Bankruptcy Spillover in Cross-Border Corporate Groups

yazarı lawyerfbc

açık Ocak 15, 2026

1) Why “Bankruptcy Spillover” Becomes a Cross-Border Problem

Corporate groups are built to operate as a single economic organism while remaining multiple legal persons. That design is efficient: risk can be allocated, financing can be centralized, and operations can be optimized across jurisdictions. But in distress, the same design creates a pressure point: creditors experience one collapse, while law sees many separate companies.

“Bankruptcy spillover” (sometimes called insolvency contagion) is the label practitioners use when the insolvency of one entity creates legal or economic consequences for other group members. In cross-border groups, the issue becomes harder because:

assets are scattered across countries,
intercompany transactions are often governed by different laws,
creditors rush to the most creditor-friendly forum,
group financing documents typically trigger cross-defaults, and
enforcement depends on recognition rules and practical cooperation.

For Turkey-linked groups, the spillover question is usually framed like this:

The insolvent entity is a Turkish subsidiary, while the parent is abroad; can the parent be held liable?
The insolvent entity is abroad, while a Turkish company holds assets or contracts; can creditors reach those Turkish assets or start local proceedings?
Several group members are collapsing at once, each in a different country; can outcomes be coordinated without destroying value?

Turkey’s answer is not “automatic group bankruptcy.” Instead, Turkey uses targeted legal tools: a statutory group regime in the Turkish Commercial Code (TTK), insolvency and enforcement mechanisms in the Execution and Bankruptcy Law (İİK), civil procedure remedies under the Code of Civil Procedure (HMK), and cross-border recognition logic under the International Private and Procedural Law (MÖHUK).

2) The Starting Point: Separate Legal Personality and Limited Liability

Any serious spillover analysis must start with the baseline rule: each company is a separate legal person. Limited liability is not a loophole; it is a foundational policy choice. In principle:

a subsidiary’s bankruptcy does not automatically bankrupt the parent,
sister companies are not automatically liable for each other’s debts, and
group strategy does not replace corporate separateness.

This baseline creates a default “firewall.” So why do spillover cases still succeed sometimes? Because the firewall is not absolute when:

the controlling company abuses its control,
the group structure is used to mislead creditors,
assets are moved to evade collection, or
contracts (guarantees, security, joint obligations) intentionally link the liabilities.

Spillover is therefore best understood as an exception-driven system: the creditor must identify the correct legal route, then prove the facts that unlock it.

3) Mapping Spillover: Five Legal Channels

In practice, group insolvency spillover occurs through five main channels. Treat this as a diagnostic checklist.

Channel A: Contractual Spillover (Spillover by Signature)

This is the simplest and often the strongest route. If the parent or another affiliate signed a guarantee, co-borrower clause, letter of comfort with legal effect, pledge, or security package, then the creditor does not need veil piercing. The case becomes an ordinary enforcement of a contract.

Typical instruments:

upstream guarantees (subsidiary guaranteeing parent debt),
downstream guarantees (parent guaranteeing subsidiary debt),
cross-guarantee webs among affiliates,
group-level facility agreements (cross-default),
security over shares, receivables, or bank accounts.

Channel B: Statutory Group Spillover (TTK Group of Companies)

Turkey has a specific corporate group regime. This matters because it provides structured liability pathways when control is abused. The key concept is not “the group is one company,” but “control creates duties.”

Channel C: Doctrinal Spillover (Veil Piercing / Organic Link)

Courts can disregard the corporate form in exceptional cases. This route is evidence-heavy and should be treated as a last-mile tool when the facts show abuse.

Channel D: Insolvency-Specific Spillover (Avoidance / Clawback)

When value is extracted from an entity before insolvency, the most effective remedy is often not suing the parent directly, but undoing the transfers. Turkey’s avoidance actions are a central weapon in intra-group asset stripping scenarios.

Channel E: Cross-Border Spillover (Recognition and Effectiveness)

Even if you win abroad, Turkey is not “automatically bound” without the right recognition/enforcement steps. Likewise, Turkish proceedings do not automatically bind foreign courts. Cross-border spillover requires thinking about recognition, enforcement, and parallel proceedings.

