What worries a buyer most after paying the bulk of the purchase price in an M&A deal? The risk that the seller breaches its representations and warranties — at which point the buyer has little leverage left to compel compensation. Escrow exists to address exactly this concern: a portion of the purchase price is held in a blocked account and released only when the agreed conditions are met. This article explains the legal basis and mechanics of escrow in M&A transactions in Vietnam, under the legal framework in force as of 14 October 2026.
1. What escrow means under Vietnamese law
Escrow (ký quỹ) is a security measure for the performance of civil obligations provided for in Article 330 of the Civil Code 91/2015/QH13 (effective 1 January 2017). Under this provision, escrow means the obligor deposits money or other valuables into a blocked account at a credit institution to secure the performance of an obligation.
A key point: escrow is not a concept unique to M&A. It is a general civil-law institution that parties to M&A transactions use as a tool to secure the seller’s obligations — in particular, the obligation to compensate the buyer for breaches of the representations and warranties given in the sale agreement.
In other words, when an M&A contract provides that part of the price is “held in escrow”, the parties are applying Article 330 of the 2015 Civil Code: the seller (the obligor) deposits money into a blocked account at a credit institution, and the funds are released strictly in accordance with the agreed conditions.
2. The three-party mechanics of escrow
A standard escrow structure in M&A involves three parties with clearly defined roles:
- The escrow depositor: typically the seller — the party whose obligations need securing (indemnification for breaches of reps & warranties, post-closing obligations, etc.). The depositor places the funds into the blocked account;
- The escrow beneficiary: typically the buyer — the party protected by the arrangement. If the seller breaches its obligations, the buyer can claim compensation from the escrowed funds;
- The credit institution holding the blocked account: a bank (or other credit institution) that opens and administers the blocked account. It acts as an independent intermediary: holding the funds and releasing them only when the conditions in the escrow agreement are satisfied.
The three parties are bound together by the escrow agreement — the document setting out the escrowed amount, the holding period, the release conditions for each party, and how disputes over release are handled. This is the pivotal document determining whether the escrow operates smoothly, so the release conditions should be drafted clearly and unambiguously.
3. Escrow in M&A practice: 10–20% of the price, 12–18 months
In deal practice, the typical escrow structure looks like this:
- Amount retained: around 10–20% of the total purchase price is held in escrow, with the balance paid to the seller at closing;
- Holding period: usually 12–18 months from closing — enough time for the buyer to uncover breaches of the seller’s representations and warranties (e.g. hidden tax liabilities, undisclosed disputes, defects in title to assets);
- Purpose: securing the seller’s indemnification obligations for the representations and warranties made in the sale agreement.
When the escrow period expires with no indemnification claims (or with all claims resolved), the remaining balance is released to the seller. Conversely, if the buyer establishes a breach by the seller, compensation is drawn from the escrow account under the agreed mechanics — the buyer does not have to “chase” a seller that has already received the full price and may have distributed it.
Escrow is therefore especially valuable where the seller is a special purpose vehicle (SPV) that may be wound up after the deal, or where the seller is expected to distribute the sale proceeds to its shareholders immediately — situations in which pursuing compensation later would be practically impossible without funds retained up front.
4. Escrow vs. deposit (đặt cọc)
In practice, escrow is often confused with a deposit. The two measures differ fundamentally:
- Deposit (Article 328 of the 2015 Civil Code): one party delivers money or valuables directly to the other party to secure the conclusion or performance of a contract. The deposit sits in the hands of the receiving party;
- Escrow (Article 330 of the 2015 Civil Code): the money or valuables are placed into a blocked account at a credit institution — an independent third party holds them, and neither party may use them unilaterally during the blocking period.
The core distinction: escrow must go through a blocked account at a credit institution, while a deposit is a direct transaction between the two parties. It is precisely the “independent third party holding the money” element that makes escrow the more reliable instrument in high-value transactions like M&A — neither side has to worry about the other misappropriating the secured funds.
5. Points to note when negotiating escrow terms
For the escrow mechanism to work as intended, the parties should agree clearly in the escrow agreement on: the amount and retention ratio; the blocking period; specific release conditions for each scenario (expiry with no claims; indemnification claims arising; how disputes over release rights are resolved); and which party bears the account maintenance costs.
Two issues lack detailed ready-made guidance and require case-specific advice for each transaction: the detailed procedures for opening and blocking an escrow account at each credit institution (each bank may have its own internal processes), and foreign exchange control issues where the escrow account is located abroad (concerning transfers of funds into and out of Vietnam). For cross-border deals, buyers and sellers should engage the bank and counsel early to settle on a workable structure before signing the escrow agreement.
Frequently asked questions
Is escrow mandatory by law in M&A?
No. Escrow is a security measure the parties voluntarily agree in the contract, on the basis of Article 330 of the 2015 Civil Code. The law does not require every M&A transaction to include escrow.
Can the seller refuse an escrow arrangement?
Yes, since this is a negotiated term. In practice, however, the buyer is well positioned to demand escrow where the risk around the seller’s representations and warranties is material — and a refusal may lead the buyer to adjust the price or the deal structure.
Does money in the escrow account earn interest, and who gets it?
This is for the parties to agree in the escrow agreement — the law sets no default rule. The parties should spell it out to avoid disputes.
Can escrow replace a parent company guarantee?
The two instruments can complement each other: escrow retains cash up front, while a parent guarantee adds another layer of security backed by the parent’s standing for obligations exceeding the escrowed amount. The choice depends on the structure and risk profile of each deal.
Sources
- Civil Code 91/2015/QH13 — effective 1 January 2017: Article 330 (escrow: the obligor deposits money/valuables into a blocked account at a credit institution to secure performance of an obligation); Article 328 (deposit).
This article is for reference only and does not constitute legal advice. The content was drafted by AI and will undergo quality review by the AI Legal Council of FLAT Law Firm before any publication consideration; it is not the legal opinion of a licensed human lawyer. Laws and regulations may change; verify the current legal texts before applying them.
Structuring an M&A deal and need an escrow mechanism that fits? Contact FLAT Law Firm for advice.
Legal content reviewed by the FLAW AI Legal Council and submitted to the owner for approval; not a practicing lawyer’s opinion, not a substitute for legal advice on a specific matter.
