Turkey: Invalidity Risk When Using A New SPV In An Asset Or Share Acquisition Deal

Last Updated: 20 October 2017
Article by Bilge Zeynep Yilmaz and Serkan İçtem

Parties of an asset or share purchase agreement are often not aware of an inherent legal risk when structuring an acquisition deal specifically in case where a newly established special purpose company is being used as a purchaser for the target assets or shares. This article will discuss a limitation under Article 356 of the Turkish Commercial Code (the "TCC") stipulating special requirements as and when an asset or share acquisition is made by such a newly-incorporated SPV and the adverse consequence of failure to comply with such requirements.

Acquisition Made by a Newly-Incorporated Purchaser

Acquisition or lease of an enterprise or asset may in some cases create a conflict of interest in between different shareholders or shareholders as a group and creditors of a company. A managing shareholder or director may direct the company to pay a consideration exceeding the fair market value for an acquired enterprise or asset (including shares) with the purpose of generating an indirect personal benefit out of such transaction.  Consider a case where a company acting as a buyer decides to purchase an asset from a subsidiary or other company which is owned by the same person who acts as the representative of the buyer signing off on the same deal. This case would show a clear red flag in terms of a potential conflict of interest between that of the company acting as buyer and those in charge of executing such transaction on behalf of the buyer. Therefore, TCC stipulates a control mechanism with a goal to provide a protective and transparent scheme for acquisition of an enterprise, or any asset including shares of another company. Arguably, this attempt is made in a rather unsubtle way as will be discussed below and forced upon a newly established company acting as purchaser which undermines its intended purpose.

Article 356 provides that an agreement regarding acquisition or lease of an enterprise or asset1 in return of a purchase price exceeding 10% of the buyer company's paid in capital and made within two years as of the registration of such company shall not be valid unless the agreement is first approved by the general assembly of shareholders and registered with the relevant trade registry office.  All transactions made prior to the approval and registration of such agreement, including payment for closing thereof, will be invalid. Since the legal consequence is "invalidity" which clearly is the worst-case scenario that contract parties would expect to face after they agree and close a deal, it is worth looking further into this rather scary article. 

If a share or asset deal is potentially priced for more than 10% of the buyer's capital and parties are using a newly established SPV buyer for the deal, they are dealing with Article 356's limitations and potential consequences.  Using a SPV for an acquisition may be preferable for target asset related risk limitation purposes on the buyer side and a SPV is usually established with minimum or a small capital thus it will be very likely that the deal price will exceed 10% of the buyer SPV's capital in many transactions. If these conditions are met, the law requires a special and specific blessing of the buyer's shareholders to the proposed deal. This may be easy to obtain if all shareholders are aware and approve the transaction but one also needs to take into account the adverse timing and pricing implications that Article 356 will create.

In case of an acquisition or lease deal triggering Article 356 conditions, the board of directors of the buyer will first need to request the commercial court of first instance to make a valuation of the enterprise, or asset to be acquired or leased. Once an official valuation is made, such acquisition or lease deal needs to be approved by shareholders of the buyer side during a formal shareholders meeting with the presence and affirmative vote of shareholders holding at least 75% of the company's capital. The acquisition or lease deal will become valid only after registration of such affirmative shareholder resolution. Parties to and the value of the transaction will need to be registered and announced at the trade registry.

What does this all mean in the context of an asset or share purchase deal? It means that if a deal is falling under Article 356 parties will need to;

  • Revisit the timing and scheduled action plan for the proposed closing as a court supervised valuation process and a formal shareholders meeting will need to be accomplished before closing;
  • Take into account that control over the pricing of the deal will be lost as the deal is now going to be priced at or around the value determined by the court supervised third party valuation and shareholder approval will be sought based on such official pricing;
  • Be aware of the fact that essential terms of the deal will become public as it will need to be registered in the trade registry gazette.

Naturally none of the above-mentioned aspects will be pleasantly viewed by the transaction parties.  As failure to comply with any of the above-mentioned requirements will lead to invalidity of the transaction, an exception thereof becomes very important.

Exception from the Onerous Statutory Requirements

We briefly discussed above the implications in case an asset or share purchase deal falls under Article 356.  The same article also provides for an exception which states that the requested procedure will not be applicable in case the purchased enterprise or asset; (i) is acquired through compulsory legal foreclosure and enforcement process or (ii) is considered to be within the buyer's "scope of business". That being the case determination of the buyer's scope of business and whether such acquisition falls within such business scope becomes the determining factor.

Of course it is not always easy to tell the actual scope of business of a company by merely looking at its charter documents.  Such charter documents are often drafted in a way to be as broad and comprehensive as possible. Therefore, it is important to determine the actual and day to day business of the company by reference to its activities and make a determination of the main and ordinary business scope of the company. The ordinary scope of business of a company refers to operations which such company conducts on a regular and actual basis.

The argument of taking the type of the asset being acquired in determining whether acquisition thereof falls within scope of business has been discussed by scholars, and suggested that the exception covers only acquisition of assets such as inventory, tangible assets, and receivables rather than fixed assets such as real estate, license, and trademark. However, the Supreme Court, in a relatively recent decision, accepted the acquisition of a flour factory by a flour manufacturing company as falling within the scope of business of the buyer and cleared the transaction. This suggests that the type of the asset to be acquired is relatively unimportant so long as what is acquired can be directly linked with the actual and ordinary scope of business.  A flour manufacturing company should be able to buy a flour manufacturing facility (real estate and equipment) since the acquisition is directly linked with its scope of business.  Although the Supreme Court decision does not necessarily state so, the flour manufacturing company should also be able to purchase a competitor company's shares active in the same business or if a share acquisition is not preferred, a valuable trademark of such competitor or merely its fixed asset and equipment without having to go through Article 356's formalities.  

In a share acquisition, on the other hand, it was argued by some that the buyer may not benefit from such exception unless it is a holding/investment company whose actual scope of business is to participate to other companies' capital. In this sense, unless a newly established SPV is structured as a holding/investment company, then any share acquisition deal may be subject to Article 356 without being able to benefit from the exception clause.  The key then is the way in which the articles of association of a purchaser SPV is drafted, whether the SPV can effectively said to be a holding/investment vehicle in case the transaction is that of a share deal or whether any direct relevance can be established in between the actual scope of business of the SPV and the asset to be acquired.  

In conclusion, interpreting such exception in a strict sense would lead to a non-pragmatic practice such as a newly established manufacturing company not being able to purchase a real estate to establish a plant, or any other share or asset to conduct its operations without having the value of such share or asset appraised by a court and obtaining approval of shareholders first.  Completion of such formalities in each transaction would inevitably subject the company's daily operations to an inconvenient and time-consuming process which would eventually cause delays and more importantly financial loss specifically in businesses where transactions have to be realized in a quick fashion.


1 Article 356 does not specify any class of asset for the purpose of this clause therefore it is used in the broadest extent and interpreted as to include company share as well. Therefore, a share acquisition deal is also subject to the same requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions