Paying agency for multi-seller transactions

A distribution to two hundred sellers across four jurisdictions needs its own timetable and its own owner.

Paying agency is a distinct service from escrow on a corporate transaction, even though the same firm often provides both. Paying agency covers how the consideration reaches each recipient once the release conditions are met.

Why does a large distribution take longer than a single payment?

On a founder and employee shareholder base, on a fund distributing to limited partners, or on a settlement paying a class of claimants, the payment list has three properties that cause difficulty:

• The recipients are not all known to the paying party. A buyer acquiring a company with a hundred small shareholders has no relationship with those shareholders and no verified bank details for them. The details have to be collected and verified directly with each recipient, because bank details supplied by email cannot be relied on.
• The amounts are calculated, not stated. Each recipient’s entitlement comes out of a waterfall, a cap table, or a settlement formula. An error in the schedule results in a payment to the wrong person or in the wrong amount, and recovery then depends on the recipient returning it.
• The recipients sit in different jurisdictions and currencies. This means payment rails, value dates and compliance requirements are set per recipient rather than per transaction.

What a paying agent does for each recipient

Collection of recipient details is done directly with each recipient against identification, rather than through a spreadsheet passed around by the parties. The agent verifies that the person giving the account details is the person entitled to the money. Beneficiary onboarding and account validation account for most of the work.

The calculation stays with the parties and their advisers. The agent pays what the instruction says. Where the instruction is a schedule with names, amounts and account details, the agent reconciles the total against the funds held and pays. It does not recalculate the waterfall.

Multi-currency and multi-jurisdiction payment is a capability question rather than a drafting question. It is worth asking a proposed agent, before appointment, which currencies it can pay in and whether it can pay to the jurisdictions on the list. That belongs with the other questions counsel settle at appointment.

Can escrow and paying agency sit in one arrangement?

Where a transaction has both an escrow element and a distribution element, running them through the same agent means the funds do not move twice. Consideration is funded into escrow before completion, released on the completion conditions, and distributed from the same arrangement against the payment schedule. Where separate parties handle each leg, there is a transfer between them, and that transfer has its own clearing time and its own compliance review.

Where separate accounts are genuinely needed, because different parts of the consideration have different release conditions or different signatories, separate account arrangements with their own statements can be documented, with a variant of the agreement for each.

When recipient onboarding should start

Recipient onboarding is the long pole, always. A distribution to two hundred recipients means two hundred people who each have to respond, provide identification and confirm account details, and a proportion of them will be slow. Recipient onboarding should start during the exclusivity period so that payment can be made on the day.

What Titanium does not determine

Titanium does not calculate entitlements, recalculate a waterfall, determine whether a recipient is entitled, or resolve a dispute between claimants. It pays what a valid authorised instruction specifies, subject to the onboarding, applicable law and regulatory requirements that apply to each recipient. It provides no legal, tax or investment advice.

Distributions frequently follow the release of a holdback or deferred payment, which is where the two exercises meet. Send us the register and the timetable and we will tell you what is achievable.

Common questions

Does Titanium calculate what each recipient receives?

No. The amounts are taken from the schedule the parties provide. Titanium is not in a position to verify the underlying calculation.

How are recipient bank details collected?

Directly with each recipient against identification, rather than through a spreadsheet passed between the parties.

Can the same arrangement hold the funds and make the distribution?

Yes. Where it does, the money moves once, which shortens the interval between release and payment.