Effect of backdating a contract

Posted by / 20-Aug-2017 21:28

Effect of backdating a contract

This is one of the most common issues which comes up in the context of group reorganisations or intercompany agreements. Giving a document a date which is earlier than the date when it was actually signed, would almost certainly constitute fraud.Although it may have been intended to put in place a new arrangement by a particular date – often a year end – that date may now have passed. Obviously the ideal position is to put in place the legal documents in advance. Well, it depends on what was transferred, and whether it can be said that the relevant transaction has already happened.The agreement could specify, amongst other things, that costs and revenue would be apportioned by reference to the historic effective date, with adjusting payments being made accordingly.This type of arrangement would not bind third parties, but it may be effective from an accounting and tax perspective depending on the length of time which has elapsed since the intended historic effective date.The same considerations as regards legal and other due diligence would apply so as to manage the risk of any unintended liabilities being triggered, and to make sure that the legal transfer of the relevant assets is completed.Conclusion It can be very tempting just to ‘backdate’ documents, with the intention of making life easier. With a bit of thought and investigation, is it often possible to achieve a result which gets close to the desired result and also lets you sleep at night.

Often a contract will be entered into and dated (as explained above) on the date of the last signature, but will contain a different and defined ‘effective date’ specifying when some or all of the obligations of the parties are to begin.However, the date written on the front of the contract cannot necessarily be relied upon as being the date the contract came into force.This will depend upon the parties’ intention and when the other elements of a contract formation were satisfied (these being offer, acceptance, consideration, intention to create legal relations, and certainty of terms).For example, the selling and buying companies participating in a business transfer may agree between themselves to treat the transaction as if it happened at the previous year end.This could involve putting in place a business transfer agreement now, which is dated when it is actually signed.

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