Franchise Business Restructuring, Insolvency and Bankruptcy in Turkey

on July 21, 2026

Introduction

Financial distress in a franchise business rarely affects only the franchisee and its shareholders.

A single outlet may be connected to a wider commercial structure involving the franchisor, landlord, banks, employees, approved suppliers, delivery platforms, payment service providers, customers and guarantors.

The financial failure of one operator may therefore create consequences across the complete franchise network.

An insolvent franchisee may be unable to:

Pay royalties and advertising contributions;
Purchase mandatory products;
Meet payroll and social security obligations;
Pay commercial rent;
Maintain required insurance;
Complete mandatory refurbishment;
Operate the approved technology systems;
Honour customer vouchers, deposits or prepaid services;
Continue operating in accordance with brand standards.

The franchisor may wish to protect the trademark, preserve customer confidence and transfer the outlet to another operator. The landlord may want payment of arrears and security for future rent. Banks may enforce pledges, guarantees or account security. Employees may be concerned about unpaid wages and continued employment.

At the same time, an abrupt termination of the franchise agreement may destroy the value of a business that could otherwise be rescued.

The principal value of many franchise outlets does not arise only from furniture, equipment and inventory. It arises from the continuing combination of:

Trademark licence;
Approved location;
Trained employees;
Commercial lease;
Customer base;
Supplier access;
Operational systems;
Business goodwill.

If these elements are separated prematurely, creditors may recover less than they would through a restructuring or going-concern sale.

Franchise insolvency law in Türkiye therefore requires coordination between franchise law and mandatory insolvency rules.

As of July 2026, Turkish restructuring and bankruptcy proceedings remain governed principally by Enforcement and Bankruptcy Law No. 2004 and the relevant provisions of the Turkish Commercial Code. The Ministry of Justice published a comprehensive draft Cebrî İcra Kanunu in July 2025 and invited opinions until 31 January 2026, but that text remains a legislative draft and should not be treated as current law.

The principal formal rescue procedure is konkordato, commonly translated as concordat.

Bankruptcy postponement, known as iflasın ertelenmesi, was removed from the ordinary restructuring framework. Article 377 of the Turkish Commercial Code now permits the board of directors or a creditor to request concordat together with, or during, proceedings arising from the over-indebtedness notification under Article 376.

This article examines franchise business restructuring, concordat and bankruptcy in Turkey from the perspective of franchisors, franchisees, shareholders, directors and creditors.

Financial Distress Is Not the Same as Insolvency

A franchise business may experience financial distress before it becomes legally insolvent or over-indebted.

Temporary cash-flow pressure may arise from:

Seasonal demand;
Delayed opening;
Unexpected construction costs;
Excessive commercial rent;
Inflation;
Foreign-currency liabilities;
Supplier disruption;
Regulatory closure;
Litigation;
Loss of a key manager;
Underperforming locations.

A company experiencing temporary difficulty may still have assets exceeding its liabilities and a viable business model.

By contrast, more serious warning signs may include:

Repeated inability to pay due debts;
Unpaid wages or taxes;
Enforcement proceedings by several creditors;
Persistent negative working capital;
Loss of supplier credit;
Default under bank facilities;
Acceleration of lease or financing obligations;
Capital loss under Article 376 of the Turkish Commercial Code;
Assets becoming insufficient to cover liabilities.

The legal response should depend on the actual financial condition.

A viable franchise business suffering a temporary liquidity problem may be rescued through consensual restructuring. A business with no realistic route to profitability may require an orderly sale, closure or formal insolvency process.

Delaying analysis often reduces the available options.

Early Warning Systems for Franchise Businesses

Franchisors and multi-unit franchisees should monitor financial distress through objective indicators rather than waiting for payment default.

Possible warning indicators include:

Declining sales over several reporting periods;
Persistent negative cash flow;
Increasing payment delays;
Reduced inventory;
Failure to complete repairs;
Employee turnover;
Unpaid advertising contributions;
Requests to delay royalty payments;
Declining customer reviews;
Failure to submit financial statements;
Disconnection of utilities;
Landlord or supplier notices.

A franchisor should not use every negative indicator as an immediate termination trigger.

The objective should be to identify whether the problem is:

Temporary;
Outlet-specific;
Management-related;
Caused by the location;
Caused by network-wide supply or pricing issues;
Capable of correction.

Early intervention may preserve the outlet without compromising the franchisor’s rights.

Duties of the Board Under Article 376 of the Turkish Commercial Code

Directors and managers cannot treat severe financial distress solely as a shareholder issue.

Article 375 of the Turkish Commercial Code identifies financial planning and notification of over-indebtedness among the board’s non-transferable responsibilities.

