In commercial transactions, such as the sale and purchase of shares, businesses or equipment, it is usual for potential buyers to place a deposit with the seller to demonstrate good faith. If the transaction falls through, the deposit monies are returned.
However, if faced with cash flow pressures, even a trusted counterparty may misuse deposit monies received to tide over a more pressing need. In such instances, the inconvenience and risk of loss associated with legal action can be avoided if the deposit monies or assets were placed with an escrow agent at the inception of the transaction.
As an independent third party, an escrow agent such as DBS Trustee protects the assets of the transacting parties by ensuring that the monies are only released upon the fulfilment of contractual obligations. This realisation has led to increased demand since late last year for escrow services by individuals, small and medium-sized enterprises across Asia.
Escrows are a versatile tool and can be customised for a variety of transactions, including M&As, PE investments, delistings, divestments and initial public offerings. DBS is also able to open escrow accounts in markets such as Singapore, Hong Kong, Indonesia and India, as well as to structure cross-border escrows.
DBS Trustee is seeing an increase in the number of escrow enquiries from customers. More than in the past, customers are using escrows to hold deposits and/or proceeds from sale of assets whether resulting from a normal transaction or from a liquidation proceeding to ensure that the monies are paid to intended recipients.
Pranam Wahi, Managing Director and Head of Global Transaction Services at DBS Bank, said: With the difficult economic climate, we have observed that commercial parties appear more nervous about counterparty risks. This has been exacerbated by an increased incidence of commercial transactions failing mid-stream. Through our escrow services, our clients are assured that their monies would be safe even if a transaction falls through.