4) Turkey’s Statutory Group Regime (Şirketler Topluluğu) Under the TTK

4.1. Why the TTK Group Regime Matters

Turkey recognizes that corporate groups are real and powerful. Instead of pretending control does not exist, the TTK regulates it. For spillover purposes, the group regime matters because it:

defines “control” as a legal category,
imposes duties on the controlling company, and
provides remedies when control is misused to the detriment of the subsidiary.

This is especially relevant in cross-border structures where:

a foreign parent controls a Turkish subsidiary,
group management decisions are made abroad, and
the Turkish subsidiary is used as an operating vehicle with high external debt.

4.2. Control in Practice

Control can exist through:

majority voting rights,
ability to appoint board members,
contractual rights creating decisive influence,
other mechanisms that allow one company to direct another’s decisions.

In insolvency cases, the factual question is not merely “who owns shares,” but “who controlled decisions,” such as:

financing strategy,
transfer pricing and internal charges,
dividend policy,
asset disposals,
guarantees and security grants.

4.3. The Group Regime Is Not Automatic Consolidation

A common misunderstanding is to treat group regulation as if it creates “one debtor.” It does not. It creates responsibility for abuse of control, not a default pooling of assets. So, the spillover effect is conditional on misconduct patterns and failure to neutralize subsidiary losses.

5) Dominance Misuse and Loss Compensation Logic (TTK 202)

5.1. The Core Idea

TTK 202 is often the heart of group-spillover litigation. The logic is straightforward:

A controlling company may direct a subsidiary to take actions that serve group interests.
If those actions cause the subsidiary a loss, the loss should be compensated within a defined framework, or the subsidiary should be granted an enforceable compensation claim.
If the loss is not properly balanced, liability can arise.

In distress, creditors and office-holders often attempt to reframe the story of insolvency as “the subsidiary became insolvent because the group extracted value or loaded risk without compensation.”

5.2. Typical “Loss-Creating” Directives in Cross-Border Groups

In Turkish practice, the following patterns frequently appear in files where a Turkish subsidiary collapses while the parent remains solvent (or at least attempts to remain outside the blast radius):

(i) Forced Guarantees and Security Grants
The Turkish subsidiary provides guarantees or pledges for group borrowing without receiving an equivalent benefit. When the group defaults, the subsidiary’s estate is depleted.

(ii) Cash Pooling Without True Independence
The subsidiary’s cash is swept to group accounts. The subsidiary is left with operational liabilities and external creditor exposure, while liquidity is centralized elsewhere.

(iii) Intra-Group “Service Fees” and Management Charges
The subsidiary pays heavy fees for vague services, sometimes backdated or inflated during distress. This can function as disguised dividend extraction.

(iv) Transfer Pricing That Starves the Subsidiary
The subsidiary sells at below-market prices to a group distributor or buys at above-market prices from a group supplier, shifting profit out of Turkey and leaving the subsidiary undercapitalized.

(v) Asset Stripping Before Restructuring
Receivables, trademarks, equipment, or project rights are transferred to an affiliate shortly before the collapse, often justified by “reorganization.”

(vi) Selective Payment of Group Creditors
The subsidiary pays an affiliate’s lenders, or settles group obligations, while leaving its own external trade creditors unpaid.

5.3. Evidence That Makes or Breaks a TTK 202 Theory

TTK 202 cases are won on documentation and consistency, not rhetoric. A strong record typically includes:

board minutes showing instructions, approvals, or pressure,
emails or management directives connecting transactions to group benefit,
internal presentations describing Turkey as a cash source or risk buffer,
intercompany agreements lacking arm’s length terms,
absence of real compensation mechanism for the subsidiary,
unusual timing (transactions concentrated shortly before distress).

The opposing side usually tries to show:

the subsidiary received equivalent benefit (funding, guarantees, business, access),
transactions were arm’s length, documented, and priced reasonably,
losses came from market conditions, not dominance misuse,
corporate formalities were respected and independent directors/committees existed.