Article 376 then establishes specific duties when capital is lost or signs of over-indebtedness appear.

Where half of the total share capital and statutory reserves has become uncovered by losses, the board must immediately convene the general assembly and present appropriate remedial measures.

Where two-thirds has become uncovered, the general assembly must take one of the statutory capital measures; otherwise, the company faces automatic termination under the wording of the provision.

Where signs indicate that the company may be over-indebted, the board must arrange interim balance sheets based both on the going-concern principle and on probable sale values.

If the assets do not cover creditor claims, the board must notify the competent commercial court and request bankruptcy unless a legally sufficient subordination arrangement covering the deficit has been established and validated through the statutory process.

These duties apply with particular importance to franchise companies because the ordinary balance sheet may not reflect the full vulnerability of the business.

A valuable outlet may depend on a franchise licence that can be terminated. Equipment may have limited resale value outside the franchise format. Leasehold improvements may not be recoverable. Inventory may be branded or perishable.

Boards should therefore assess both accounting figures and operational reality.

Practical Board Measures During Financial Distress

The board should document its response through properly prepared resolutions and supporting records.

Possible measures include:

Thirteen-week cash-flow forecasts;
Updated balance sheets;
Store-by-store profitability analysis;
Negotiations with banks and landlords;
Temporary royalty relief;
Capital increase;
Shareholder loans;
Subordination of shareholder claims;
Closure or sale of unprofitable outlets;
Reduction of management expenses;
Supplier renegotiation;
Preparation for concordat.

The board should preserve evidence showing:

When distress was identified;
Which alternatives were examined;
Which professional advice was obtained;
Why the selected action was considered reasonable;
Whether related-party transactions were reviewed independently.

Transactions favouring shareholders, group companies or selected creditors require particular caution when insolvency is approaching.

Out-of-Court Restructuring

A formal court process should not necessarily be the first response.

Out-of-court restructuring allows the company and its principal creditors to negotiate a solution without commencing concordat or bankruptcy proceedings.

Possible restructuring terms include:

Extension of debt maturities;
Reduction of interest;
Temporary payment holidays;
Partial debt forgiveness;
Conversion of debt into equity;
Capital increase;
Shareholder funding;
Sale of non-core assets;
Transfer of loss-making outlets;
Royalty deferral;
Rent reduction;
Supplier credit;
New working-capital finance.

The principal advantage is flexibility.

The parties can structure different terms for different creditors, subject to mandatory law and the risks created by unequal or prejudicial transactions.

The principal weakness is that a consensual restructuring normally binds only the parties that accept it.

One dissenting creditor may continue enforcement unless it agrees to a standstill or a formal statutory protection applies.

Standstill Agreements

A standstill agreement temporarily limits enforcement while the debtor prepares a restructuring plan.

It may regulate:

Suspension of enforcement;
Duration;
Information rights;
Payment of current expenses;
Preservation of security;
New financing;
Events ending the standstill;
Confidentiality.

A franchise-specific standstill may involve:

Franchisor;
Banks;
Landlord;
Principal suppliers;
Shareholders.

The company should not promise incompatible terms to different creditors.

The standstill should also distinguish historic arrears from new obligations arising during continued operation.

Restructuring the Franchise Agreement

The franchise agreement may itself need to be restructured.

Possible temporary amendments include:

Deferral of royalties;
Reduction of minimum royalties;
Suspension of development obligations;
Temporary advertising contribution reduction;
Longer cure periods;
Relocation;
Closure of specified outlets;
Revised supplier obligations;
Removal of contractual penalties;
Permission to sell one or more units.

Any concession should be documented in writing.

The amendment should state:

Amount and period of relief;
Whether deferred amounts remain payable;
Interest;
Conditions;
Reporting;
Termination;
Effect on guarantees;
Whether rights are reserved.

An informal acceptance of late payments over several months may later create disputes about waiver, contractual practice or good faith.

Royalty Relief

Royalty relief may help a viable outlet survive, but it should not merely delay an unavoidable failure.

The franchisor should examine:

Store-level contribution margin;
Rent burden;
Labour cost;
Supplier pricing;
Debt service;
Management capability;
Working-capital needs.

Possible structures include:

Fixed temporary reduction;
Turnover-based sliding scale;
Deferral followed by instalments;
Conversion of debt into a longer-term note;
Waiver conditional on meeting a recovery plan.

The franchisor should avoid providing undisclosed preferential terms where differential treatment may create network or creditor disputes.

Shareholder Funding and Subordination

Shareholders may contribute additional capital or provide loans.

Capital provides stronger balance-sheet support but may dilute existing ownership.

Shareholder loans may be faster and more flexible, although they increase liabilities unless subordinated or converted.

