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purchase price, will the buyer be able to take the goods ordered, or will they merely have an unsecured claim in the insolvency of the seller, leaving them with the risk of a low or no dividend payment on the amount of their debt?
Of course, the buyer may have a claim under section 75 of the Consumer Credit Act 1974 if they made the payment by credit card for a sum of more than £100 and less than £30,000. For those who have paid with debit card this is an important point.
In the event of insolvency of a retailer, insolvency practitioners will be at pains (and indeed have a duty) to treat all unsecured creditors of the company equally, and to not diminish the assets of the company if the buyer has no legal right to take delivery of the assets. For the buyer in relation to the second contractual scenario above, the most difficult aspect of showing that they have ownership in the relevant asset is showing that the goods are in a deliverable condition, and that there has been an unconditional appropriation of the goods to the buyer’s contract.
This is problematic on two counts. First, there is no statutory definition of “unconditional appropriation”, such definition being determined, unhelpfully, in each case, by case law. Secondly, when are goods in a deliverable state?
Case law has held that a car, which needs the registration
plates attached to it, was not in a “deliverable state” even though the buyer had paid the full amount of the purchase price. In this case, ownership in the car had not passed. In an insolvency situation, this would leave the buyer with an unsecured claim in the insolvency for the amount of the vehicle’s purchase price.
The Law Commission has proposed that the sale of goods laws be simplified and generally couched in up to date, plain English. There are two main proposals which will assist buyers:
• For specific goods identified and agreed upon, for example, the purchase of a ring that needs inscribing, transfer of ownership should take place at the time the contract is entered into. There should be no requirement that the goods are in a “deliverable state”.
• For goods that have not been identified and agreed upon, for example, where goods are to be manufactured to a specification, or for the purchase of online goods, a non-exhaustive list of circumstances has been proposed to identify goods to a particular contract so that ownership can pass as above. Examples of these are:
- Goods having been altered to the buyers specifications
- Goods have been labelled with the buyers name or set aside for that buyer in a way which is intended to be permanent
- The goods are handed to a courier for delivery
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From the insolvency practitioners’ point of view, will these proposals, if brought into force, create problems?
It may be more likely that the insolvency practitioner has to hand over goods which previously had not been identified and agreed upon because of the outdated rules on the goods being unconditionally and irrevocably appropriated to the contract, or the goods being in a “deliverable state”.
Will the proposals ultimately make it easier for buyers in an insolvency situation? If ownership passes once the contract is entered into, this will make it easier for a buyer to lay claim to specific assets at the company, rather than just having an unsecured claim. This probably applies more to the scenario where a ring is purchased but left with the seller for inscription, than any other scenario.
Ultimately, insolvency practitioners tend to be commercial and practical. To the extent that a buyer can be dealt with in a way that decreases the unsecured claims in the company, it may be in the creditors’ interests for a buyer to receive their goods, rather than the company being left with specifically manufactured goods with no resale value.
Although the reform of the sale of goods legislation is due for an overhaul to bring it into the 21st century, it remains to be seen whether the proposals will actually benefit buyers, or create problems for insolvency practitioners.
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