Releasing Escrow or Holdback Funds After an Ontario Business Sale

Agreeing to a holdback or escrow at closing is only half the story — sooner or later, that money is supposed to come back to the seller. Whether it actually gets released smoothly, on schedule, and in full depends on how carefully the purchase agreement, or escrow agreement, spelled out the release process in the first place.

If you're a seller waiting on a holdback, understanding the release process helps you know what to expect, and what to push for, before you sign. If you're a buyer, the same clarity protects you from being accused of unreasonably sitting on funds you have a legitimate right to hold.

What Typically Triggers a Release

• Passage of the scheduled release date set out in the purchase agreement or escrow agreement, with no outstanding claim made against the funds.
• Resolution of the working-capital adjustment, where the holdback, or the relevant portion of it, is tied specifically to that calculation.
• Resolution of an indemnity claim, whether by settlement, an independent accountant's determination, or arbitration or litigation, if a claim was made before the scheduled date.
• Mutual written agreement between buyer and seller to release some or all of the funds early.

The Release Process, Step by Step

1. Confirm the scheduled release date in the agreement and calendar it. Sellers shouldn't assume the buyer will proactively initiate release on time.
2. Check for outstanding claims. If the buyer has made a claim, or has a right to make one before the deadline, that claim generally needs to be resolved, or specifically carved out, before the disputed portion releases.
3. Deliver any confirmations required by the agreement — for example, a certificate confirming no claims are outstanding, if the agreement requires one.
4. Route the release through whoever is holding the funds. A true third-party escrow agent will follow its own release procedure; a law firm trust account or direct buyer holdback follows the purchase agreement's instructions instead.
5. Confirm receipt, and if only part of the holdback was subject to a claim, confirm what happens to the remaining undisputed portion — it should generally release on schedule even if a smaller claim is still working through resolution.

Partial Releases vs. All-at-Once

Not every holdback is all-or-nothing. Purchase agreements sometimes provide for:

• Staged releases — for example, the portion earmarked specifically for the working-capital adjustment releasing on a shorter timeline than the broader indemnity portion.
• Releasing the undisputed balance — if only part of the holdback is tied up in a specific claim, the rest can often still release on schedule rather than the entire amount being frozen.

Whether either option is available depends entirely on how the agreement was drafted. Vague holdback language tends to default toward an all-or-nothing release, which rarely serves either side well if a small dispute arises.

When There's a Dispute Over Release

If the buyer and seller disagree about whether funds should release, purchase agreements typically point to a specified resolution mechanism rather than leaving it open-ended:

• Financial disputes, such as disagreements over the working-capital calculation, are often referred to an independent accountant for a binding determination.
• Other indemnity disputes, such as whether a representation was actually breached, more often go to arbitration or litigation, as specified in the agreement.

A seller facing a release dispute should check the agreement's dispute-resolution clause before assuming the only option is negotiation or a lawsuit. Many agreements build in a faster, cheaper path for exactly this situation.

What Sellers Can Do to Speed Things Along

• [ ] Calendar the release date the moment closing happens — don't rely on the buyer to flag it.
• [ ] Respond promptly and completely to any information requests tied to a claim, since delay on the seller's side can itself delay release.
• [ ] Keep your own records from the sale organized, in case you need to respond to, or dispute, a claim quickly.
• [ ] If the agreement allows for a confirmation or certificate to trigger release, prepare and deliver it as soon as it's accurate to do so.
• [ ] Involve your lawyer as soon as a dispute looks likely, rather than after a deadline has already passed.

Frequently asked questions