Under Article 376, certain creditor subordination arrangements may prevent an immediate bankruptcy notification only where they cover the relevant deficit and satisfy the statutory verification requirements. A simple informal statement that shareholders will be paid later is not equivalent to a legally sufficient subordination agreement.

The documents should address:

Principal;
Interest;
Maturity;
Subordination;
Security;
Conversion;
Repayment restrictions;
Treatment in concordat or bankruptcy.

Multi-Unit Franchisee Restructuring

A multi-unit franchisee may operate profitable and unprofitable locations simultaneously.

The restructuring should therefore be conducted outlet by outlet.

The analysis should consider:

Sales;
Rent;
remaining lease term;
Employee liabilities;
Refurbishment requirements;
Local competition;
Equipment value;
Transferability;
Required licences.

A profitable outlet should not necessarily be sacrificed because another location has failed.

However, legal separation through different operating companies may offer limited protection where:

Parent guarantees exist;
Cross-default clauses apply;
Cash is pooled;
Assets are transferred without market value;
The franchisor has portfolio-wide termination rights.

The franchisor and franchisee should consider whether cross-default should be waived or narrowed during restructuring.

Sale of Individual Outlets

A sale may preserve more value than closure.

The transaction may be structured as:

Share transfer;
Business transfer;
Asset sale;
Lease assignment;
Transfer to another franchisee;
Franchisor step-in.

The sale should address:

Franchisor approval;
Buyer qualification;
Franchise licence;
Lease transfer;
Employees;
Inventory;
Equipment;
Customer obligations;
Permits;
Data;
Guarantees.

A buyer should not pay for an outlet before confirming that it will receive both the right to occupy the premises and the right to use the brand.

Franchise Agreement Insolvency Clauses

Franchise agreements commonly state that insolvency, bankruptcy, concordat or enforcement against the franchisee constitutes a termination event.

These clauses require careful drafting.

An insolvency clause may distinguish:

Mere financial deterioration;
Application for concordat;
Grant of temporary moratorium;
Appointment of a commissioner;
Final confirmation;
Opening of bankruptcy;
Insolvency of a guarantor;
Insolvency of a parent company.

The agreement should also distinguish termination based solely on the commencement of a formal process from termination based on an independent material breach.

This distinction is essential during concordat.

Concordat as a Rescue Procedure

Article 285 of the Enforcement and Bankruptcy Law permits a debtor that cannot pay due debts, or is at risk of being unable to pay them when due, to request concordat to obtain maturity extensions, reductions or another payment arrangement and to avoid probable bankruptcy.

A creditor entitled to request bankruptcy may also apply for commencement of concordat proceedings. The competent court is the commercial court identified under the statutory jurisdiction rules.

A franchisee does not need to wait until every payment has stopped.

The risk of future inability to pay may be sufficient where supported by financial evidence.

Concordat should nevertheless not be used only as a method of postponing creditors without a viable restructuring project.

Documents Required for Concordat

The debtor must present a credible preliminary project.

The statutory documents include information showing:

Proposed payment percentage or maturity;
Financing source;
Whether assets will be sold;
Capital or credit to be obtained;
Current financial position;
Creditors and their claims;
Privilege status;
Comparison between projected concordat recovery and probable bankruptcy recovery;
Required financial analysis.

Financial statements must include both going-concern and probable sale-value perspectives where required.

For a franchise business, the preliminary project should also address:

Continuation of the franchise agreement;
Franchise and technology fees;
Supply continuity;
Commercial leases;
Outlet closures;
Employee costs;
Renewal and refurbishment obligations;
Brand approvals;
New financing.

A project based on continued use of the trademark is not credible if the franchisor has lawfully terminated the licence for an independent reason or refuses to support the restructuring.

Temporary Moratorium

When the statutory application documents are complete, the court grants a temporary moratorium and appoints a temporary concordat commissioner to evaluate whether the restructuring can succeed.

The temporary moratorium is three months and may be extended by no more than two additional months. Its total duration cannot exceed five months.

The temporary moratorium produces the effects of the final moratorium.

The debtor should use this period to:

Stabilise operations;
Negotiate with creditors;
Confirm supplier support;
Review leases;
Secure working capital;
Finalise financial forecasts;
Correct accounting deficiencies.

Final Moratorium

Where the court determines that concordat may succeed, it grants a one-year final moratorium.

In difficult circumstances, the period may be extended by up to six months in accordance with the statutory procedure. A creditors’ committee may also be formed depending on the number, amount and nature of claims.

The moratorium is not a period in which management can operate without control.

The business continues under commissioner supervision, and the court may impose additional restrictions.

