Understanding the Romalpa Clause
If you're managing credit risk or overseeing finance operations, you've likely come across the term Romalpa clause, especially in supplier contracts. Originating from the precedent-setting UK case Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd (1976), this clause allows a supplier to retain ownership of goods until all payments related to those goods or related to all debts owed by the customer to the supplier have been made.
In practice, it means that even after goods are delivered, the supplier remains the legal owner until the buyer pays in full. If the buyer becomes insolvent, the supplier can reclaim the goods, provided the clause is valid and enforceable.
There are two main types of ROT clauses – a ‘simple’ or ‘specific’ ROT clause and an ‘all monies’ ROT clause. An example of an ‘all monies’ ROT clause is: “title to all goods delivered remains with the supplier until payment of all outstanding amounts due between the customer and supplier have been settled in full.”
How The PPSR Fits In
In Australia the Personal Property Securities Register (PPSR) plays a critical role in determining who has priority over assets when a business goes under.
However, a Romalpa clause alone doesn’t guarantee protection. To enforce your retention of title rights, you must register your interest on the PPSR. Without registration, your claim may be outranked by other secured creditors, even if your contract includes a Romalpa clause.
Key Takeaways for Credit and Finance Managers
- Don’t rely solely on contract wording. A Romalpa clause is only part of the puzzle.
- Ensure your customer has agreed to the terms by signing or by their actions.
- Register your interest on the PPSR. This ensures your rights are legally recognised and prioritised.
- Review supplier agreements regularly. Make sure clauses are up-to-date and enforceable under current legislation.
- Educate your team. Ensure procurement and accounts payable staff understand the importance of PPSR registration.
Common Pitfalls to Avoid
- Assuming retention of title is automatic. It’s not, registration is essential.
- Delaying registration. Timing matters. Late registration can result in loss of priority.
For finance and credit managers, understanding the interaction between Romalpa clauses and the PPSR is vital to protecting your organisation’s interests. It’s not just about drafting strong terms; it’s about ensuring those terms are backed by enforceable legal rights.
Need help reviewing your Terms and Conditions of Trade for PPSR? Download our free Guide to PPSR Considerations for Terms and Conditions of Trade which highlights considerations insofar as they apply to the PPSA and the PPSR, for two distinct types of security interest – the sale of goods on credit terms subject to retention of title and the hire of equipment.
