Escrow is a term used to describe a component of a commercial transaction between two or more parties where assets are held by a third party, called an escrow agent, pending completion of certain conditions to the commercial transaction.
The need for an escrow agent is usually written into the commercial agreement and the respective parties then agree on a suitable independent agent to hold the escrow assets. Reasons for holding assets in escrow vary, for example, assets may be held pending tax filings, as a reserve for any potential liabilities or simply until conditions precedent are met on the underlying transaction.
Once selected, the appointment of the escrow agent is usually written into an escrow agreement. The escrow agreement will set out the terms and conditions under which the escrow assets are held and released. Escrow arrangements can be for a day or two or they may last for years, dependent upon the reason for the escrow. The goal of escrow arrangements is to reduce the risk for the parties involved and to make sure that the obligations of the deal are met before the held property is released.
Independent escrow agents
In the past, businesses in Canada would often turn to the law firms negotiating the transaction when they were looking for an escrow agent to hold and protect assets during the escrow period. More recently, companies are leaning towards completely independent parties as escrow agents to ensure complete separation from the parties (and their advisors) to the transaction.
Having a neutral escrow agent is the key to ensuring that there are no conflicts of interest which can occur when one party choses a specific law firm to act as the escrow agent. Utilizing the services of a true independent agent often puts all parties at ease that assets are being held in complete isolation and will be safeguarded in a neutral fashion. Many law firms in Canada now encourage their clients to consider this independent option when their escrow needs arise.
Escrow transactions and services with TMF Canada
An independent escrow agent, like TMF Canada, will administer all the details needed for your specific transaction with complete neutrality and professionalism. These assets could be cash, securities, property (including intellectual property), contracts or other collateral. An escrow agreement will be drawn up and agreed on by all parties. The types of transactions and services that can be supported in Canada are:
- mergers and acquisitions;
- asset sales/divestitures;
- corporate restructurings;
- real estate sale and leasebacks;
- royalty payments;
- special purpose acquisition companies (SPACs).
As Canada continues to attract international business expansion, there will be an increase in M & A activity, which is often the key driver and need for escrow services. International businesses are keen to reduce their risk in such transactions and using an independent escrow agent ensures assets are protected and transferred appropriately.
Canada is a highly regulated country in terms of banking and compliance making it even more important to use experts, such as TMF Canada, for escrow transactions. With over 30 years of experience in Canada, we understand that your focus should be on your strategic growth goals for your business. TMF Canada can handle all aspects of escrow for your business with neutrality and independence. Talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.