Quick answer
Retention of title is a clause in a supplier's terms of trade saying the supplier keeps ownership of goods until the customer has paid for them in full. In Australia it's treated as a security interest under the Personal Property Securities Act 2009, so the supplier must register it on the PPSR to rely on it if the customer becomes insolvent. Registered correctly and on time, it can rank ahead of a lender's general security.
Key points
- Also called a ROT or Romalpa clause; it sits in the supplier's terms of trade
- Treated as a security interest under the PPSA, so it needs a PPSR registration
- For stock, register before the customer gets the goods; for other goods, within 15 business days
- A correctly registered purchase money security interest can rank ahead of a lender's GSA
Under a retention of title clause, a supplier delivers goods on credit but remains the owner until the invoice is paid. If the customer pays, ownership passes and nothing more happens. If the customer collapses before paying, the supplier can try to recover the goods instead of joining the queue of unsecured creditors.
That at least is the theory. Since the Personal Property Securities Act came into force in 2012, the theory only holds if the supplier has registered its interest properly.
How the PPSA changed retention of title
Before the PPSA, a supplier could point to its terms and say “those goods are still mine”. Now the Act looks at substance rather than form. A clause that keeps ownership to secure payment is treated as a security interest, the same broad category as a lender’s charge over equipment.
The practical consequence is the PPSR. To be protected against a liquidator, administrator or competing lender, a supplier generally needs:
- Written terms that the customer has agreed to, containing the retention of title clause.
- A registration on the PPSR describing the goods correctly.
- The right timing. To get the strongest priority as a purchase money security interest (PMSI), the registration must be made before the customer takes possession of goods that will be its inventory, or within 15 business days after possession for other goods.
Miss any of these and the supplier’s interest can vest in the customer on insolvency. The goods then form part of the pool for all creditors.
Why retention of title matters to borrowers
This isn’t only a supplier’s concern. If your business buys stock on credit, your suppliers’ registrations affect what you can borrow.
A lender taking a general security agreement over your business assets will search the PPSR. Stock covered by a supplier’s PMSI ranks ahead of the lender’s security, so a lender may count less of your inventory, or none of it, when sizing a facility. The same goes for stock finance and some trade finance arrangements.
Not sure how your supplier terms affect what you can raise? Run it past us and we’ll explain where you stand.
Example: a builders’ supplier and a failing customer
An illustrative timber and hardware supplier in Bendigo sells on 30-day account. Its terms include a retention of title clause, and it registers a PMSI against each trade customer on the PPSR before opening their account.
One customer, a small building company, goes into liquidation owing $48,000. About $19,000 of that is timber and fixings still stacked on two sites and in the builder’s yard, identifiable by the supplier’s markings and delivery dockets. Because the registration was made before any goods were delivered, the supplier can claim that stock ahead of the builder’s bank, which held a GSA. The remaining $29,000, for goods already built into houses, is a different story: once materials are fixed to land they generally can’t be reclaimed, so that portion becomes an unsecured claim.
The lesson for the supplier: retention of title protects goods that still exist and can be identified. It’s a safety net, not a substitute for sensible credit limits.
Related terms
- Security interest: the legal category retention of title now falls into
- Supplier credit: buying now and paying later on account
- Trade credit: the wider practice of selling on terms
- Collateral: assets offered to secure a debt
Need funding for stock or supplier bills?
Whether you’re a supplier carrying a large debtor book or a buyer whose stock is tied up in someone else’s PPSR registration, there are finance options that work around it. Telling us about your business takes a minute or so. Enquiring doesn’t touch your credit file, and we won’t share your details with a string of lenders. One person here reads your situation from start to finish and calls you back. Accurate information about your stock, debtors and supplier terms means the first suggestion fits how your business actually trades.
Frequently asked questions
What is a Romalpa clause?
It's another name for a retention of title clause, taken from a 1976 English court case involving a company called Romalpa Aluminium. Australian suppliers and lawyers use both names.
Do I need to register retention of title on the PPSR?
If you want to rely on it against a liquidator, administrator or other secured creditor, yes. An unregistered retention of title interest can be lost if the customer becomes insolvent, leaving the supplier as an unsecured creditor for the goods it supplied.
What is a purchase money security interest?
A PMSI is a security interest taken over goods to secure their purchase price, which is what a retention of title clause does. If it's registered within the time limits, it gets super priority, meaning it ranks ahead of earlier general security over the same goods.
Why does a lender care about my suppliers' retention of title?
Because stock subject to a supplier's PMSI may not be available to the lender if things go wrong. Lenders providing stock finance, debtor finance or a GSA-backed facility check the PPSR and may discount stock covered by supplier registrations.
Does retention of title apply to goods the customer has already sold?
It can extend to the proceeds of sale if the clause and registration are drafted to cover proceeds, but once goods are sold to a buyer in the ordinary course of business, the buyer usually takes them free of the supplier's interest.