DMBM655240 - Enforcement action: distraint: general considerations: goods subject to third party financial agreements
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Types of financial agreements
There are various types of financial agreements relating to goods. You will be able to tell the nature of the agreement by the description on the documents.
If the debtor claims that third parties have a financial interest in the goods and there are insufficient other goods to satisfy the debt, ask to see a copy of the agreement.
Conditional sale and hire purchase (HP) agreements
HP and conditional sale agreements are very similar. A conditional sale agreement means that, as long as the purchaser complies with its terms, ownership will pass to them once the final instalment is paid.
HP agreements differ slightly in that ownership does not normally pass to the buyer unless and until buyers take out an option to purchase the goods and the final payment has been made. Although some HP agreements allow the buyer to dispose of the asset before the final instalment is paid, ownership and title has not passed to the buyer until the final payment has been made.
If you were to seize and sell goods subject to HP, HMRC could be liable to the civil offence (tort) of conversion so it is practice not to seize goods subject to HP.
Credit sale agreements
Where a credit sale agreement exists, ownership passes immediately from the seller to the buyer. The buyer can dispose of the goods but remains liable to pay the remaining instalments.
Similarly, goods purchased with money from, for example, a bank loan become the immediate property of the purchaser. In either of these cases you can seize the goods.
If you suspect that goods may be subject to a credit sale rather than a hire purchase agreement, you should ask to see a copy of the agreement.
Leased and hired goods
Goods leased or hired by a debtor, for a specified term with no option to purchase, do not belong to the debtor. The goods remain the property of the firm from which they are leased or hired and they cannot be seized. Check there is satisfactory documentation supporting the arrangement.