Meaning
Financial arrangements hold a portion of a transaction’s purchase price in a secure account managed by a neutral third party to satisfy potential breach-of-contract claims. An indemnity trust escrow is standard in mergers and acquisitions to protect the buyer against undisclosed liabilities or breach of representations by the seller. This mechanism governs the allocation of post-closing risk and ensures funds are available if indemnity claims arise.
It terminates on a predetermined date, at which point the remaining funds are released to the seller.
Escrow Administration
Neutral third parties act as escrow agents to hold and distribute the funds according to the escrow agreement. When a claim arises, the buyer must submit written notice of the claim to the agent. If the seller does not dispute the claim within the specified period, the agent releases the funds.
Claim Validation
Disputed claims require resolution through arbitration or legal proceedings before the agent can release any funds. This process prevents the buyer from making frivolous claims to claw back purchase price. It protects the seller’s interests.
Fund Release
Unclaimed funds are automatically distributed to the seller after the survival period expires. This period typically ranges from twelve to twenty-four months.
