Download Deposit Payment: Can You Trust Your Solicitors? Imagine you are a

Deposit Payment: Can You Trust Your Solicitors?
Imagine you are a Purchaser in a commercial transaction of land worth RM100 million. It is a normal practice in
such a transaction for the Purchaser to pay a minimal deposit of 10% of the purchase price, i.e. RM10 million prior
to obtaining necessary approvals for the completion of the transaction. In such a situation, the Purchaser usually
wants the deposit to be paid to a stakeholder instead of paying the deposit directly to the Vendor. In the given
circumstances, the deposit of RM10 million is often kept by the Vendor’s solicitors as the appointed stakeholder.
In such a scenario, how can you be sure that the deposit kept by the stakeholder is safe? Is there a possibility of the
stakeholder absconding with the deposit money? Are there instances of intervening events that would render the
deposit irretrievable from the stakeholder’s account?
While a placement of deposit money into a stakeholder’s account is normal and fairly a safe measure, in reality,
there are many risks associated with it. One example of such risks is that the deposit may be lost due to
misappropriation by the stakeholder.
On the other hand, if you are a Vendor in a sale and purchase of asset transaction, you are supposed to receive
payment of the deposit. Hence, natural questions that would arise are:(1) Should you allow the money to be kept by the Purchaser’s solicitors?
(2) If you agree for the money to be kept by the Purchaser’s solicitors, is the law firm of good standing and can
it guarantee that by the time the money is to be released to you as the Vendor, the money would still be
there?
(3) Alternatively, should you request for the money to be kept in your solicitors account as stakeholder or at the
very least kept in a joint stakeholder’s account?
Azmi & Associates has acted, on countless occasions, as a stakeholder in several commercial transactions. In one
transaction, our firm acted as the solicitors for the Vendor where the deposit sum was more than RM12 million. As a
safety measure, we insisted for the deposit to be kept in a joint stakeholder’s account. In another transaction, we
acted as a stakeholder for the benefit of a foreign beneficiary. The foreign beneficiary asked us the manner in which
our partners would operate the stakeholding account. We should commend that this is a prudent step taken by the
foreign beneficiary. We then responded by assuring them that the account will be operated up to a very minimal
threshold by two partners and beyond that, by three partners. Our firm holds the view that this measure of operation
is essential to ensure that substantial sum of monies will be operated through a much more stringent procedure.
It is a point to note that solicitors acting for a Vendor or a Purchaser respectively should always negotiate on who
should keep the deposit paid. This step of negotiation is important and you should not take for granted that the
deposit money is always to be kept only by the Vendor’s solicitors.
Often, the Vendor would request that the deposit is kept by the Vendor’s solicitors as the stakeholder (unless paid
directly to the Vendor). Nevertheless, such practice is still subject to negotiation. It is advised that if you are the
Purchaser you should always negotiate for the deposit to be paid and kept by your solicitors as the stakeholder (for
you trust your solicitors more than the other party’s solicitors). Further, you should always enquire the manner in
which the deposit is to be operated (always insist for an institutionalized protection).
The point is that the position of deposit from a Vendor’s or a Purchaser’s perspective is a fluid position and
negotiable. When a Vendor is negotiating, he will usually ask for the deposit to be paid to his solicitors or to him
directly. On the other hand, the Purchaser will have to pay the deposit but may want their money to be kept by their
own solicitors. The Firm has once acted for a Purchaser in a sale and purchase of a company worth RM300 million
where we had successfully negotiated for the deposit to be retained by us until all the conditions precedent for the
transaction were fulfilled.
© 2008 Azmi & Associates – Deposit Payment: Can You Trust Your Solicitors? - 00078790 \ @azmilaw #7
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Despite the safety measures taken to keep the deposit money with a stakeholder, there have been some
unfortunate instances which have occurred. Some of the unfortunate examples are as follows:(1) A deposit of RM5 million was paid to a Vendor’s solicitors upon signing of an agreement for a sale of land.
The Vendor, desperate for money, pressured the solicitors into releasing the money prematurely to the
Vendor. The Vendor’s solicitors however, subsequently went missing.
(2) A deposit of RM750,000.00 was paid for a sale of property worth RM7.5 million. The stakeholder in this
transaction was a sole proprietor. Before the deal was completed, tragedy struck as the solicitor was
involved in an accident and died. The deposit money was then frozen in the account and could not be
uplifted until such further time. Hence, it is prudent for parties to a transaction to ensure that there will be
continuity of stakeholder in case such an incident would occur.
(3) A deposit of RM30 million was paid for a transaction and it was held by a joint stakeholder account. The
joint stakeholder account involved one partner from the Vendor’s solicitors and one partner from the
Purchaser’s solicitors. On the date of completion, the deposit was supposed to be uplifted and released to
the Vendor. Unfortunately, the partner of the Purchaser’s solicitors was away for a three-week break.
Hence, the money could not be uplifted until three weeks later. Imagine the loss the Vendor suffered within
those three weeks! In such instance, there should be alternative signatories to the joint stakeholders
account.
In a nutshell, parties to a transaction must be prudent in dealing with deposit money. Always ensure that the
mechanism in keeping the deposit money is safe and that the deposit can be uplifted once your transaction is
completed or returned to the rightful party (as prescribed under the transaction agreement) without any loss.
© 2008 Azmi & Associates – Deposit Payment: Can You Trust Your Solicitors? - 00078790 \ @azmilaw #7
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