5.4. Spillover Outcome: What Can Realistically Be Achieved?

A successful dominance misuse route can achieve:

monetary liability against the controlling company,
restoration of value to the subsidiary (directly or indirectly),
creation of an enforceable claim that strengthens the estate and creditor recovery.

It is not magic. It does not automatically let a creditor seize a parent’s assets without the correct procedural steps. But it can create a legal basis to extend responsibility beyond the insolvent subsidiary when facts support it.

6) “Trust Liability” and Group Branding Risk (TTK 209)

Cross-border groups often operate under a single brand. Websites, invoices, email signatures, and marketing materials frequently blur lines between entities. From a spillover perspective, branding can be dangerous because it creates creditor reliance on the group’s perceived unity.

TTK 209 is often discussed under the concept of “trust liability” in group contexts: where group presentation creates justified reliance and harm, liability risk can arise.

Practical risk factors include:

a single “Group” name used without clear entity identification,
contracts signed by one entity while negotiations are led by another,
letterheads and websites implying “one company,”
representations suggesting parent backing without proper disclaimers,
shared email domains and signatures that hide legal entity names.

For creditors, this route can support arguments that:

the creditor reasonably believed the parent stood behind the subsidiary,
reliance was induced by group conduct,
harm occurred when the group later invoked separateness.

For groups, the compliance lesson is simple: be consistent and transparent about the legal entity in communications, contracting, and invoicing.

7) Veil Piercing, Organic Link, and Cross-Piercing: Exceptional Spillover

7.1. What Veil Piercing Is (and Isn’t)

Veil piercing means disregarding the separation between a company and its shareholders (or sometimes between sister companies) when the corporate form is abused.

It is not:

a remedy for bad business,
a tool for punishing corporate failure,
a default response to undercapitalization alone.

It is an exceptional doctrine aimed at preventing the corporate form from being used as a fraud device.

7.2. “Organic Link” Arguments in Practice

In some enforcement and litigation settings, parties argue that two companies are effectively the same due to an “organic link.” Courts typically examine whether the link is merely operational (common address, shared managers) or truly abusive (commingling assets, fictitious transactions, sham separations).

Indicators that often strengthen veil piercing / organic link narratives:

mixing of bank accounts or payments without basis,
systematic use of one company to pay another’s debts,
absence of independent accounting and records,
employees and assets used interchangeably without agreements,
repeated transfers to keep assets away from creditors,
creation of new entities to continue business while leaving old entity insolvent,
misleading creditor communications about who is the real contracting party.

7.3. Cross-Piercing (Sister Company Liability)

Cross-piercing is typically harder than classic piercing because you are asking the court to jump sideways across the group. It can be argued when sister companies function as a single pool and separateness is purely cosmetic, but it requires particularly strong evidence of abuse and purposeful creditor harm.

7.4. Practical Guidance

If you plan to plead veil piercing, treat it like a forensic case:

build transaction maps,
reconstruct cash flows,
identify beneficial ownership and decision chains,
prove the intent and effect of abuse.

If you defend against it:

show consistent formalities (minutes, approvals, contracts),
show arm’s length intercompany documentation,
show independent accounting and capitalization,
show that creditor expectations were entity-specific.

8) Intra-Group Transfers and Avoidance Actions (İİK 277 and Following)

8.1. Why Avoidance Is Often the Most Effective Spillover Tool

In real-world group collapses, the core damage is usually asset movement: value is shifted out of the soon-to-fail entity into “safe” affiliates. You can spend years litigating parent liability theories; meanwhile, the assets are gone.

Avoidance actions under Turkish law target that problem directly. They aim to invalidate certain debtor transactions that prejudice creditors, enabling the creditor (or estate) to reach transferred assets or their value.

