The argument is obviously not valid if the transaction is one which is required by law to be in writing such as a transfer of land.This is not an agreement that could have been made orally.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.
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.
Even though the transaction may have already happened in substance, it’s important to find out what the other legal consequences may be, so that steps can be taken to mitigate the risks.
These two general areas mean that some legal due diligence should be carried out to identify and address areas for corrective action.
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.However, an explanation often given by the person wanting to backdate the document is that the document is merely meant to reflect an oral agreement that has already been made and that this is just a way of documenting it.In theory, this would appear on the face of it to be a reasonable request, as it is just a private arrangement between two parties.These may include registering the transfer of land or intellectual property rights, or obtaining third party consents or releases.Secondly, the transfer may trigger liabilities, such as where the relevant group companies participated in a defined benefit pension scheme.In this situation, it may be possible to create a document after the event which recites what actually happened, and which records the key terms of the transaction.