The due diligence process is completed. The virtual data room has been reviewed. Financial statements have been analysed, litigation schedules checked, tax records examined and the Share Purchase Agreement signed.

The acquisition closes.

Six months later, the buyer discovers something that never appeared in the due diligence materials: an old supplier agreement, an undisclosed lawsuit, an unpaid guarantee, a tax exposure, an employee claim or a substantial contractual liability created before closing.

The buyer may immediately say:

“The seller knew about this debt and never disclosed it. Why should we pay?”

The seller may respond:

“You conducted due diligence. You bought the company with all of its assets and liabilities.”

Both statements contain part of the legal problem.

In Turkish M&A transactions, conducting due diligence does not automatically release the seller from liability for undisclosed liabilities. At the same time, a buyer cannot assume that every liability discovered after closing will automatically produce a claim against the seller.

The result depends largely on what was disclosed, what the buyer knew or should reasonably have discovered, what the seller represented and warranted in the Share Purchase Agreement (“SPA”), whether the seller deliberately concealed the liability, and how the parties contractually allocated the relevant risk.

The practical lesson is simple:

Due diligence identifies risk. The SPA allocates risk.

A sophisticated M&A transaction needs both.

1. In a Share Deal, the Buyer Acquires a Company With Its History

The starting point is the distinction between purchasing a company’s shares and purchasing individual assets.

In a share deal, the legal identity of the target company does not change. The shareholders change, but the company remains the same legal person.

Its existing contractual relationships, liabilities, employees, disputes, public-law obligations and contingent liabilities generally remain with it.

Suppose Buyer purchases 100% of Target A.Ş.

Before the acquisition, Target signed a commercial agreement creating a potential TRY 40 million liability.

The liability is discovered one year after closing.

From the creditor’s perspective, Target A.Ş. remains the debtor.

The fact that the company’s shares now belong to a different shareholder does not ordinarily eliminate the company’s obligation.

The buyer therefore suffers indirectly: it paid for a company believing its economic position was stronger than it actually was.

The buyer’s claim against the seller is consequently a separate contractual or private-law question.

2. A Hidden Liability Can Directly Affect the Value of the Shares

Consider a simplified acquisition valuation.

The buyer believes the target has:

Assets: TRY 300 million

Liabilities: TRY 100 million

Net value: TRY 200 million.

The buyer therefore agrees to purchase all shares for approximately TRY 200 million.

After closing, a previously undisclosed TRY 60 million liability appears.

The real economic position may have been closer to:

Assets: TRY 300 million

Liabilities: TRY 160 million

Net value: TRY 140 million.

The commercial complaint is obvious.

The buyer may argue:

“Had this liability been disclosed during due diligence, we would either have paid a lower purchase price, required an indemnity, placed money into escrow or refused to complete the transaction.”

Turkish law recognises material, legal and economic defects within the general seller-liability regime under Article 219 of the Turkish Code of Obligations (“TCO” or “TBK”). Whether and to what extent those statutory rules apply to a particular share acquisition requires analysis of the structure and terms of the transaction, but an undisclosed liability can clearly create an economic valuation problem.

3. Due Diligence Does Not Mean That the Buyer Accepts Every Unknown Risk

One of the most common seller arguments after closing is:

“You had lawyers and financial advisers. If there was a problem, you should have discovered it.”

This argument is too broad.

Due diligence does not give the buyer unlimited access to reality. The buyer normally examines the information made available by the seller, the target and relevant public sources.

If the seller:

conceals a contract,

omits a litigation file,

withholds correspondence,

fails to upload a guarantee,

removes an adverse tax report,

provides incomplete financial records,

or gives misleading answers to specific due diligence questions,

the seller cannot automatically transform the buyer’s due diligence process into immunity from responsibility.

A buyer cannot discover a document that has deliberately been kept outside the data room.

4. But Due Diligence Can Limit the Seller’s Liability

The opposite is also true.

Article 222 TCO is particularly relevant. As a general rule, a seller is not responsible for defects that the buyer knew when entering into the sale. The provision also addresses defects that would have been identifiable upon adequate examination, subject to the seller having specifically undertaken that such a defect did not exist.

This becomes highly significant in M&A transactions.

Suppose the data room contains a document titled:

“Pending Litigation – Customer X v. Target – Claim Amount TRY 25,000,000.”

The buyer’s lawyers review the document.

The buyer nevertheless closes the transaction without:

requiring a price reduction,

obtaining a specific indemnity,

placing money in escrow,

or making the matter a condition precedent.

After closing, Buyer may have difficulty arguing that the existence of the litigation itself constituted an undisclosed liability.

The liability was disclosed.

The commercial consequence of that disclosure should have been dealt with during negotiations.

5. The Real Dispute Is Often Whether the Liability Was Properly Disclosed

Modern M&A disputes frequently turn not on whether a document technically existed somewhere in the data room, but whether it was fairly disclosed.

Assume a seller uploads 40,000 documents.

One document buried within an unrelated folder contains a two-line reference to a major guarantee given by the target.

After closing, the guarantee is called for TRY 100 million.

The seller argues:

“The document was in the data room.”

The buyer responds:

“You never identified the guarantee, it was not in the disclosed indebtedness schedule, and your SPA expressly stated that the target had issued no undisclosed guarantees.”

The SPA should therefore define what constitutes disclosure.

A sophisticated disclosure standard may require sufficient detail for a reasonable buyer to understand both the nature and material scope of the risk, rather than treating every document technically uploaded to the data room as automatically disclosed.

This is one reason why disclosure letters and disclosure schedules are so important.

6. “Data Room Disclosure” Clauses Can Fundamentally Change the Case

Some SPAs contain broad provisions stating that everything made available in the virtual data room qualifies the seller’s representations and warranties.

From the seller’s perspective, this is attractive.

From the buyer’s perspective, it can be dangerous.

Suppose the seller warrants:

“The Company has no indebtedness other than the indebtedness fairly disclosed in the Disclosure Letter.”

That is substantially safer for the buyer than:

“The Seller shall not be liable for any matter contained anywhere in the Data Room.”

The second formulation potentially turns the entire virtual data room into a defence.

Negotiating what constitutes effective disclosure is therefore almost as important as negotiating the warranty itself.

7. Representations and Warranties Are the Core Protection Against Hidden Liabilities

Due diligence can never uncover every risk.

This is precisely why the seller normally provides representations and warranties.

A well-drafted SPA may contain representations covering the accuracy of financial statements, disclosed indebtedness, litigation, tax, employee liabilities, intellectual property, regulatory compliance, contracts, environmental exposure, guarantees, related-party transactions and contingent liabilities.

For hidden-debt risk, particularly important warranties include statements that:

the financial statements fairly reflect the company’s financial position;

all material liabilities are reflected or adequately provided for;

the company has no undisclosed indebtedness;

there are no undisclosed guarantees, sureties or security interests;

all material contracts have been disclosed;

no material litigation or arbitration exists other than matters identified in the disclosure schedule;

and no circumstances exist that are reasonably expected to create specified liabilities.

Representations and warranties perform the central M&A function of allocating information risk between seller and buyer.

8. A Specific Indemnity Is Stronger Than a General Warranty for a Known Risk

Suppose due diligence identifies suspicious invoices that may create a tax exposure.

The seller says:

“We believe there is no liability.”

The buyer is not convinced.

This risk should not merely disappear into the general tax warranty.

The buyer may require a specific indemnity stating that if the identified matter results in a liability, the seller will reimburse the agreed loss.

The distinction is practical.

A warranty asks whether a stated fact was true.

An indemnity contractually allocates the economic consequence of a specified event.