8.2. Typical Avoidance Targets in Group Structures

Intra-group avoidance cases often involve:

transfers at undervalue (assets sold cheaply to an affiliate),
gifts or gratuitous transfers to group members,
granting security to an affiliate or its lenders shortly before insolvency,
suspicious repayment of intra-group debts while external creditors remain unpaid,
assignment of receivables to an affiliate to block collection.

8.3. Evidence and Litigation Strategy

Avoidance work is evidence-driven. Successful files typically rely on:

timing analysis (transactions close to distress),
valuation evidence (undervalue),
corporate relationship evidence (affiliate status),
bank records and payment trails,
internal correspondence showing motive or anticipation of enforcement.

For cross-border groups, an extra complication is enforcing the result abroad. If the transferred asset sits outside Turkey, the Turkish judgment may require recognition/enforcement steps in that jurisdiction. Conversely, if the transfer moved foreign-owned assets into Turkey, Turkey becomes a strategic enforcement venue.

9) Management, Shareholders, and Personal Exposure: When Individuals Enter the Picture

While corporate group disputes are often entity-to-entity, individual liability can appear when:

managers breached duties by approving abusive transfers,
controlling shareholders orchestrated fraudulent schemes,
signatures and representations misled creditors,
criminal conduct overlaps with insolvency (fraud allegations, document manipulation).

In Turkey, the exact route depends on the legal basis invoked (company law duties, tort concepts, criminal law where applicable). In practice, adding individuals as defendants can be strategic when:

the corporate defendants are empty shells,
decision-making was personal and documented,
asset recovery requires targeting beneficial owners’ assets.

However, overuse of personal allegations without proof can backfire. The strongest approach is to anchor individual exposure to:

concrete acts,
specific transactions,
traceable benefit,
documented decision authority.

10) Cross-Border Layer: Jurisdiction, Recognition, and Practical Effectiveness (MÖHUK)

10.1. Parallel Proceedings Are Common

Cross-border group insolvency typically produces parallel proceedings:

a main insolvency or restructuring abroad,
enforcement and interim measures in Turkey where assets or debtors exist,
separate litigation in Turkey about guarantees, avoidance, or group liability.

The practical reason is simple: assets in Turkey are controlled by Turkish enforcement realities.

10.2. Recognition and Enforcement in Turkey

When a foreign judgment needs effect in Turkey, MÖHUK rules on recognition/enforcement become critical. Even if you have a foreign insolvency judgment, making it operational in Turkey requires meeting the conditions applied by Turkish courts.

In a group context, recognition questions commonly arise about:

authority of foreign insolvency office-holders to act regarding Turkish assets,
enforceability of foreign court orders affecting contracts, debts, or claims in Turkey,
whether the judgment is final and whether reciprocity/other conditions apply,
whether the matter touches areas considered within Turkey’s exclusive jurisdiction (a point that often becomes disputed).

Because cross-border insolvency is highly procedural, the practical advice is:

plan recognition strategy early,
align your forum strategy with where the assets actually are,
do not assume a foreign insolvency automatically freezes Turkish enforcement.

10.3. Cooperation Without a Unified Group Insolvency Framework

Some legal systems provide specialized tools for cross-border insolvency cooperation. In Turkey, cooperation is often achieved through:

parallel filings,
evidence collection and letters rogatory where needed,
careful use of interim measures,
and recognition/enforcement steps case-by-case.

As a result, group spillover disputes frequently become multi-front litigation. That is expensive, but it is also where strategic advantage is created.

11) What Turkey Does Not Have: Substantive Consolidation as a Default Group Tool

A crucial point for realistic expectations: Turkey does not operate a standard “substantive consolidation” mechanism that automatically pools assets and liabilities of group companies merely because they operate as a single enterprise.

Instead, Turkey achieves “consolidation-like” results through:

contractual liability (guarantees),
dominance misuse liability (TTK 202),
trust/reliance liability (TTK 209),
avoidance actions undoing asset transfers,
veil piercing in exceptional abuse scenarios.

This means creditors should stop asking “Can we consolidate the group?” and start asking:

“Which of these legally recognized tools fits our facts?”
“What evidence can we produce quickly?”
“Where are the assets, and what measures are available in that jurisdiction?”

