Tuesday, 12 June, 2018

Trusted Escrow Agents

At Vistra, we provide escrow services as one of the numerous products offered to our clients. As a prudent and independent Escrow Agent we seek to ensure that every aspect of the escrow transaction meets the needs and requirements of the client from a commercial and escrow agency perspective. There are some aspects to consider when entering into an escrow transaction, which we would like to highlight for your consideration in this article.

In order for an escrow transaction to run smoothly, the parties to the escrow should ensure the escrow agreement addresses certain key issues, including:

Release Trigger/Mechanism of the Escrow Assets

The release of the escrow assets should be simple and straightforward. Therefore, the release trigger should be clearly defined – whether this is based on a signed instruction from one or both parties, or an external confirmation, resumption of trading of shares, court order or similar. A long-stop date within which this release trigger must be achieved should also be included, as well as clear instructions where to deliver the escrow cash after expiry of the long-stop date. From an Escrow Agent’s perspective, in order to avoid uncertainty and the possibility of dispute, the release trigger should be clear and unambiguous.

Governing Law and Dispute Resolution

Where the Escrow Agent and bank accounts are situated in Hong Kong, we would suggest the escrow agreement to be governed by Hong Kong law and with the Hong Kong courts having exclusive jurisdiction. However, Vistra has offices in all major business centres across Asia and can accommodate Escrow Agency appointments in most jurisdictions. Although, sometimes arbitration is favored by certain parties, the Hong Kong court system is highly effective and fast, boasting some of the best commercial judges in the world.

Other matters to consider

Other matters to consider include how to preserve the escrow assets – through extension of the escrow term, and accrual of interest on cash deposits etc. - in case of any dispute amongst the escrow parties, and which party is responsible for payment of escrow fees, costs or any indemnities. 

Sample case

The shareholders of a HK company have decided to reorganize the business and affairs of such company. Two of the shareholders wish to buy out the 3rd shareholder and entered into an agreement stipulating certain conditions for the 3rd shareholder to receive the payment for the shares in installments.  The 3rd shareholder had to satisfy certain conditions to receive the installments. Some of these conditions were: assigning IP rights, resigning as a director, shares and asset transfers etc. The parties decided to put the last installment into Vistra’s Escrow Account. Although, the release was based on a certain condition to be met pursuant to the main agreement, the release trigger was a joint instruction letter signed by all the parties as per the escrow agreement. This way, disputes on whether the condition is met could be avoided.

Vistra’s Escrow Services are built on extensive experience and deep understanding of our clients’ needs in areas such as mergers & acquisitions, regulatory/litigation settlements and commercial transactions.  You can rely on Vistra to be your trusted Escrow Agent, offering customized, reliable and efficient service to ensure your transactions close quickly and securely.

 

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Senior Manager, Business Development, Corporate & Private Clients,
+852 2848 4505

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