Agreement to Purchase Work in Progress

This sample document is based upon an actual situation where a subcontractor had been given an order to fabricate a finished product that was required for the performance of the main contract. The subcontractor was likely to become insolvent, and its bank was about to appoint a receiver under the floating charge in its favour over the subcontractor's undertaking. This floating charge covered the inventory, work in progress and finished products not yet sold to the main contractor, and in which both title and possession remained with the subcontractor. In order to avoid seizure of these assets, and the consequent putting of the performance of the main contract in jeopardy, the main contractor entered into this agreement to purchase the assets and pay off the bank itself.

Such agreements, which should only be used as a last resort, are effective for a number of reasons. First, once they are concluded (and provided they do not constitute a transaction at an undervalue which can later be overturned), they are proof against a receiver or liquidator. However, as can be seen from the sample agreement, the requirements of separate storage and marking are absolutely essential, if, in practice, the purchaser is to be able to prove his title in the event of the subsequent appointment of a receiver or liquidator.