Therefore, where due diligence identifies a concrete risk that cannot be fully quantified before closing, a specific indemnity may be considerably more effective than arguing about the general warranty several years later.

9. What Happens When the Seller Knew About the Debt and Deliberately Hid It?

The legal position becomes materially more serious where concealment is intentional.

Imagine that before closing:

the target received a formal demand for TRY 30 million;

the seller discussed the matter with external counsel;

management received an opinion stating that the target probably faced significant liability;

the document was excluded from the data room;

and the seller subsequently represented that no material claims existed.

This is no longer merely a case of imperfect due diligence.

It may involve deliberate misrepresentation or fraudulent concealment.

Turkish contract law does not generally protect a party that intentionally creates a false picture to induce the counterparty to contract.

Deliberate concealment can also affect the seller’s ability to rely on ordinary inspection and notification defences. Article 225 TCO restricts an aggravatedly at-fault seller from escaping responsibility by arguing that the buyer failed to give timely defect notification; Court of Cassation case law also treats intentional or seriously culpable conduct within this framework.

For this reason, fraud and wilful misconduct are commonly excluded from ordinary contractual liability caps.

10. The Buyer Should Not Assume That “Hidden” Automatically Means “Seller Is Liable”

A liability discovered after closing is not necessarily a concealed liability.

There may be several possibilities.

The liability may have been genuinely unknown to both parties.

It may have been visible in the financial statements.

It may have been sufficiently disclosed in the data room.

The buyer’s advisers may have identified it in the due diligence report.

The SPA may expressly allocate that risk to the buyer.

The relevant warranty may contain a seller-knowledge qualification.

The claim may fall below a contractual de minimis threshold.

The notification period may have expired.

Or the buyer may be unable to prove that the liability reduced the purchase value or otherwise caused recoverable loss.

Therefore, the litigation must reconstruct not only the liability itself but also the entire acquisition process.

11. A 2024 Court of Cassation Decision Shows How Difficult These Cases Can Become

A particularly useful Turkish decision is Yargıtay 11th Civil Chamber, E. 2023/3513, K. 2024/5674, dated 8 July 2024.

The purchasers alleged that a company whose shares they acquired had entered into a pre-transfer agreement creating a liability, but that the agreement and corresponding obligation had not been disclosed and were not reflected in the company’s records. After the share transfer, litigation relating to the underlying agreement resulted in payment, and the purchasers sought recovery from the former shareholders.

The majority upheld the rejection of the claim on the particular facts. Among other issues, the courts considered the commercial circumstances, the buyers’ ability to investigate the relevant project and the failure to establish the alleged intentional concealment and resulting economic defect sufficiently.

The decision is therefore an important warning:

The mere appearance of an old company liability after closing does not automatically prove seller liability.

Evidence concerning disclosure, knowledge, valuation and causation remains critical.

12. The Dissenting Opinion in the Same Case Is Especially Important for M&A Practice

The dissenting opinion in the same judgment directly addressed the economic consequences of liabilities omitted from financial records.

It reasoned that the value of company shares is determined by reference to the company’s net assets and that a pre-existing liability absent from the balance sheet and financial statements could negatively affect the value of the transferred shares.

The dissent emphasized the importance of financial statements accurately reflecting the company’s real economic position and argued that the effect of the undisclosed debt on share value should have been determined through expert examination.

This illustrates one of the central issues in hidden-liability litigation:

The claimant should not merely prove:

“A debt existed.”

The claimant should also establish:

“Because this debt was not disclosed, the shares were economically worth less than the price we paid, or we otherwise suffered a contractually recoverable loss.”

13. The Buyer’s Duty to Act Prudently Cannot Become a Licence to Conceal Information

Article 18/2 of the Turkish Commercial Code requires merchants to act as prudent businesspersons in commercial activities.

Sellers frequently rely upon this principle.

They argue that a sophisticated corporate buyer should investigate thoroughly before acquiring a business.

That principle is relevant, but it should not be exaggerated.

