A Romalpa Clause Is an Effective Weapon Which Protects an Otherwise Unsecured Creditor

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“A Romalpa clause is an effective weapon which protects an otherwise unsecured creditor.” Discuss and critically analyse this statement. Introduction Remedies for the unpaid seller For the majority of sales contracts, the issue of who has title to the goods generally arises only where the Buyer goes into liquidation or cannot pay his debts[1]. A bankrupt’s trustee must distribute his assets in a particular order, dealing first with his expenses, then the debts owed to preferential creditors (such as the Inland Revenue[2], the DSS, employees, and those with security), then with the debts of ordinary creditors, followed by any interest due[3]. Ordinary creditors therefore have fairly low priority. However, they provide a valuable service that is necessary for the business to thrive. They frequently supply goods on credit terms to buyers, which is not only beneficial for Sellers, because they will sell more goods, over a prolonged period and establish a more effective business relationship[4] but it is also important for the smooth running of the business which may buy on credit component materials necessary for the manufacture of their end-product; assisting them in maintaining a healthy cash flow[5]. Ordinary creditors are therefore essential to effective business practice but they get a ‘raw deal’ where their buyers go out of business, as their priority in terms of the available assets for distribution is low. English law provides a number of remedies for the Seller where the Buyer does not pay for goods; they may take action under Sections 49(1) or (2) SOGA1979[6] where the Buyer does not pay for the goods, and claim any interest due under the terms of the contract[7], once the payment is actually overdue[8]. They may also terminate the agreement, depending on its specific terms[9]. These remedies are, however, unlikely to be of any use

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