Corporate & Investment Bank
J.P. Morgan has been delivering escrow services to legal firms and their clients for over 100 years. J.P. Morgan operates 12 major escrow service hubs across the world including a centre in Sydney and completes over 5,000 major transactions annually.
J.P. Morgan offers two primary escrow type services via its hub in Sydney:
Assets other than cash including securities, source codes, designs, and tradable commodities can also be held in escrow via J.P. Morgan's offshore hubs.
Cash Escrow Service
Cash escrow is a legal arrangement whereby funds are deposited with J.P. Morgan as a neutral third party to a transaction. These funds are subsequently disbursed to one or more parties upon fulfillment of certain conditions as established in a written escrow agreement. This is demonstrated below:
Escrow is primarily used to mitigate risk. For example, one party may be concerned that the other party might be unable to meet its financial obligations resulting in 'counterparty risk'. Funds may be held in escrow until one or both parties meet certain conditions.
Conversely, the parties may be comfortable with each other but there is difficulty valuing an asset resulting in 'price risk'. The resulting price differential can be held in escrow until the actual performance of an asset or investment can be ascertained.
Sometimes, the parties wish to ensure that a transaction is executed according to a pre-agreed sequence of events minimising 'execution risk'. This might involve funds and transaction documents such as titles being held in escrow and then released in the appropriate sequence.
Finally, the parties to a transaction may simply be looking for an independent third party to manage the financial settlement of a transaction.
Escrow can be used in a range of different situations. Some of the most common applications include:
- Subscriptions in a capital raising
- Good faith deposits or break fees in an acquisition
- Holdbacks or earn out premiums in a business purchase
- Legal or banking fees in a workout
- Deposits to secure performance guarantees
- Collection of revenues on behalf of third parties
- Disbursement of milestone payments in a project
- Collection and distribution of proceeds
- Purchase monies in the sale of assets
Paying Agent Service
J.P. Morgan offers a Paying Agent Service specifically designed for Australian takeovers and schemes of arrangement.
The service supports the efficient settlement and payment of monies to shareholders or scheme participants in a variety of currencies and payment types including cheque and funds transfer. This includes automated processing of payment data generated by the share registries.
Automated conversion of takeover or scheme payments into foreign currency payments also expedites transactions where there is a significant base of shareholders located overseas who would benefit from receiving payment in their home currency. Conversely, local shareholders can elect to have their cash out option automatically converted back into Australian dollars where they have received overseas scrip delivered as part of a scrip for scrip offer by an overseas acquirer.
This service, which can also be coupled with a cash escrow for break fees or funding evidence to the courts in a scheme of arrangement, increases transaction efficiency and ease of implementation giving the parties more time to focus on strategic deal issues.