Effect of the Moratorium on Enforcement

During the moratorium, enforcement proceedings against the debtor generally cannot be commenced, and existing proceedings stop.

The stay also covers proceedings under Law No. 6183 concerning public receivables, subject to the statutory exceptions. Interim attachment and precautionary attachment decisions are not implemented.

Unless the confirmed project provides otherwise, interest on unsecured claims stops from the final moratorium date.

This protection gives the franchisee time to restructure without facing separate enforcement by every creditor.

However, it does not eliminate the underlying debts.

Secured Creditors

Secured creditors receive different treatment.

During the moratorium, proceedings for enforcement of security may be commenced or continued, but preservation measures cannot be taken and the secured asset cannot be sold during the protected period.

A franchise business should identify all secured obligations, including:

Bank pledges;
Commercial enterprise pledges;
Vehicle security;
Equipment financing;
Receivables security;
Share pledges;
Mortgages.

The concordat project may also propose restructuring secured debts.

Where the statutory majority exceeding two-thirds by amount of secured claims is achieved, the agreed structure may be included in the confirmation framework under Article 308/h.

Protection of Essential Contracts

Article 296 has particular importance for franchise businesses.

Where a contract is important for continuation of the debtor’s business, a clause providing that the concordat application itself constitutes breach, termination grounds or acceleration cannot be applied solely because the debtor applied for concordat.

Even where the contract contains no such clause, it cannot be terminated merely because the debtor applied for concordat.

This rule may be relevant to:

Franchise agreements;
Commercial leases;
Critical supply contracts;
Technology licences;
Payment services;
Utility or logistics arrangements.

It does not necessarily protect the debtor from termination based on every independent default.

For example, serious trademark misuse, public health violations or another material breach unrelated to the concordat application may require separate examination.

The key question is whether termination is based solely on the concordat filing or on an independent and legally effective ground.

Can the Franchise Agreement Be Terminated During Concordat?

The answer depends on the facts.

Where the franchise agreement is essential to continuation of the business, the franchisor should not rely only on a clause stating that a concordat application automatically terminates the agreement.

The franchisor may still need to evaluate:

Pre-existing unpaid royalties;
Continuing non-payment;
Misuse of trademarks;
Failure to maintain licences;
Health and safety breaches;
Abandonment of the outlet;
Unauthorised transfer;
Commissioner-approved performance.

Termination during the moratorium should be reviewed carefully before notice is sent.

An invalid termination may destroy the restructuring and expose the terminating party to claims.

Termination of Burdensome Continuing Contracts

Article 296 also permits the debtor to terminate continuing contracts that prevent the concordat from achieving its objective, subject to the commissioner’s favourable opinion and court approval.

Compensation arising from such termination becomes subject to the concordat project. Special rules concerning employment contracts remain reserved.

This mechanism may be relevant where the franchisee is bound by:

Excessively burdensome lease;
Unnecessary software agreement;
Unprofitable supply arrangement;
Service contract preventing recovery.

The provision does not give management an unrestricted right to cancel every unfavourable contract.

Commissioner opinion and court approval are required.

Operation Under Commissioner Supervision

The debtor generally continues operating under commissioner supervision.

The court may require specified transactions to receive commissioner approval or may authorise the commissioner to operate the business in place of management.

Without court permission, the debtor cannot establish pledges, provide guarantees, transfer or encumber real estate or permanent business installations, or make gratuitous dispositions.

Transactions made contrary to these restrictions are ineffective.

A franchisee in concordat should therefore not attempt to:

Transfer an outlet;
Grant new security;
Sell substantial equipment;
Guarantee group-company debt;
Transfer valuable assets to shareholders;

without checking the required approvals.

The franchisor should also verify the commissioner’s and court’s authority before accepting a transfer or restructuring involving protected assets.

New Financing During Concordat

A franchise business may need new working capital to continue operating.

Possible funding sources include:

Shareholders;
Banks;
Franchisor;
Suppliers;
Prospective buyer;
Existing secured lenders.

Debts incurred during the moratorium with commissioner approval are not subject to the ordinary concordat terms in an ordinary concordat. In a later bankruptcy, the statute may give them the treatment of estate liabilities under the stated conditions.

This framework may encourage rescue financing.

The financing documents should clearly identify:

Commissioner approval;
Purpose;
Amount;
Priority consequences;
Security;
Repayment;
Use of proceeds.

Current Rent, Supply and Royalty Payments

The restructuring must distinguish pre-application debt from obligations arising during continued operation.

Historic royalty, rent or supplier arrears may be included in the project according to their legal status.

New obligations arising from continued use of premises, goods, systems and trademarks must be addressed separately.

A viable project should budget for:

Current rent;
Payroll;
Current supplies;
Utilities;
Insurance;
Technology;
Brand fees required for continued operation.

