A supplier delivers a machine tool to its client. Three months later, the client enters reorganisation proceedings. Without a retention-of-title clause, the machine enters the insolvency estate and the supplier will recover, at best, a dividend on an unsecured claim. With a validly drafted and timely exercised clause, the same supplier recovers the machine and escapes collective discipline entirely. The gap between these two outcomes encapsulates the power of this security and the technicality of its regime.

What is retention of title?

Retention of title is a contractual arrangement by which the seller defers the transfer of ownership of the sold property until full payment of the price. It derogates from the principle of Article 1583 of the Code civil (ownership passes on agreement as to thing and price). Since Ordonnance no. 2006-346 of 23 March 2006, it is classified as a real conventional security at Articles 2367 to 2372.

Article 2367 of the Code civil

“Ownership of a movable may be retained as security by the effect of a retention-of-title clause suspending the translative effect of a contract until full payment of the obligation constituting its consideration. Ownership thus retained is accessory to the claim whose payment it secures.”

Practical consequences: the seller remains owner despite delivery; the property does not enter the buyer’s estate; the buyer’s creditors cannot seize it; and in insolvency, the seller can recover it subject to timely vindication.

The domain is broad: any translative contract (sale, exchange, contribution to company). All property may be its object: corporeal or incorporeal, movable or immovable. Sole limit: the property must be identifiable.

Conditions of validity

Writing (Article 2368): “Retention of title is agreed in writing.” No particular form required – it may feature in a standalone contract, general terms of sale, purchase order, delivery note or invoice, provided it is established no later than delivery.

Acceptance by the buyer: Express (signature) or tacit (provided it is certain). A clause appearing for the first time on a post-delivery invoice without prior contractual reference is not accepted and cannot be opposed.

Priority to delivery: Article L. 624-16(2) Code de commerce is intransigent: the clause must have been agreed “at the latest at the time of delivery.” A clause introduced afterwards is ineffective against insolvency proceedings.

Drafting an effective clause

Beyond the minimum (deferral of ownership until full payment), prudent additions include: transfer of risk clause (overriding res perit domino – shifting risk to buyer from delivery, with insurance obligation); extension to sub-sale proceeds (subrogation onto the price owed by sub-buyer – Article L. 624-18 Code de commerce); restitution mechanics (formal notice, timeframe, costs).

Effects

Between parties: The sale is perfected but the translative effect suspended. The seller remains owner; the buyer is mere holder. The buyer cannot in principle dispose of the property without seller consent.

Against third parties: Opposable without publicity – a radical departure from other movable securities requiring register inscription. Consequence: the buyer’s personal creditors cannot seize the property (seller may bring distraction action); in insolvency, the property does not enter the estate if vindication is timely exercised. However, a good-faith sub-purchaser is protected by Article 2276 Code civil (for movables, possession constitutes title); the retention right then transfers by subrogation to the sub-sale price.

Enforcement outside insolvency

On default, the seller demands restitution (Article 2371). Practical steps: formal notice citing the clause and requiring payment or return within a reasonable period; if refused, court proceedings (refere typically available where the clause is clear and the default established). On recovery, the property’s value is applied against the outstanding debt; any excess must be returned to the buyer.

Facing insolvency proceedings

The clause deploys its essential utility here. The seller escapes collective discipline by exercising vindication under Article L. 624-16 Code de commerce. Three cumulative conditions:

  1. Writing prior to delivery (already discussed)
  2. Property existing in nature in the debtor’s possession at the opening judgment date
  3. Timely vindication: within three months of publication of the opening judgment at the BODACC

The vindication is addressed to the administrator (reorganisation) or liquidator (liquidation). If the property has been resold but the sub-sale price has not yet been paid, the seller may claim the sub-sale proceeds (Article L. 624-18). If the property has been incorporated into another or transformed, vindication remains possible if the property can still be identified – but not if it has lost its individual character.

Fungible goods: Article L. 624-16(4) permits vindication of goods of the same nature and quality held by the debtor, even if they are not the identical goods delivered. This is the “fungibility rule” – essential for commodity suppliers.

Solent Avocats acts for suppliers exercising vindication and for insolvency practitioners and debtors defending against retention-of-title claims. See our securities guide and insolvency guide.