The prudent-merchant obligation does not logically mean that a seller may maintain inaccurate financial information and then argue:

“You should somehow have discovered what our own records did not show.”

Indeed, the dissenting opinion in Yargıtay 11th Civil Chamber’s 2024 decision specifically criticised imposing an unlimited investigation burden beyond the company’s financial records and balance sheet in the circumstances of that case.

For transactional practice, the safest approach is therefore not to rely on abstract statutory arguments.

The SPA should say exactly who bears the relevant risk.

14. Knowledge Qualifiers Can Decide the Outcome

Consider two warranties.

First:

“There are no circumstances that may result in litigation against the Company.”

Second:

“So far as the Seller is aware, there are no circumstances that may result in litigation against the Company.”

These clauses are not equivalent.

The second introduces a knowledge qualifier.

This creates further questions.

Whose knowledge counts?

Only the selling shareholder?

The CEO?

The CFO?

Directors?

Senior management?

External counsel?

And does “knowledge” mean actual knowledge only, or knowledge that would have arisen after reasonable enquiry?

A properly drafted SPA should define the seller’s knowledge precisely.

Otherwise, hidden-liability litigation can turn into a separate dispute about who knew what and when.

15. Due Diligence Questionnaires Are Evidence, Not Merely Transaction Administration

Before closing, buyers frequently send detailed questionnaires.

For example:

“Please identify all loans, guarantees, sureties, pending claims and contingent liabilities exceeding TRY 1 million.”

Seller responds:

“None other than those disclosed.”

Two years later, an undisclosed TRY 20 million guarantee appears.

That written response can become highly important evidence.

For this reason, every material question, response and data-room update should be preserved.

In a post-closing dispute, the due diligence record may establish that:

the buyer specifically asked about the issue;

the seller gave a negative response;

the relevant information was available to the seller;

and the liability was nevertheless omitted.

A carefully documented due diligence process therefore strengthens rather than weakens the buyer where the seller has provided inaccurate information.

16. Disclosure Should Be Frozen at Signing or Closing

Virtual data rooms change continuously.

Documents may be added shortly before signing.

Files may be replaced.

Folders may be reorganised.

In a later dispute, the parties may disagree about exactly what was available to the buyer.

A good acquisition process should therefore preserve a definitive copy of the data room at the relevant transaction date.

The parties can maintain a data-room index or downloadable archive showing:

file names,

folder structure,

upload dates,

document versions,

and the final disclosure set.

Without such evidence, a seller may later say:

“We uploaded it.”

while the buyer says:

“It was never there.”

The litigation then becomes unnecessarily evidentially difficult.

17. The Buyer Should Also Preserve the Due Diligence Report

A due diligence report may become uncomfortable evidence for either side.

If the report states:

“We identified a possible TRY 15 million liability under Contract X,”

the seller may argue that the buyer entered the transaction with full knowledge of the risk.

By contrast, if the report states:

“No litigation, guarantees or material contingent liabilities were disclosed despite specific request,”

that may support the buyer.

The SPA and due diligence report should therefore be coordinated.

Known risks should be:

priced,

indemnified,

made subject to closing conditions,

covered through escrow,

or expressly allocated to one party.

Leaving a known red flag unresolved creates unnecessary post-closing litigation.

18. When Must the Buyer Notify the Seller?

Timing can be critical.

Under the statutory defect regime, Article 223 TCO contains inspection and notification requirements, including an obligation to notify a subsequently discovered hidden defect promptly.

An SPA may also contain its own contractual claims procedure.

For example, the agreement may require the buyer to provide:

written notice within a specified period;

reasonable details of the claim;

an estimate of the amount;

supporting documentation;

notice of third-party proceedings;

and an opportunity for the seller to participate in the defence.

A buyer discovering a hidden liability should therefore review the SPA immediately.

Waiting until the amount has been finally paid can sometimes create avoidable procedural arguments.

