In a company sale, a dispute or a conditional transaction, one party often has to pay funds over before the other has performed its obligations. Escrow resolves that tension: the sums are placed in the hands of a trusted third party and released only once the agreed conditions are met.
The lawyer acting as escrow agent deposits the funds in a CARPA account (Caisse des Règlements Pécuniaires des Avocats), the regulated client account of the French Bar, which guarantees that the sums remain available and that the escrow agent stays independent.
The firm acts as escrow agent for the sale price, for the holdback under the warranty and indemnity agreement (garantie d'actif et de passif), for earn-out consideration and for security deposits. The escrow agreement sets the release conditions, the time limits, the treatment of interest and the procedure where the parties disagree.
A well drafted agreement avoids deadlock: the release events are objective, documented, and do not depend on the escrow agent's judgement.
The engagement has five stages. First the escrow agreement, signed by the parties and by the firm: it identifies the funds, the possible beneficiaries, the release events and the evidence required for each of them, the term, the fees and the course to follow where the parties disagree. Then the opening of a CARPA sub-account dedicated to the transaction, into which the depositing party transfers the funds; CARPA checks the origin of the transfer and the firm acknowledges receipt to the parties. Then the holding period, during which the escrow agent does nothing but hold: it does not invest the funds, does not lend them, does not set them off.
Then comes release, against the agreed event (deed signed, objection period expired, warranty period reached, earn-out accounts finalised, court decision) or joint instructions from the parties; it may be total or partial, in one or several instalments. Last, the beneficiary's receipt, which discharges the escrow agent and closes the engagement. Between payment in and release, the escrow agent reports to the parties any event affecting the funds and answers their advisers, the banks and the statutory auditors who need written confirmation of the deposit.
Escrow of the price on a share sale, where closing is deferred or split, protects the buyer who pays before owning and the seller who transfers before being paid. The holdback, a fraction of the price retained for the term of the warranty and indemnity agreement, spares the buyer from pursuing a seller who has become insolvent, and spares the seller from depending on the buyer's goodwill to recover the balance. Earn-out consideration tied to future results is placed in escrow in the same way, release following the finalisation of the reference accounts.
On the sale of a business as a going concern (fonds de commerce), escrow of the price is the rule: it covers the period during which the seller's creditors may object (ten days from the last publication, article L. 141-14 of the French Commercial Code) and the buyer's joint liability for the tax on the seller's profits, up to the price of the business (ninety days, reduced to thirty subject to conditions, article 1684 of the French General Tax Code), a period during which a buyer who had paid the seller directly would risk paying twice. Outside a sale, escrow serves disputes between shareholders over a contested share price or over dividends, sales of valuable assets between private individuals through a broker, security deposits under a commercial partnership and, where a court so appoints, the holding of disputed sums for the duration of proceedings.
Beyond escrow itself, the firm organises the whole of the closing flows: the call for funds, the checking of transfer instructions, simultaneous payments out (price, repayment of existing debt, fees), supporting documents for the banks and the statutory auditors. The company director signs in the knowledge that the money is there and that it will go where it is due to go.
The escrow agent's fees are fixed, set in the agreement according to the amount held and the complexity of the release conditions, and borne in the proportions agreed, most often half by the seller and half by the buyer. There is no account keeping charge; in return, funds deposited with CARPA earn no interest for the parties. A straightforward engagement is put in place within forty-eight hours: agreement signed, sub-account opened, transfer details sent. The incoming transfer shows on the same day or the next business day; release takes place within the two business days following proof of the agreed event.
The safeguards follow from the lawyer's status: the funds are deposited with CARPA, which checks the reason for every movement and guarantees that the sums remain available, and not in an account of the firm; the escrow agent is bound by professional secrecy and covered by the Bar's professional indemnity insurance; it is subject to anti-money laundering vigilance obligations, which is why supporting documents are requested when the account is opened. The terms used on this page are defined in the escrow glossary (in French).
Sellers and buyers of companies, accountants, mergers and acquisitions advisers, parties to a commercial dispute, property investors.
For transactions where the escrow is the very purpose (sale of assets, yacht, classic car, artwork, cross-border deal), the firm created Fidens, its dedicated escrow service on a CARPA account: practical guides, fee scale and online opening of a file.
The firm acts as escrow agent including on transactions on which it does not otherwise advise: earn-out consideration and indemnity holdbacks after a sale, sales of works of art or of boats between private individuals through a broker, disputes between shareholders over dividends or over a contested share price.
The lawyer acting as escrow agent deposits the funds in the CARPA account, which guarantees that they remain available and checks every movement. He is bound by professional secrecy and by strict conduct rules, can act quickly without a credit committee, and drafts the escrow agreement that sets the release conditions. The cost is generally lower than that of a bank escrow.
The escrow agent's fees are set as a fixed amount in the escrow agreement, according to the sum held in escrow and the complexity of the release conditions. They are known to the parties before the funds are deposited and are generally shared between them.
The escrow agreement provides for this: the escrow agent holds the funds until the parties agree in writing or until an enforceable court decision. He does not decide the dispute and never releases the funds at the request of one party alone.
Yes. The firm regularly acts as a neutral escrow agent for fellow lawyers, for notaires (French notaries) and for mergers and acquisitions advisers, on share sales, on sales of a business as a going concern, on commercial disputes and on property transactions.
Contractual escrow is defined by article 1956 of the French Civil Code as the deposit, made by one or more persons, of a disputed thing in the hands of a third party who undertakes to return it, once the dispute has ended, to the person who is adjudged entitled to it. Applied to money, it takes the form of a deposit in the hands of a lawyer acting as escrow agent, necessarily in an account of the Caisse des Règlements Pécuniaires des Avocats. CARPA checks every movement and guarantees that the sums remain available. The funds are released to the beneficiary once the conditions set in the escrow agreement are met.
The term is that of the awaited event: a few days for a deferred closing, at least ten days for the creditors' objection period on the sale of a business as a going concern, twelve to thirty-six months for a holdback under a warranty and indemnity agreement, the length of the earn-out period for earn-out consideration. The agreement sets a long stop date and what becomes of the funds on that date.
In practice, yes. The seller's creditors may object within ten days of the last publication of the sale (article L. 141-14 of the French Commercial Code) and the buyer may be held jointly liable for the tax on the seller's profits, up to the price of the business, for ninety days, reduced to thirty subject to conditions (article 1684 of the French General Tax Code). Paying the seller directly would expose the buyer to paying a second time.
No. Sums deposited with CARPA bear no interest for the parties. In return, no account keeping charge is invoiced and the availability of the funds is guaranteed. For a long escrow over a substantial amount, the agreement may provide for another investment arrangement, to be negotiated with the escrow agent.
The points company directors most often put to us, treated in depth, with sources.
