROT (Retention of Title) assets from the sale.
The supplier specifically alleged the Administrators had, personally, caused the operator to use the supplier’s machines to make money for the administration outside of the agreed terms of supply. Damages were sought.
The Court dismissed the claim – it held the Administrators were not guilty of wrongful interference with the supplier’s goods.
The Court helpfully concluded that:
- The onus is very much on the supplier alleging retention of title to identify those assets which it claims belong to it
- If necessary, the owner must try to take possession of the goods or otherwise terminate the contractual relationship
- Whilst the moratorium was in effect, the supplier could still seek the consent of the Administrators to have it lifted or otherwise make an application to Court for relief. This relief could be to lift the moratorium or to direct the Administrators to pay for the assets as an expense of the administration.
The supplier in question however took no such steps.
Quite the contrary, the supplier appears to have allowed the operator’s continuing use of the gaming machines without making any genuine demand or attempt to recover them. There was no evidence that the supplier wanted the gaming machines back at all as the correspondence issued to the operator was, at most, equivocal on this key point.
Similarly, the Administrators were considered not to have unreasonably refused to return the machines to the supplier and so the conclusion drawn was that the supplier had effectively consented to the operator’s retention and use of the gaming machines.
A relevant nuance is that the supplier may have taken a passive, rather than an aggressive approach because its intention was arguably to seek to recoup the invoice value from the prospective purchaser of the operator’s business. This possible tactic appears to have been to the supplier’s detriment as it undermined any argument that the supplier actually intended to seek compensation from the operator (or its administrators) whilst the gaming machines were in use.
It is often a tricky exercise for newly appointed office-holders to make enough enquiries to become satisfied about what assets may be in the company’s possession or ownership. It may even be impossible in a significant number of cases, as the office-holders are effectively arriving at the business as strangers.
The case however, reinforced the agency principle and recognised that in such circumstances the Administrators should not be held personally liable, even had the claim succeeded. The Administrators had not themselves been in actual possession.
This is a common sense decision and it reinforces what is reasonably to be expected of an office-holder. Office-holders must co-operate with retention of title claimants as part of a transparent process, to include supervising identification exercises (for example). It is the claimant’s job to establish their case. Office-holders may elect whether they consider it necessary to commission inventories or asset registers.
We would recommend that suppliers with ROT claims should act sooner rather than later, regardless of how strong they think their claim is. They shouldn’t limit their action to completing the standard ROT questionnaire – they should turn up on site to identify their goods and prove the merits of the claim. Mere posturing without any real substance will not be sufficient.
A supplier who want goods returned should ‘speak up or shut up’.
*Blue Monkey Gaming Ltd v Hudson & Others  EWCH (Ch)