Deadlock (Kilitlenme) Mechanisms: Shoot-out, Russian Roulette, Mediation & Arbitration Solutions in Turkish Joint Ventures
For foreign investors entering 50–50 partnerships in Türkiye, deadlock (kilitlenme) mechanisms: shoot-out, Russian roulette, mediation & arbitration çözümleri are essential tools to prevent a promising joint venture from becoming permanently paralysed. In a typical Turkish structure, two shareholders each hold 50% and may both sit on the board. This alignment looks “fair” at signing, but without clear deadlock clauses, disagreement on strategy, financing or exit can completely freeze the company.
This article explains the main contractual mechanisms used in Turkish practice to address deadlock risk and how they can be adapted to give VCs comfort while remaining compatible with Turkish company law.
1. What is “Deadlock” in a 50–50 Turkish JV?
A deadlock occurs when the shareholders or the board cannot reach the required majority on a key decision, and the company cannot function normally. Typical deadlock issues include:
- Approval of the annual budget or business plan,
- Raising new financing or providing guarantees,
- Appointment or dismissal of senior management,
- Major M&A or exit decisions,
- Changes to the articles of association.
Because Turkish law (the TTK) sets only general rules for decision-making majorities, the real protection is created by contractual provisions in the shareholders’ agreement and, where necessary, mirrored in the articles.
2. Contractual Definition and Escalation Steps
The first step is to define what constitutes a deadlock. A practical approach is to say that a deadlock arises when:
- A listed “reserved matter” is put to the board or general assembly,
- The required majority is not obtained in two consecutive meetings (or within a specified time), and
- The issue cannot be resolved by good-faith negotiation between founders and investors.
Contracts usually provide a short escalation ladder before any drastic buy–sell mechanism is triggered, for example:
- Referral to the founders and VC partners level.
- If unresolved, referral to a neutral adviser or non-executive chair.
- Only if no solution is found within, say, 30 or 60 days, the deadlock triggers exit or reorganisation mechanisms such as shoot-out or Russian roulette.
This structure shows regulators and courts that the parties first try to preserve the company before moving to more radical outcomes.
3. Shoot-out Mechanisms: Controlled Buy–Sell
A shoot-out is a buy–sell mechanism designed to end a deadlock by forcing one party to buy the other out (or be bought out) at a price determined by a predefined formula.
A common variant in Turkish VC-style deals:
- Either party (sometimes only the investor) may serve a deadlock notice proposing a per-share price.
- The receiving party then has the right to choose to:
- Sell its shares at that price; or
- Buy the offering party’s shares at the same price.
This encourages the initial offer to be relatively fair; if a party proposes an unrealistically low price, it risks being bought out on those terms.
In the Turkish context, several points are important:
- The mechanism must respect TTK rules on share transfers and any contractual pre-emption rights.
- For limited liability companies (Ltd. Şti.), share transfers require partners’ resolutions and trade registry approval, so the agreement should oblige all parties to support the transfer.
- Tax and valuation implications should be considered, especially where the price is formula-based rather than market-based.
Shoot-out provisions can be powerful but may be too aggressive where there is a major imbalance of financial strength between founders and VC; in such cases, they are often asymmetric, favouring the investor.
4. Russian Roulette: Extreme but Effective
The Russian roulette clause is a more dramatic version of shoot-out. One party sends a notice offering to buy the other’s shares at a specific price per share. The recipient must either:
- Sell its stake at that price, or
- Buy the initiator’s stake at the same price.
Unlike a more tailored shoot-out, Russian roulette is deliberately harsh; it assumes both sides are equally capable of buying or selling and forces a quick resolution.
From a foreign VC’s perspective in Türkiye:
- Russian roulette can be a strong deterrent against strategic obstruction by a 50% partner.
- However, it may be viewed as unfair if the local partner has significantly less access to capital, which can raise enforceability and reputational concerns.
- To make it more balanced, parties sometimes:
- Limit its use to specific, clearly defined deadlock events,
- Allow it only after mediation, or
- Give the financially weaker party longer payment periods or financing support.
Because Turkish courts may scrutinise grossly unfair outcomes, careful drafting and proportionality are advisable.
5. Mediation and Arbitration as Stabilising Tools
Before any buy–sell trigger, many Turkish and cross-border JV agreements require mediation and/or arbitration for deadlock issues:
- Mediation: The parties agree to attempt resolution with a neutral mediator within a fixed timeframe (e.g., 30 days). This process is confidential and can preserve relationships where the dispute is more about communication than structure.
- Arbitration: Certain legal disputes (for example, whether a deadlock condition has truly arisen, or whether a party breached its obligations) may be referred to institutional arbitration (ICC, ISTAC, etc.). Arbitration can clarify rights and obligations without necessarily forcing an immediate exit.
While mediation and arbitration do not, by themselves, create a new shareholder, they provide a structured framework that reduces opportunistic behaviour and gives investors confidence that deadlock will not simply drift unresolved for years.
6. Practical Comfort for VCs in Turkish 50–50 Deals
To reassure foreign VCs about the paralysis risk in 50–50 Turkish partnerships, a robust package should include:
- A clear list of deadlock matters and time-bound escalation.
- A well-designed shoot-out or Russian roulette mechanism, adapted to the financial strength of each party and Turkish formalities on share transfers.
- Obligations on all partners to take any corporate actions (resolutions, trade registry filings) needed to implement the chosen mechanism.
- A layer of mediation and/or arbitration to resolve interpretative disputes and maintain a rule-based environment.
With these elements, “deadlock (kilitlenme) mechanisms: shoot-out, Russian roulette, mediation & arbitration solutions” become an integral part of the investment structure, turning a potentially paralysing 50–50 partnership into a controlled and predictable risk for foreign venture capital.
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