Paying agency for multi-seller transactions

A single buyer paying a single seller is a wire transfer. A single buyer paying two hundred sellers across four jurisdictions is a project, and on most transactions it is treated as an administrative afterthought handled by whoever has capacity in the week of completion.

Paying agency is a distinct service from escrow on a corporate transaction, even though the same firm often provides both. Escrow answers the question of whether the money should move. Paying agency answers the question of how it reaches the right people.

Why it is harder than it looks

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 collecting bank details by email is how fraud happens.
• The amounts are calculated, not stated. Each recipient’s entitlement comes out of a waterfall, a cap table, or a settlement formula. A single error is a payment to the wrong person of the wrong amount, and recovering it is a matter of goodwill.
• The recipients sit in different jurisdictions and currencies. Which means different payment rails, different value dates, and different compliance requirements per recipient rather than per transaction.

What a paying agent does with each of those

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. This is the most valuable part of the service and the part clients notice least, because when it works nothing happens.

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 (an agent that recalculates has taken on responsibility for a number it is not equipped to defend).

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.

A structuring point that saves real time

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.

On the timetable

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. Starting that process at completion means paying late. Starting it during the exclusivity period means paying on the day.

Outside the role

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. For those who have run a large distribution recently: what proportion of recipients responded within the first week, and did the timetable assume that number or a more optimistic one? Send us the register and the timetable and we will tell you what is achievable.