Importing or selling PPE on behalf of another party? Why using an escrow agent is a good idea

12 May 2020 1438
In light of the growing demand for personal protective equipment (“PPE”) that South Africa is currently facing as a result of the COVID-19 pandemic, an increasing number of businesses have identified opportunities in the South African market for the import, supply and sale of PPE.

For as long as the demand in the South African market persists, the import and selling of PPE products can be very lucrative, whether a business is acting as an intermediary, a buyer or a seller.

These type of transactions generally entail cross-border imports, stringent timelines, large volumes of PPE products and off-course millions in monetary value that need to be transferred between buyer, agent and seller.

A measure that parties to such a cross-border transaction can implement to ensure peace of mind with regard to the funding portion of the transaction, is the appointment of an escrow agent.

An escrow agent, such as an attorneys firm with a trust account, serves as an independent intermediary and holds the funds in trust whilst the transaction is being finalised. Upon the finalisation of the transaction and all parties having complied with their contractual obligations, the escrow agent is then authorised to release the funds to the relevant parties entitled thereto.

The predominant duties of the escrow agent include the general safeguarding of the funds, the investment of the funds in an interest bearing account and ensuring that the funds are distributed amongst the parties in accordance with the terms of their agreement upon conclusion of the transaction.

The benefit of making use of an escrow agent is that all the parties to the transaction are assured that they will be compensated in accordance with the terms of their agreement once they have performed their obligations. Furthermore, in the event that disputes arise the escrow agent can assist the parties to reach a fair and agreeable outcome and because the funds are held by an independent third party pending the resolution of a dispute, neither party is disadvantaged.

In order for escrow to be a suitable solution, the following are important aspects to consider:

  1. A trustworthy escrow agent that both parties agree to need to be appointed in terms of a written escrow agreement.
  2. The agreement between the buyer, seller and/or agent need to be formalised and reduced to writing in order to avoid any disputes or uncertainty as to what the obligations of each party are.
If you think this might beneficial to the transactions you are engaging in, we encourage you to contact your attorney in order to assist you in structuring a transaction on this basis.
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