In a Sale and Purchase Agreement, the Seller/Buyer depositing the funds in an account in the name of independent Escrow Agents to retain deposit /part of the consideration pending completion / warranty claim / regulatory approval. This is drafted in favour of the Buyer.
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The Escrow Agreement for Acquisition Payment, also known as the Paymaster Agreement, is a legally binding document that outlines the terms and conditions for holding funds in escrow during an acquisition. This agreement is entered into between three parties: the buyer, the seller, and the escrow agent.
The importance of this document cannot be overstated as it provides a secure and neutral platform for the buyer to deposit the agreed-upon payment amount, which will be held by the escrow agent until certain conditions are met. The escrow period, which is defined as the period from the payment date to the day of completion, ensures that both parties have a predetermined timeframe within which to fulfill their obligations.
The document begins with a section on definitions, where key terms used throughout the agreement are clearly defined. This ensures that all parties have a common understanding of the terminology used.
The next section covers the deposit of the escrow amount. It states that on the payment date, the buyer is required to deposit the escrow amount into the designated escrow account. This deposit is irrevocable and subject to the provisions outlined in the agreement.
The treatment during the escrow period is then detailed. The escrow agent is responsible for holding the escrow amount on trust for the buyer and applying it in accordance with the agreement. The escrow amount is not subject to any right of set-off or claim by any institution holding the funds. Any bank charges or interest generated from the escrow account are to be charged to the escrow account and retained within it.
The agreement also addresses various scenarios for the payment of the escrow amount. Depending on the circumstances, such as the completion of a net asset certificate, claims under warranties or tax indemnity/covenant, or regulatory approval, the escrow agent is instructed on how to distribute the funds.
The liability of the escrow agent is limited to instances of breach of the agreement, fraud, negligence, or wilful default. The buyer and the seller are required to indemnify and hold the escrow agent harmless from any liability arising from the operation of the escrow account.
The agreement concludes with provisions for fees and expenses of the escrow agent, payment details, variation of the agreement, notices and service, counterparts, governing law and jurisdiction, and a clause stating that no rights under the agreement can be enforced by third parties.
In summary, the Escrow Agreement for Acquisition Payment is a crucial document that ensures the secure and fair handling of funds during an acquisition. It provides clear guidelines and instructions for the deposit, treatment, and payment of the escrow amount, while also protecting the interests of all parties involved.
To use the Escrow Agreement for Acquisition Payment effectively, follow these steps:
1. Deposit of Escrow Amount: On the payment date, the buyer must deposit the agreed-upon escrow amount into the designated escrow account. This deposit is irrevocable and subject to the provisions of the agreement.
2. Treatment during Escrow Period: The escrow agent will hold the escrow amount on trust for the buyer and apply it in accordance with the agreement. The escrow amount is not subject to any right of set-off or claim by any institution holding the funds.
3. Payment of Escrow Amount: Depending on the circumstances, such as the completion of a net asset certificate, claims under warranties or tax indemnity/covenant, or regulatory approval, the escrow agent will distribute the funds accordingly. The agreement provides specific instructions for each scenario.
4. Liability of the Escrow Agent: The escrow agent's liability is limited to instances of breach of the agreement, fraud, negligence, or wilful default. The buyer and the seller are responsible for indemnifying and holding the escrow agent harmless from any liability arising from the operation of the escrow account.
5. Fees and Expenses: The agreement outlines the fees and expenses of the escrow agent, which should be paid in accordance with the agreed terms.
6. Notices and Service: Any notices to be given under the agreement must be in writing and served by email, hand delivery, or registered post. The addresses and contact details of the parties involved should be clearly stated.
7. Variation: Any variations to the agreement must be in writing and signed by all parties involved. No variation is valid unless it meets these requirements.
8. Governing Law and Jurisdiction: The agreement is governed by the laws of the jurisdiction specified in the agreement. Any disputes or claims arising from the agreement shall be subject to the jurisdiction of the specified courts.
By following these steps, you can ensure that the Escrow Agreement for Acquisition Payment is used effectively and in accordance with its intended purpose.