When buying a company in Turkey, a foreign investor may not want to pay the entire purchase price directly to the seller at closing.
An escrow arrangement can be used to hold part of the purchase price with an independent third party until agreed conditions are satisfied. Escrow mechanisms are used in Turkish M&A transactions, particularly to secure potential indemnity claims or post-closing obligations.
Why Use Escrow?
Escrow can protect the buyer against risks such as:
- undisclosed tax debts;
- SGK liabilities;
- employee claims;
- pending lawsuits;
- breaches of seller warranties; and
- other hidden liabilities.
For example, if the purchase price is EUR 2 million, the parties may agree that EUR 1.7 million is paid at closing while EUR 300,000 remains in escrow for a defined period.
What Should the Escrow Agreement Include?
The agreement should clearly determine:
- the amount held in escrow;
- who will act as escrow agent;
- how long the money will be retained;
- when funds can be released;
- how claims will be made; and
- what happens if the buyer and seller disagree.
Escrow agreements are not specifically regulated as a separate contract type under Turkish law, so their terms should be drafted carefully and coordinated with the Share Purchase Agreement.
Conclusion
Escrow can provide valuable protection for a foreign investor buying an existing Turkish company.
It is particularly useful where due diligence identifies potential liabilities that may only become clear after closing.
The buyer should therefore consider whether part of the purchase price should remain secured instead of paying 100% directly to the seller.
This article provides general information and does not constitute legal advice.
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