Popularity of documentary escrow arrangements

Over the past few months, an increasing number of clients have engaged AVELLUM as a documentary escrow agent, especially in M&A transactions. In this publication, we explain what documentary escrow (or documentary storage) is and how it benefits the parties.

Under a documentary escrow agreement, an independent third party (a documentary escrow agent) safeguards one or several documents for a specified period or until a predetermined event occurs. For instance, depending on the agreed arrangements, a documentary escrow agent may be instructed to release the documents once:

• the agreed escrow period has elapsed;
• the relevant parties have fulfilled their obligations under the transaction documents; or
• a specific event has occurred.

For example, consider a share purchase agreement where the parties decide to engage a documentary escrow agent. After signing the share purchase agreement, they deposit the documents required for completion (such as powers of attorney, corporate resolutions, and other documents needed to finalise the share transfer) with the escrow agent. The escrow agent receives these documents in a sealed envelope and holds them in escrow. Once the parties have fulfilled their respective pre-completion obligations (for example, the buyer has paid the agreed purchase price to the seller and the seller has received it) and provided the evidence of the same to the escrow agent, the escrow agent releases the documents to the buyer, allowing the buyer to submit the filings and register their ownership of the shares.

As a result:

1. the seller has comfort that the buyer will only be able to register ownership of the shares once the seller has received the purchase price; and
2. the buyer does not depend on the seller’s good faith in providing the relevant documents and can be sure they will receive the documents once they fulfil their payment obligations.

Therefore, a documentary escrow agreement benefits both parties. It ensures that all completion actions occur simultaneously, reducing risks and adding certainty to the transaction process.

AVELLUM has successfully facilitated multiple transactions as a documentary escrow agent, drafting agreements tailored to each transaction’s specific circumstances.

For more information regarding our documentary escrow services, please contact managing partner Mykola Stetsenko or partner Yuriy Nechayev.