In the context of a share or business (asset) purchase arrangement it will sometimes be desirable for part of the purchase price for those shares or assets to be held in an escrow or retention account as security for any sums that may become due to the buyer in respect of warranty or indemnity claims.
We have therefore produced an Escrow Retention Schedule for both a share sale agreement and an asset sale agreement which is a direct replacement for the schedule in the relevant agreement which deals with the purchase price. It makes provision for an escrow account to be set up at completion and for an agreed sum to be placed into the account. Deductions are then able to be made from this account in accordance with the terms of the schedule.
The amount to be held in escrow pending any warranty (or indemnity) claims will usually depend on the size of the transaction and the relative bargaining power of the parties. Sellers will want to receive as much of the consideration as possible at completion, buyers on the other hand are likely to want the escrow pot to be as large as possible and to be held for as long as possible to ensure that if there is a breach of the warranties (or indemnities), there is money readily available to compensate the buyer for any loss suffered.
This document may be particularly useful for a director, company secretary, company administrator or an accountant advising the board of a company going through a sale process and considering how to structure the consideration.
The contents of this Newsletter are for reference purposes only and do not constitute
legal advice. Independent legal advice should be sought in relation to any specific