Backing out of an APA while in escrow
April 02, 2023
by a searcher in Illinois, USA
I have situation with my deal. We signed all closing docs at escrow office and started working with seller on transitioning but found a hole in cashflow and business needs good amount of cash injection to run the operations. Based on our discussion with the two largest customers and the key staff, which the sellers prevented us from talking prior to the signing of APA, the sellers basically lied to us about state of business. Customers were/are looking for new vendors due the ignorance on sellers part in fixing business issues.
We have an escrow and money (100% of it) hasn't been transferred to sellers yet.
There is clause in our APA that says if closing doesn't happen by certain date, either party can terminate the deal by a written notification. That date has passed now, the money is still in escrow but we signed the closing docs post that date. What is true and legal definition of closing ?
Can we still terminate the APA , get money back and renegotiate the purchase price ?
There is SBA loan, what happens to the liens while money is still in escrow ?
Thank in advance.
in Boston, MA, USA
Putting legal matters aside for business ones, if you do have a way to unwind the APA I would seriously consider whether you renegotiate purchase price vs. just walk from the deal entirely. Big ethical matters like this are usually the first of many rather than a one-off. What else do you not have 100% clarity on? How damaging could it be, even if you overcame this one hurdle?
from The University of Chicago in Chicago, IL, USA
This is a legal a matter for your attorney.
My 2 cents. In your case, I'm guessing you have conditions to close in the docs. If so, that might be a way out.
Often docs are signed by each side, but they are held by respective attorney and not shared with the other party until actual closing when funds will transfer per the agreement. In your case, if funds have not transferred, did you really have closing? Also, if there is escrow, there must be an escrow agreement with conditions.