A debtor cannot build a credible rescue plan by continuing to incur unpaid operating costs.

Public Receivables

The moratorium generally prevents enforcement under Law No. 6183 during the protected period.

However, Article 308/c excludes public receivables governed by Law No. 6183 from the ordinary binding effect that applies to pre-request and unauthorised moratorium claims.

Public receivables therefore require a separate restructuring and payment analysis.

Tax and social security debts should not be treated as automatically reduced merely because an ordinary concordat project is confirmed.

Creditor Claims and Voting

Creditors are invited to notify their claims within the statutory period.

A creditor that fails to notify may be excluded from project deliberations unless the claim appears in the debtor’s balance sheet.

The commissioner reviews the claims through the debtor’s books and explanations.

The franchisor should register all relevant claims, including:

Unpaid royalties;
Advertising contributions;
Technology fees;
Supply receivables;
Contractual compensation;
Audit adjustments.

The amount and legal basis should be documented carefully.

Inflated or unsupported claims may be disputed.

Concordat Voting Majorities

The project is accepted where it receives one of the alternative statutory majorities:

More than half of registered creditors and more than half of registered claims; or
More than one-quarter of registered creditors and more than two-thirds of registered claims.

Only creditors affected by the project vote.

Secured creditors participate for the unsecured portion determined under the applicable valuation rules.

A franchisee preparing a project should identify the likely voting position of:

Franchisor;
Banks;
Landlord;
Suppliers;
Shareholders;
Tax authorities;
Employees.

Guarantees and Co-Debtors

Franchise obligations are frequently supported by:

Shareholder guarantees;
Personal suretyships;
Parent-company guarantees;
Joint debtors;
Bank guarantees.

Concordat of the franchisee does not automatically mean that every guarantor receives identical protection.

Article 303 preserves specified rights against persons jointly responsible for the debt and regulates the position of creditors that approve the project.

Every guarantee should therefore be analysed separately.

The restructuring documents should expressly address:

Continued enforcement;
Release;
Reduction;
Payment rights;
Subrogation;
Voting;
Contribution claims.

Confirmation and Binding Effect

A concordat generally becomes binding with the confirmation decision unless the confirmed project states that binding effect begins when the decision becomes final.

The confirmed project binds claims arising before the request and claims arising during the moratorium without commissioner approval, subject to statutory exceptions.

Exceptions include:

First-ranking privileged claims;
Secured claims to the extent covered by the security value;
Public receivables under Law No. 6183.

The confirmation decision should be read together with the final project.

The franchisor should not assume that every claim has been reduced at the same rate.

Failure of the Concordat Project

Concordat may fail where:

The project is not viable;
Required majorities are not obtained;
Confirmation requirements are not satisfied;
The debtor violates restrictions;
The commissioner’s instructions are ignored;
The financial condition deteriorates further.

Where the debtor is subject to bankruptcy and statutory grounds exist, rejection or removal of the moratorium may lead to bankruptcy.

A confirmed concordat may also be challenged or terminated under the statutory conditions where the debtor fails to perform or where the process was affected by bad faith.

Bankruptcy of the Franchisee

When bankruptcy opens, all attachable assets of the bankrupt debtor, wherever located, form the bankruptcy estate and are allocated to satisfaction of creditors.

The estate may include:

Equipment;
Inventory;
Receivables;
Vehicles;
Bank balances;
Shares;
Intellectual property owned by the franchisee;
Transferable contractual rights;
Other attachable property.

The estate does not automatically acquire ownership of the franchisor’s trademark merely because the bankrupt franchisee used it.

The franchisee’s right to use the trademark depends on the franchise and licence documents and the applicable mandatory insolvency rules.

Continued Operation During Bankruptcy

Bankruptcy does not always require immediate closure of every business activity.

The bankruptcy administration may temporarily continue stores, production places or other business premises where continued operation is beneficial to the estate.

Creditors may also take decisions concerning continuation of the bankrupt’s trade or business.

For a franchise outlet, temporary continuation may preserve:

Inventory value;
Employment;
Customer obligations;
Going-concern sale value;
Lease position;
Business reputation.

Continued use of the trademark requires a valid legal basis.

The bankruptcy administration cannot assume unlimited brand rights merely because continuation would benefit creditors.

Sale as a Going Concern

Turkish enforcement legislation permits assets and rights forming a commercial or economic unity, or producing greater proceeds when sold together, to be realised as a whole.

This principle may support a going-concern sale rather than fragmented sale of equipment and inventory.

A franchise outlet sale may package:

Equipment;
Inventory;
Lease rights;
Employee organisation;
Customer relationships;
Local permits;
Franchise approval.

