As a popular payment security alternative to e.g. bank guarantees, escrow provides the following advantages:
- The funds are deposited in a third-party account held by a civil-law notary or an escrow agent for example, and will eventually be used as intended by the parties.
- Since this third-party account is interest-bearing, escrow arrangements are usually less expensive than bank guarantees. Banks have to take precautionary measures as an independent obligation when issuing bank guarantees.
Our civil-law notaries are willing to act as escrow agents subject to various conditions. One of these conditions is that the relevant civil-law notary executes the relevant deed or deeds, such as transfers of shares or immovable property.
Escrow arrangements can be found in the following cases:
- in takeovers, where part of the purchase price is deposited in a third-party account as security for the representations, warranties and indemnities issued;
- as a performance guarantee in projects and construction projects;
- in commercial property transfers where certain works are paid for by the vendor;
- as a ‘dowry’ in the event of reorganisations or spin-offs for example.
Legal assistance in escrow arrangements
At Ploum, our experts can advise you on escrow arrangements. We have extensive experience in this field, as well as in-depth knowledge of all the legal ins and outs connected with this type of security. We recently assisted a client in connection with a ‘share escrow’ during a takeover. A quoted company paid part of the target set by its management in shares, and part of this was deposited in a share account as security for any changes in the purchase price. Part of these shares was released every year.
Would you like to find out more?
Please do not hesitate to call one of the members of our Banking Law and Finance Team if you have any questions concerning escrow.