Clawback Agreement


The Stabilization of the Economic Stabilization Act 2008, amended the following year, provides for the recovery of bonuses and remuneration based on incentives paid to an executive or the next 20 highest-paid employees. It applies in cases where financial results are found to have been inaccurate, whether or not there has been a fault. The law applies only to companies that have received TARP (Troubled Asset Relief Program) funds. The term clawback can also be found in other settings. In the area of private equity, it refers to the right of sponsors to recover a portion of the shares carried from counterparties when subsequent losses mean that the counterparties have received agreed compensation. While recovery agreements can be a comfort to a seller who wants to ensure that he does not lose the potential “value of hope” if the conditions are too weighted for the benefit of a seller, they can be considered inadequate or excessively heavy for a buyer. However, a buyer who does not intend to develop a garden lot might be happy to conclude such an agreement, knowing that he will never trigger it. It goes without saying that an effective and applicable agreement is not necessarily a simple matter; it requires custom drafting and may involve multiple parties (and their lawyers) when lenders participate in the transaction. The SEC rule requires companies to introduce executive compensation clawback provisions when the company`s annual accounts need to be reassessed (modified). Since the 2008 financial crisis, provisions for salvage commissions have made headlines. In July 2015, the Securities and Exchange Commission adopted a decision on clawback measures under the Dodd-Frank Financial Reform Act. It would be reasonable for the purchaser to attempt to deduct the costs incurred in obtaining the authorization that is the reason for the payment of the recovery before the amount of recovery is calculated.

However, there are many examples of recoveries used by businesses, insurance companies and the federal government. Here are some of the most common recovery measures that are being introduced today: in the world in which we are practicing – a technological world that, in some cases, requires the production of terabytes of data and millions of pages of documents – everyone should be familiar with recovery agreements.

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