Financing and debt raising transactions rest on a balance: the lender releases the funds only once certain conditions are met, while the borrower needs the certainty that the funds are indeed available. Escrow makes it possible to satisfy both requirements.
Conditioning the release of funds
A financing is frequently subject to conditions precedent: creation of security, obtaining authorisations, completion of a concurrent transaction. By placing the funds in escrow, the parties ensure that they will be released only once these conditions are actually met, neither before, nor for any purpose other than those agreed.
Securing the putting in place of security
Escrow coordinates the release of funds with the taking of security. It prevents the funds from being paid before the security protecting the lender is created, while assuring the borrower that the funds are indeed reserved for its transaction.
The conditions precedent to release
Escrow coordinates the payment of the funds with the satisfaction of the conditions precedent. These frequently relate to:
- The actual creation of the security protecting the lender (pledges, mortgages, guarantees);
- The delivery of the duly signed transaction documents;
- Obtaining the required corporate, regulatory or administrative authorisations;
- The completion of concurrent transactions on which the financing is conditional.
A neutral and controlled third party
When entrusted to a lawyer, the escrow relies on the CARPA account: each movement of funds is checked as to its origin and destination, the sums are isolated on a dedicated sub-account and traceability is complete. The escrow agent applies only the release conditions provided for in the agreement.
Are you structuring a financing? Fidens holds the funds in escrow and conditions their release on the satisfaction of the agreed conditions.
Frequently asked questions
What is the purpose of escrow in a financing transaction?+
It makes it possible to condition the release of funds on the satisfaction of conditions precedent - putting security in place, obtaining authorisations, concurrent transactions. The funds are reserved as soon as the agreement is reached but are released only once these conditions are met.
Does escrow protect the lender or the borrower?+
Both. The lender is assured that the funds will be paid only once its security is created; the borrower has the certainty that the funds are indeed reserved for its transaction. The escrow agent strictly applies the agreed conditions.
What are conditions precedent?+
These are the conditions that must be satisfied before the release of the funds of a financing: creation of security, delivery of documents, authorisations. Escrow ensures they are complied with before any release.
A transaction to secure?
Fidens sets up the escrow of the price on a CARPA account, under the responsibility of a lawyer.