12) Creditor Playbook: How to Build a Spillover Case

Here is a practical, litigation-minded roadmap for creditors seeking to extend recovery beyond an insolvent group member.

Step 1: Identify the Right Defendant Universe

Break the group into targets:

contracting entity (primary debtor),
guarantors and security providers,
controlling company (for TTK 202-based claims where applicable),
transferee affiliates (for avoidance actions),
individuals (only if evidence supports personal wrongdoing).

Step 2: Build the “Control and Benefit” Narrative

Spillover claims require more than “they are related companies.” You need:

who controlled the transaction,
why it benefited the group,
how it harmed the debtor,
why harm was not compensated.

Step 3: Secure Evidence Early

Before assets disappear:

obtain bank and payment records through procedural routes,
collect contracts, invoices, intercompany agreements,
capture marketing materials and representations (web pages, brochures, email signatures),
preserve internal communications where accessible via litigation tools.

Step 4: Choose the Strongest Legal Route First

In practice, prioritize:

enforcement against guarantors,
interim measures on assets (where justified),
avoidance actions to reverse transfers,
TTK 202 dominance misuse claims,
veil piercing only where the abuse indicators are strong.

Step 5: Think Cross-Border From Day One

If assets are in Turkey:

plan enforcement and protective measures locally.
If judgments will be foreign:
align pleadings and evidence for eventual recognition/enforcement needs.

13) Group Defense Playbook: Ring-Fencing Without Creating Bad Facts

Corporate groups can defend themselves effectively, but the defense must be built before insolvency—after the collapse, it is too late to “create independence.”

Best Practices (Pre-Distress and Ongoing)

keep separate bank accounts, accounting, and records,
document intercompany transactions with clear pricing and rationale,
ensure board approvals and minutes reflect genuine evaluation,
avoid vague “management fees” without deliverables,
avoid last-minute security grants that look like preferential treatment,
communicate clearly about which legal entity contracts and owes obligations,
manage branding to avoid misleading unity signals.

During Distress

stop value extraction that can be framed as asset stripping,
implement transparent restructuring governance,
treat intra-group transactions as if a hostile auditor will review them,
preserve documentation and ensure consistency.

A group that behaves like separate legal persons consistently will have a far stronger defense against spillover theories.

14) Case Study: A Multinational Group Collapse With a Turkish Subsidiary

Scenario

ParentCo is incorporated abroad and controls TRSub, a Turkish operating company.
Group financing is arranged at ParentCo level, but TRSub guarantees part of the debt.
TRSub also participates in cash pooling; surplus cash is transferred weekly to an offshore affiliate.
Six months before collapse, TRSub transfers its key receivables portfolio to an affiliate “for restructuring purposes,” at a price that appears low.
TRSub then enters insolvency proceedings in Turkey (or becomes subject to aggressive enforcement).

Creditor Strategies

Guarantee Enforcement:
Creditors pursue the guarantee route first; it is clean and contract-based.
Avoidance Action Against Receivables Transfer:
Creditors challenge the receivables transfer as prejudicial, aiming to bring value back into the Turkish recovery pool.
TTK 202 Dominance Misuse Narrative:
Creditors or estate argue that forcing guarantees and cash pooling harmed TRSub and served group interests without adequate compensation.
Trust/Representation Angle:
If group branding and communications suggested ParentCo stood behind TRSub, reliance-based arguments may support liability theories.
Interim Measures:
Where legally available, creditors seek protective measures to prevent further dissipation.

Defense Strategies

demonstrate TRSub received funding, market access, and benefit for guarantees and cash pooling,
show receivables were transferred at fair value with valuation support,
show independent board approvals and documentation,
show creditor knew entity separateness and contracted accordingly.

Likely Outcome Patterns

Contract claims can provide the fastest recovery.
Avoidance can restore value if timing and undervalue are shown.
Dominance misuse claims can succeed where documentation reveals directive harm without balancing.
Veil piercing is possible but typically requires very strong abuse signals beyond normal group integration.

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