Trade suppliers who deliver goods on credit face a specific risk: if the buyer becomes insolvent before paying, the goods they supplied are treated as the buyer's assets and realised for all creditors. A retention of title (ROT) clause, correctly implemented, is the primary tool for avoiding that outcome. It is also widely misunderstood.
What is retention of title?
A retention of title clause — sometimes called a Romalpa clause after the English case that gave it prominence — is a contractual term providing that ownership of goods supplied does not pass from the supplier to the buyer until the goods have been paid for in full. In other words: you deliver the goods, the buyer has possession, but you retain legal ownership until you are paid.
The practical effect, if the clause is valid and enforceable, is that in a buyer's insolvency the supplier can reclaim those specific goods as their own property — rather than standing in line with unsecured creditors hoping for a distribution from the estate.
Why it matters
Without a ROT clause, a supplier who delivers goods on credit is an unsecured creditor in the buyer's insolvency. That means standing behind secured creditors, employees and priority creditors, and typically receiving cents in the dollar — or nothing. With a valid, registered ROT clause, the supplier may be able to reclaim the unpaid goods entirely, independent of the insolvency proceedings.
The difference in outcome can be substantial. For a supplier with significant stock on delivery at any given time, the ROT clause is one of the most economically important terms in their commercial documentation.
The PPSR connection
This is the most important and most frequently misunderstood aspect of ROT clauses in Australia. Since the Personal Property Securities Act 2009 (Cth) came into force in 2012, a ROT clause that is not also registered on the Personal Property Securities Register (PPSR) as a Purchase Money Security Interest (PMSI) is generally not enforceable against a liquidator or third parties.
The PPSR registration is what gives the ROT clause its legal teeth in an insolvency context. A supplier who has a ROT clause in their terms but has not registered on the PPSR will, in most insolvency situations, be treated as an unsecured creditor — exactly the position they were trying to avoid.
PMSI registrations must be made before or very shortly after delivery (within 20 business days of the buyer taking possession of the goods, for non-inventory collateral, to obtain super-priority). Missing that window can cost you your priority position even if you later register.
Drafting an effective ROT clause
An effective ROT clause should:
- Clearly state that title (ownership) does not pass until payment in full is received.
- Cover all goods supplied from time to time under the ongoing account — not just a specific delivery.
- Address what happens to goods that have been mixed with other goods or incorporated into a product ("all monies" ROT clauses, and "proceeds" clauses, can extend this).
- Cross-reference the supplier's right to enter the buyer's premises to recover goods in the event of a default.
- Acknowledge the supplier's right to register the arrangement on the PPSR.
Have your ROT clause reviewed by a PPSR specialist or solicitor before you rely on it — poorly drafted clauses have been found unenforceable in Australian courts.
Reclaiming your goods
If a customer defaults or enters insolvency and you have a valid, registered ROT/PMSI arrangement, you may be able to reclaim the goods. The practical steps are:
- Act immediately on hearing of an insolvency appointment — the window to act may be short.
- Contact the liquidator or administrator, identify yourself as a secured party and provide evidence of your PPSR registration.
- Identify the specific goods on the buyer's premises that are subject to your ROT clause and have not yet been paid for.
- Do not enter the buyer's premises without authority — entry must be in accordance with the lease and the consent of the insolvency practitioner.
If the goods have already been sold on by the buyer to a third party, the ROT claim over those specific goods is lost (though claims over proceeds may remain if your clause covers them).
Common mistakes
The most common mistakes suppliers make with ROT arrangements are:
- Not registering on the PPSR at all — the ROT clause is in the terms but no registration is made. In insolvency, the clause is largely worthless.
- Registering late — registering after goods are delivered, outside the PMSI window. Super-priority is lost.
- Using the wrong collateral class — misclassifying goods (e.g. registering as "other goods" when the goods are inventory) can affect the registration's priority.
- Incorrectly identifying the grantor — an error in the buyer's legal name on the PPSR registration can invalidate it.
- Not reviewing registration expiry — PPSR registrations expire. A lapsed registration provides no protection.
This guide is general information only. It does not constitute legal or financial advice. PPSR law is technical and fact-specific — consult a qualified PPSR specialist or solicitor before relying on any ROT or PMSI arrangement.