However, rights belonging to third parties cannot be transferred without the necessary legal or contractual basis.

The franchisor and landlord may need to approve the buyer.

Claim Registration in Bankruptcy

Franchisors, landlords, suppliers and other creditors should monitor bankruptcy announcements and register their claims with supporting evidence.

The claim file may include:

Franchise agreement;
Invoices;
Account statements;
Royalty reports;
Notices;
Guarantees;
Court or arbitration decisions;
Evidence of interest and costs.

The bankruptcy administration examines the claims and prepares a ranking schedule according to the statutory framework.

Late or disputed claims may create additional procedural steps and costs.

Franchise Agreement After Bankruptcy

The franchise agreement should regulate the consequences of bankruptcy, but mandatory insolvency law remains relevant.

The agreement may address:

Termination;
Temporary continued use;
De-branding;
Inventory sale;
Equipment removal;
Customer communication;
Data return;
Domain names;
Social-media accounts;
Transfer to a replacement franchisee.

The franchisor should avoid actions that may be characterised as taking estate assets without authority.

For example, equipment owned by the franchisee should not be removed merely because it carries brand colours.

Ownership and contractual removal rights should be verified.

Trademark and De-Branding

After the franchise licence ends, continued trademark use may infringe the franchisor’s industrial property rights.

The franchisor may require removal of:

Signs;
Logos;
Menus;
Packaging;
Uniforms;
Digital branding;
Website references;
Social-media content.

The timing should be coordinated with the bankruptcy administration.

Immediate de-branding may be necessary to prevent consumer confusion, but unnecessary destruction of estate property should be avoided.

The parties may agree that the franchisor purchases branded materials or assists with neutralisation.

Inventory

Inventory may include:

Branded products;
Perishable products;
Proprietary packaging;
Products supplied on retention-of-title terms;
Goods owned by third parties;
Ordinary marketable stock.

The agreement should regulate whether branded inventory may be:

Sold during a short wind-down;
Repurchased by the franchisor;
Transferred to another franchisee;
De-branded;
Destroyed where legally required.

Food safety, expiry dates and product-recall requirements continue to apply.

Commercial Leases

The lease may be one of the most valuable or burdensome assets of the outlet.

The restructuring analysis should examine:

Remaining lease term;
Rent arrears;
Deposit;
Assignment rights;
Landlord consent;
Personal guarantees;
Restoration obligations;
Franchise use restrictions;
Sublease rights.

During concordat, Article 296 may protect an essential lease from termination based solely on the concordat filing.

In bankruptcy, continuation, termination and transfer require a separate analysis under the lease and mandatory insolvency rules.

A buyer should not assume that purchasing outlet assets automatically transfers the lease.

Employees

Employees are often essential to preserving the value of a franchise outlet.

Restructuring should address:

Current wages;
Accrued rights;
Employee transfer;
Closure;
Continued operation;
Management retention;
Training;
Workplace registrations.

Article 296 expressly preserves the special rules concerning termination of employment contracts.

Employment liabilities should therefore be analysed under both insolvency and labour law rather than treated as ordinary commercial contracts.

Supplier Continuity

A franchise outlet may be unable to operate without approved products.

Suppliers may be concerned about:

Unpaid historic invoices;
New credit risk;
Retention-of-title rights;
Cash-on-delivery terms;
Existing guarantees.

The restructuring plan may offer:

Advance payment;
Shortened payment periods;
Commissioner-approved new debt;
Franchisor guarantee;
Direct supply to a replacement operator.

The franchisor should not require continued supply without addressing the supplier’s legitimate payment risk.

Insolvency of the Franchisor

Franchise insolvency is not limited to franchisees.

The insolvency of the franchisor may create more serious network-wide disruption.

Franchisees may lose access to:

Trademark licence;
Central suppliers;
Technology;
Advertising;
Training;
Manuals;
Reservation or ordering systems;
Customer support.

The trademark itself may become part of the franchisor’s bankruptcy estate where the franchisor owns it.

A sale of the trademark to a third party does not automatically resolve the franchise relationship. The buyer must examine existing licences, obligations and contractual rights.

Franchisees should review whether their agreements contain protections concerning:

Successor ownership;
Continued licence;
Source-code escrow;
Data portability;
Supplier substitution;
Transition assistance;
Termination and damages;
Use of local marketing materials.

Insolvency of a Master Franchisee

A sub-franchisee may contract only with the master franchisee and have no direct contract with the international brand owner.

If the master franchisee becomes insolvent, the sub-franchisee may face uncertainty concerning:

Trademark rights;
Royalty payments;
Supply;
Support;
Territorial rights;
Contract renewal.

