Retention of title

– in a Danish context

Retention of title is an informal security interest that a seller may take in the sale of goods on credit. If the buyer does not pay the purchase price, the seller can take back the goods. This newsletter looks at “the dangers” that foreign sellers should be aware of when conduction business with Danish buyers.


What is a retention of title?

A retention-of-title purchase is a purchase where it is agreed that the seller can take back the goods if the buyer does not fulfil his obligations in terms of paying the agreed purchase price. Retention of title is therefore relevant in cases where the goods sold are sold on credit, either so that the purchase price is paid in instalments or simply so that the entire purchase price is paid after the goods are delivered to the buyer.

Under Danish law, a retention of title is established by an agreement between the seller and the buyer and no registration – for example, registration in the personal register – or other act of perfection is required. An exception to this is the reservation of title in cars, which must normally be registered in the car register in order for the retention of title to be enforceable against the buyer’s creditors or the contracting parties to whom the buyer may have sold the car.


How is a retention of title enforced?

If the buyer does not pay the purchase price, the seller can recover the amount due, i.e. the balance of the purchase price, interest and costs, by repossessing the sold goods. The repossession is usually carried out with the assistance of the bailiff, but the seller and the buyer may agree in advance that the repossession can be carried out without the bailiff’s involvement.

It is not rare that a buyer unable to pay the purchase price for acquired goods end up going bankrupt. In such a situation it becomes vital to the seller that the seller can claim the goods from the bankruptcy estate. Otherwise, the seller will be left with nothing but an unsecured claim against the bankrupt buyer, which often will carry no or only a small dividend.

If the seller is a foreign company that sells goods to a Danish buyer, it is important that the seller is aware that even though the sales contract may be governed by the law of the seller’s home country, a retention of title still needs to meet the requirements under Danish law in order for the retention of title to be enforceable against the buyer’s creditors, i.e. usually the buyer’s bankruptcy estate.

The gist of the Danish requirements is that the retention of title must have been agreed before the goods are handed over to the buyer, and that the purchase price exceeds DKK 2,000. In the case of a consumer purchase, it is also a requirement that the buyer has paid at least 20% of the purchase price in advance.


Advantages and disadvantages of a retention of title

A retention of title is a cost-saving and informal way of securing credit for your customers. On the other hand, there are strict requirements for the adoption of a retention of title and, particularly in export cases, great care is required to get the retention of title in place.

LEAD I Rödl & Partner advises on retention of title, particularly in export cases where extraordinary care is required.


 

Peter Carlstedt Nørtved

+45 27 80 40 05
peter.noertved@lead-roedl.dk

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