19. How Is the Buyer’s Loss Calculated?

This is one of the most complex parts of a hidden-liability dispute.

Suppose a TRY 50 million liability appears.

Does the seller automatically owe TRY 50 million?

Not necessarily.

The answer depends heavily on the SPA.

One agreement may provide a dollar-for-dollar indemnity.

Another may define loss by reference to the reduction in the value of the shares.

Another may exclude indirect or consequential losses.

Another may apply a basket or cap.

Another may allow recovery only if the target actually pays the debt.

For claims based on overpayment, expert valuation may become essential.

The expert may need to determine:

What would a reasonable buyer have paid for the shares on the closing date if the hidden liability had been properly disclosed?

That hypothetical valuation can be very different from simply taking the face amount of the debt.

20. Seller Liability Is Usually Subject to Contractual Limitations

Sophisticated SPAs rarely create unlimited seller exposure for every warranty breach.

The agreement may contain:

a de minimis threshold, excluding very small claims;

a basket, under which claims become recoverable only after an aggregate threshold is exceeded;

a cap, limiting total seller liability;

different caps for different warranties;

specific survival periods;

special rules for tax;

and carve-outs for fraud, title and deliberate concealment.

For example:

General warranty claims may be capped at 20% of the purchase price.

Tax claims may be capped at 100%.

Title warranties may be uncapped.

Fraudulent concealment may fall outside all contractual caps.

These provisions can be more decisive than the abstract question of whether the liability was “hidden.”

21. Escrow Is Often More Valuable Than a Perfect Indemnity Clause

A buyer may win the legal argument and still fail economically.

Suppose the seller owes TRY 50 million under an indemnity.

But after closing, the seller transferred the entire purchase price abroad and owns no significant assets in Türkiye.

The buyer now has a strong contractual claim against an insolvent defendant.

This is why uncertain liabilities identified during due diligence are often addressed through:

escrow, holdback, deferred consideration or bank security.

A contractual right is only as useful as the buyer’s ability to enforce it.

22. Hidden Liabilities Can Take Many Forms

The phrase “hidden debt” should not be interpreted only as an unpaid bank loan.

In an M&A transaction, economically significant undisclosed liabilities may arise from many sources.

A target may have undisclosed litigation, customer refund obligations, employee claims, unpaid bonuses, tax reassessments, SGK liabilities, environmental remediation exposure, guarantees issued for affiliated companies, contractual penalties, distributor termination compensation, intellectual-property infringement claims, leases containing termination payments, related-party debts or regulatory penalties.

The SPA should therefore not protect the buyer only against debts already entered in the company’s accounting ledger.

The more important risks are often contingent liabilities that have not yet crystallised into payable debt at closing.

23. An Undisclosed Guarantee Can Be More Dangerous Than an Ordinary Debt

Assume the target guaranteed TRY 100 million of debt owed by the seller’s affiliated company.

No payment is currently due from the target.

The balance sheet may therefore not show an ordinary payable of TRY 100 million.

After closing, the affiliated company defaults.

The lender demands payment from the target.

The buyer suddenly owns a company exposed to a liability created for the economic benefit of the former shareholder’s corporate group.

For this reason, the SPA should contain specific representations concerning:

guarantees,

sureties,

security interests,

letters of comfort,

and liabilities securing third-party obligations.

A generic “no outstanding debt” warranty may not be sufficiently precise.

24. Related-Party Transactions Require Special Scrutiny

Many hidden liabilities originate from dealings with the seller’s affiliates.

Before closing, the target may have:

guaranteed a sister company’s loan;

made advances to the seller;

entered into below-market leases;

assumed obligations for another group company;

provided free services to affiliates;

or signed long-term supply agreements benefiting the seller’s wider group.

These arrangements should be separately identified in due diligence and dealt with in the SPA.

A common closing condition is that specified related-party balances and guarantees must be terminated or settled before the buyer acquires control.