The master franchise structure should include:

Direct notice to the brand owner;
Conditional step-in;
Assignment or novation;
Temporary licence;
Transition of payments;
Treatment of deposits and fees;
Continued support.

Without a direct mechanism, the international franchisor may have no obligation to continue the local sub-franchise agreements.

Franchisor Step-In Rights

A franchisor may want the right to take control of a distressed outlet.

Step-in rights may include:

Temporary management;
Lease assumption;
Purchase of assets;
Appointment of another franchisee;
Access to systems;
Customer communication.

The clause should not assume that the franchisor may exercise these rights without:

Landlord approval;
Commissioner or court approval;
Bankruptcy administration consent;
Lender consent;
Payment for estate assets;
Employee and regulatory compliance.

Step-in should be structured as an enforceable legal mechanism rather than a broad contractual statement.

Avoiding Prejudicial Transactions

A distressed franchisee should avoid disposing of valuable assets below market value, transferring cash to shareholders or preferring related parties without legitimate justification.

Transactions shortly before concordat or bankruptcy may be reviewed under insolvency avoidance rules.

The company should obtain:

Independent valuation;
Board approval;
Conflict-of-interest review;
Evidence of commercial purpose;
Transparent payment terms.

A sale to the franchisor may be commercially appropriate, but it should reflect fair value and preserve evidence that creditors were not improperly disadvantaged.

Personal Guarantees

Personal guarantees frequently convert a corporate franchise failure into a personal financial crisis for shareholders.

Guarantees may support:

Franchise fees;
Rent;
Bank loans;
Suppliers;
Equipment finance.

Restructuring negotiations should address guarantees expressly.

Possible outcomes include:

Temporary standstill;
Release following asset sale;
Reduction after partial payment;
Replacement by buyer guarantee;
Continued liability for specified debt only.

A transfer of the franchise company or outlet does not automatically release the guarantor.

Written release from the relevant creditor is generally essential.

Dispute Resolution

Franchise agreements may contain court jurisdiction or arbitration clauses.

These clauses may continue to govern contractual disputes concerning:

Royalty calculation;
Termination;
Damages;
Trademark use;
Transfer approval.

However, statutory concordat and bankruptcy proceedings involve mandatory court and insolvency powers that cannot simply be displaced by an ordinary arbitration clause.

The parties should distinguish:

Contractual claim determination;
Registration and ranking of claims;
Concordat voting;
Bankruptcy administration;
Insolvency court approvals;
Enforcement against estate assets.

Coordination may be necessary where a royalty dispute is arbitrated while the claim is also registered in concordat or bankruptcy.

Restructuring Due Diligence Checklist

Before adopting a restructuring plan, the parties should review:

Current cash position;
Thirteen-week cash-flow forecast;
Capital-loss position under Article 376;
Over-indebtedness indicators;
Franchise agreement defaults;
Royalty and advertising arrears;
Lease terms and arrears;
Bank facilities;
Security and guarantees;
Tax and social security debts;
Employee liabilities;
Supplier arrears;
Customer prepayments;
Outlet-level profitability;
Inventory ownership;
Equipment ownership;
Trademark licence;
Technology access;
Regulatory licences;
Pending litigation and enforcement;
Shareholder and related-party claims;
Potential asset sales;
New financing requirements;
Creditor voting profile;
Bankruptcy recovery comparison.

Drafting Recommendations for Franchisors

A franchisor should ensure that the franchise agreement:

Requires timely financial reporting;
Defines financial distress events objectively;
Provides cure and restructuring procedures;
Distinguishes concordat filing from independent breach;
Regulates temporary royalty relief;
Addresses commissioner and court approvals;
Coordinates step-in with landlords;
Permits transfer to an approved replacement operator;
Protects trademarks during wind-down;
Regulates inventory and de-branding;
Preserves evidence and audit rights;
Addresses master franchisee insolvency;
Includes direct sub-franchise transition mechanisms;
Avoids unlawful removal of estate assets;
Provides proportionate termination rights.

The franchisor should also develop an internal distress protocol so that franchise development, finance, legal and operations teams respond consistently.

Drafting Recommendations for Franchisees

A franchisee should negotiate:

Reasonable cure periods;
Notice before termination;
Restrictions on cross-default;
Temporary restructuring rights;
Transfer rights;
Protection against termination solely due to concordat;
Royalty flexibility;
Release of guarantees after transfer;
Franchisor cooperation with landlords;
Clear inventory repurchase terms;
Continued access to operational data;
Transition assistance.

The franchisee should not wait until enforcement begins before requesting restructuring.

