Asia M&A trends analysed

Author: Ashley Lee | Published: 23 Aug 2012
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

As Dutch bank ABN AMRO opened its escrow and settlement services in Hong Kong this month, Asia lawyers outline why the escrow business is growing in Asia.

Escrow is, by definition, cross-border business. Paul TImmermans, head of escrow and settlement Asia at ABN AMRO Hong Kong, told IFLR, he would be serving the Asian market, especially law firms involved in M&A transactions based in Hong Kong and Singapore, while Shanghai and Beijing are also in scope.

Counsel observe that escrow is seen across the board in transactions in Asia. “Escrow arrangements can be used in a wide variety of situations and are not necessarily limited to high value transactions,” said Elizabeth Kong, director at Singapore’s Stamford Law.

But the prevalence of established common and civil law jurisdictions bolsters its popularity. Jonathan Stone, head of Skadden’s Asia-ex Japan corporate practice noted that escrow services are popular in countries such as those named by Timmermans as parties want funds to be held in a jurisdiction in which they’re comfortable and where the court will understand the purpose of the escrow and the parties’ rights and obligations.

Stone said that it had become increasingly common in strategic M&A transactions in Asia for buyers who want to secure warranty and indemnity claims, particularly where the seller is in a jurisdiction where it is not easy to enforce judgments or arbitral awards.

However, Kong added that parties tend to negotiate harder on escrow arrangements when the economic climate is difficult. She said, “For example, during the last global credit crunch when there was tight access to credit and an increased rate of aborted transactions, parties were naturally more nervous about transaction risk and the need to protect themselves.” Timmerman agreed that escrow has also become an important aspect of M&A transactions as a negotiation tool.

But she also warned that monies held in escrow are locked up for the escrow’s duration and cannot be used for other uses. She said to consider opportunity costs, especially if the escrow amount is large and the lock-up period is long.

There are further caveats: Lee Suet-Fern, managing director of Stamford Law, noted that many countries have anti-money laundering rules, which require escrow agents to conduct proper know-your-client procedures.

Moreover, she advised clients to be aware of that amounts under escrow need to be part of an underlying transaction, and that sham escrow arrangements or for sums much larger than required are sometimes an issue.