Don’t let insolvency sink you: the clause every supplier should use

By Nash Chance, Manager, Jirsch Sutherland

Even your most dependable customer can run into financial strife – fast. That can leave your business out of pocket and down stock. But there’s a powerful safeguard that can put you ahead in an insolvency: the Retention of Title (RoT) clause.

What is RoT – and why does it matter?

A Retention of Title clause ensures you retain legal ownership of goods until they’re fully paid for. That can mean the difference between retrieving your stock or being lumped in with unsecured creditors – often with little or no return. With a valid, enforceable RoT clause, you may be able to reclaim goods before administrators or liquidators sell them off. Without it, your recovery chances plummet.

RoT in action: a real example

A national stationery supplier faced a $20,000 loss when a major customer collapsed. However, they had:

• A solid RoT clause in their trading terms
• Timely PPSR (Personal Property Securities) registration
• Detailed records linking goods to invoices

The result? They recovered their stock in full, while other creditors got nothing.

The RoT rulebook: 3 things you must get right

1. Tight wording: Include a clear RoT clause in all agreements, invoices, and order confirmations stating ownership stays with you until full payment.

2. Prompt PPSR Registration: RoT clauses only work if your interest is properly registered. Register as soon as goods are supplied. Important: If registration occurs within six months of insolvency, it must be lodged within 20 business days to be enforceable (Section 588FL, Corporations Act 2001).

3. Goods must be identifiable: You need proof the goods are yours – i.e., serial numbers, batch codes, invoices. Without it, recovery is unlikely.

Common pitfalls – and what they cost

• Late PPSR registration: One mechanic lost $45,000 because he registered too late.
• Poor documentation: A paper supplier forfeited $4,000 when stock couldn’t be traced to an invoice.
• No paperwork: A plumber installed $8,000 in pumps but didn’t document RoT terms, which meant zero chance of recovery.

Bonus: RoT in SBRs

Under Small Business Restructuring (SBR), valid RoT claims often sit outside the compromise, meaning better recovery outcomes. Registered RoT interests can also improve your negotiating position in Voluntary Administration or informal restructuring talks.

Quick checklist: are you covered?

✅ Is your RoT clause clear and included in all trading terms?
✅ Are RoT terms noted on every invoice?
✅ Do you register on the PPSR as soon as goods are delivered?
✅ Can you identify and trace your goods with ease?

If you answered no to any of the above, your rights may not hold up when it matters most.

Final word

RoT clauses are simple but powerful. When properly executed, they can save you thousands – and protect your business when a customer hits the wall. Whether you’re a supplier or an adviser, make sure RoT isn’t your missing link.

Need help reviewing your RoT terms or PPSR processes? Speak to an insolvency expert or legal adviser before trouble strikes.

Nash Chance
Manager
Jirsch Sutherland