25. What Should the Buyer Do Immediately After Discovering a Hidden Liability?

The buyer should avoid reacting only commercially.

The first response should be both evidential and contractual.

A practical post-closing strategy generally involves:

1. Preserving the evidence. Secure the relevant contract, accounting entries, emails, data-room archive, due diligence questions, disclosure letter and financial statements.
2. Identifying when the liability arose. Determine whether the underlying event occurred before or after closing.
3. Reviewing the SPA. Examine warranties, indemnities, disclosure provisions, knowledge qualifiers, liability caps, baskets, survival periods and notification requirements.
4. Determining what the seller knew. Review management correspondence, board minutes, adviser communications and prior claims.
5. Sending a compliant claim notice. Follow the SPA’s notice mechanics rather than relying only on informal correspondence.
6. Quantifying the loss. Determine whether the claim is for the amount paid, diminution in share value, contractual indemnification or another measure of damages.
7. Considering interim protection. If there is a genuine risk that the seller will dissipate assets, assess whether provisional judicial protection is legally available.
8. Avoiding unnecessary admissions to third parties. If the liability is disputed, coordinate the defence of the underlying claim with the indemnity procedure under the SPA.

26. The Best SPA Anticipates the Dispute Before It Happens

A buyer should not rely on the sentence:

“The Seller is responsible for all hidden debts.”

That wording creates more questions than answers.

What is a “hidden” debt?

Does the buyer’s knowledge matter?

Is a contingent liability a debt?

Does the provision cover penalties and interest?

What if a document was somewhere in the data room?

When must the claim be notified?

Is seller liability capped?

What if the seller acted fraudulently?

Who controls third-party litigation?

When does the indemnity become payable?

A professional M&A agreement answers these questions in advance.

27. Due Diligence and Warranties Should Work Together, Not Against Each Other

There are two opposite drafting mistakes.

The first is the seller saying:

“You performed due diligence, therefore we give almost no warranties.”

The second is the buyer saying:

“We have strong warranties, therefore detailed due diligence is unnecessary.”

Both approaches are dangerous.

Due diligence allows the buyer to identify known risks before money changes hands.

Representations, warranties and indemnities protect against risks that remain unknown or are specifically allocated to the seller.

The best transaction uses the due diligence findings to determine:

what should reduce the purchase price;

what should be corrected before closing;

what requires a specific indemnity;

what requires escrow;

what can be accepted;

and what should cause the buyer to walk away.

Conclusion: Due Diligence Is Not a Waiver of the Seller’s Duty to Tell the Truth

The fact that a buyer conducted extensive legal and financial due diligence does not give a seller the right to conceal liabilities.

At the same time, due diligence affects what the buyer knew, what the buyer could reasonably have discovered and which risks were commercially accepted before closing. Article 222 TCO makes the buyer’s knowledge relevant, while Turkish commercial law also expects merchant parties to act prudently.

The strongest hidden-liability claim therefore does not simply say:

“We found a debt after closing.”

It demonstrates:

the liability existed or originated before closing;

it was not fairly disclosed;

the seller represented that no such liability existed or expressly agreed to indemnify it;

the buyer did not knowingly assume the risk;

the liability caused a measurable economic loss;

and, where applicable,

the seller knew of the liability and deliberately concealed it.

The 2024 decision of Yargıtay 11th Civil Chamber demonstrates that these disputes can be difficult where the contractual and evidential foundations are weak. The same judgment’s dissenting opinion also highlights the fundamental economic reality that liabilities omitted from a company’s financial position may directly reduce the real value of the shares purchased.

For M&A practitioners, the safest principle is therefore:

Do not treat due diligence as the final protection against hidden liabilities. Treat it as the process that tells you what protections must be written into the SPA.

A properly negotiated acquisition should make the answer to the most important post-closing question clear before the deal closes:

If a pre-closing liability appears after the acquisition, who has agreed to bear the economic cost?