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Comment on should you write off the Hold Back when selling your accounts
November 24, 2022
Comment on should you write off the Hold Back when selling your accounts from article on November 14, 2022
          A deal that I was part of had a provision for the seller. For each account lost over the hold back period if two new accounts were added these would wash. I provided incentive for the seller to keep adding accounts during the hold back period.
          Here’s how it customarily works.  Before explaining it let me assure you that there are any number of ways to structure the “hold back” and the rest of your deal; the imagination of lawyers who don’t know what they are doing or just trying to run the clock and show you how smart they are, knows no bounds.  So, be assured, there are loads of ways to structure and word the deal [the contract for the deal].  But, here’s what I believe is the customary [and sane] way to do it.
          If buyer is paying a respectable and market price for the accounts, expressed as a multiple of the RMR, then expect the seller to have to guarantee the accounts, usually for 12 months.  This is the attrition guarantee. 
          When the seller is remaining in business and accumulating new accounts the buy-sell contract can give the seller the option of replacing accounts lost during the guarantee period.  There would generally be conditions imposed on the replacement accounts which I won’t get into here. 
          If the seller is not continuing in business then unless the seller is working for the buyer, the seller won’t have access to new accounts to be used as a replacement. 
          The seller’s guarantee for the accounts is typically secured by collateral in the form of part of the purchase price held back and not paid by the buyer at time of the closing, hence the terminology, Hold Back.  Accounts lost during the guarantee period will reduce the final payment of the purchase price.
          This all seems simply enough, and it is.  However, the contract language gets convoluted and screwed up more times than I care to remember.
          Do yourself a favor; if selling or buying engage and rely on K&K.  Give me a call before the other side of the deal does. 

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301