The escrow agreement
is an agreement under which money or documents such as acts of transfer or credit rights are delivered to the depositary which is obliged to honor a certain part of a contract only when this has been fulfilled properly. The position of escrow
falls in the category of – the widest – trust. In fact, the depositary is none other than a trustee with limited powers.
When the depositary is committed to both parties of the contract it is named the escrow holder; when, instead, the escrow is put in place on one side only the trustee is named the escrow agent.
The classic use of escrow agreements
is chiefly observed in the context of real estate sales which have international elements (parts and / or assets which are party to different national judicial systems).
This approach is increasingly common place in Anglo-Saxon law in the area of conveyance transactions, i.e. it is worth noting that in the case of ownership transfers in which the seller of the property – after signing the deed of conveyance (the act of transfer ) – relies on a trust solicitor so that the latter is handed over to the buyer after payment of the price, or the buyer is the same that – pending the completion of the act of sale – delivers the sum subject to the act of his solicitor.
Recently, the legal path in question has often been conveniently used as an atypical tool in financial relations between lending/credit institutions and groups of companies, in order to enable the parent company to carry out the proper financial assistance for its subsidiaries. In this case, the mandate of escrow aims to achieve and simultaneously realize the objectives of the letter of patronage and the pledge of shares; In fact, the escrow agreement made explicit by the holding company states:
- Awareness with which the parent company declares to be up to date with the existing funding relations or those that are to be implemented;
- Approval of these relations;
- Confirms how it sets out the percentage of shares in the capital by the holding company.In addition, the escrow agreement usually contains the guarantee that the shareholding in the corporate stock in the subsidiaries, the main debtor, will not be disclosed to persons not recognized as acceptable by banks as share rights will be materially placed outside of the availability of shareholders and precisely because of the company deposited in trust by a third party of a high professional profile. This will prevent that the whole of the debtor company does not become the subject (the parent company) which offers the best credentials of reliability and solvency and that very often is the only one able to ensure business continuity.