The arrangements for managing and making payments in commercial transactions are often very complex. One reason for the complexity is the risk associated with payments. For example, in a sale and purchase transaction, the purchaser will not be willing to pay the seller unless it is confident that it can obtain clean title to the asset it is purchasing, and that any risks are reduced to the extent possible. Consequently, it is necessary to ensure that the purchase price is paid to the seller only after the relevant conditions have been paid and clean title can be transferred.

This article examines the use of an escrow account to reduce risks in corporate merger and acquisition (M&A) transactions, and how the concept is structured and implemented. It outlines the position in common-law jurisdictions and in China, and considers a number of important issues including the role lawyers perform in facilitating escrow arrangements in corporate M&A transactions.


Escrow account arrangements are common in many corporate M&A transactions, particularly share-purchase agreements. In a share-purchase agreement, the parties commonly agree that a certain portion of the purchase price paid by the purchaser will be retained in an escrow account. The purpose of the escrow account is to ensure that funds (the escrow funds) are available to compensate the purchaser for any loss they might incur as a result of a breach of a warranty by the seller (for a discussion about representations and warranties, see China Business Law Journal, volume 1 issue 3: Warranties and misrepresentations). In some jurisdictions, such as France, it is more common to use bank guarantees as security for warranty claims than to use escrow accounts.

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葛安德 Andrew Godwin
Andrew Godwin

A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at