Contract law backdating
Let’s take a look at the different possibilities, and what you need to know to understand the all-important “when” of an agreement.
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.
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.
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.Documenting a transaction which has already happened One possible scenario is that the relevant transaction has already happened, but just hasn’t been documented yet.For example, there may have been a transfer of trade from one group company to another on a particular date.Sometimes you will want the effective date to be different from the date of signing, either earlier (i.e., backdating) or later (i.e., predating).Either is acceptable, provided that both you and the other party intended it.The transaction should be ratified by minutes or resolutions of the participating entities.