Franchise Insolvency Checklist for Franchisors

When a franchisee enters serious distress, the franchisor should:

Verify the facts;
Review all agreements;
Identify trademark and customer risks;
Confirm whether concordat has been filed;
Examine Article 296 before termination;
Register claims properly;
Separate historic and current claims;
Review guarantees;
Contact the landlord where authorised;
Evaluate a replacement operator;
Preserve evidence;
Protect customer communications;
Avoid taking estate property without authority;
Consider temporary support;
Prepare for de-branding or transfer.

Franchise Insolvency Checklist for Franchisees

A distressed franchisee should:

Prepare current financial statements;
Convene the board;
Review Article 376 duties;
Stop uncontrolled related-party payments;
Prepare cash-flow forecasts;
Contact principal creditors;
Request written franchise relief;
Review leases;
Identify profitable outlets;
Consider asset or share sales;
Review guarantees;
Analyse concordat eligibility;
Prepare statutory documents;
Budget current operating expenses;
Preserve accounting and contractual records.

Conclusion

Franchise business restructuring, insolvency and bankruptcy in Turkey require an integrated analysis of company law, insolvency law and franchise contracts.

A franchisee in financial distress should not assume that contractual negotiations alone will eliminate directors’ statutory duties.

Article 376 of the Turkish Commercial Code requires early board action when capital is lost and imposes notification duties where the company is over-indebted.

The abolition of bankruptcy postponement means that viable distressed companies must now focus on consensual restructuring, concordat, capital solutions, business sales or other lawful recovery mechanisms.

Concordat can protect a viable franchise business from individual enforcement while a restructuring project is negotiated.

During the moratorium, enforcement generally stops, including public enforcement proceedings, subject to statutory exceptions.

Essential contracts cannot be terminated merely because the debtor applied for concordat.

This protection may preserve franchise, lease, supply and technology agreements required for continued operation.

It does not excuse every independent contractual breach.

The business continues under commissioner supervision, and significant transactions may require commissioner or court approval.

Asset transfers, new security and outlet sales should therefore be structured carefully.

A confirmed project binds affected claims subject to the statutory exceptions for privileged claims, secured value and public receivables.

Guarantees and co-debtor liabilities require separate analysis.

Where rescue is not viable, bankruptcy may become necessary.

The bankruptcy estate includes the debtor’s attachable assets, but it does not automatically acquire ownership of the franchisor’s trademark.

A going-concern sale may preserve greater value than separate liquidation of equipment and inventory, provided that the required franchise, lease and regulatory approvals are obtained.

Franchisor insolvency and master franchisee insolvency create different risks.

Franchisees should consider whether their rights survive a change in brand ownership and whether they have direct transition rights if an intermediary master franchisee fails.

The most effective insolvency strategy begins before the business stops paying its debts.

Early financial reporting, realistic outlet analysis, properly drafted step-in and transfer clauses, coordinated leases and a credible rescue plan can preserve value for creditors, employees, franchisees and the brand.

Frequently Asked Questions

What law governs franchise insolvency in Turkey?

The principal framework is Enforcement and Bankruptcy Law No. 2004, together with the Turkish Commercial Code and the relevant franchise, lease, employment and security laws.

Has the Enforcement and Bankruptcy Law been replaced?

No. A comprehensive Cebrî İcra Kanunu draft was published in 2025, but it remains a draft as of July 2026.

What is concordat?

Concordat is a court-supervised restructuring process allowing a debtor to propose maturity extensions, debt reductions or another payment structure to avoid probable bankruptcy.

Must the franchisee already be unable to pay?

No. A debtor at risk of being unable to pay debts when due may also apply under Article 285.

Can a creditor request concordat proceedings?

A creditor entitled to request bankruptcy may request commencement of concordat proceedings under the statutory conditions.

Which court hears a concordat application?

The competent commercial court determined under Article 285 hears the application.

How long is the temporary moratorium?

It is three months and may be extended by up to two months. The total cannot exceed five months.

How long is the final moratorium?

The ordinary final moratorium is one year and may be extended by up to six months in difficult circumstances.

Do enforcement proceedings stop?

Enforcement proceedings generally stop during the moratorium, including proceedings under Law No. 6183, subject to statutory exceptions.

Does interest stop?

Unless the confirmed project provides otherwise, interest on unsecured claims stops from the final moratorium date.

Can secured creditors continue enforcement?

They may commence or continue security enforcement, but preservation measures and sale of the secured asset are generally prevented during the moratorium.

Can the franchisor terminate because the franchisee filed for concordat?

An essential contract cannot be terminated solely because of the concordat application. Independent breaches require separate analysis.

Is a franchise agreement an essential contract?

It may be essential where the business cannot continue without the trademark, system and support. The result depends on the business and agreement.

Can the franchisee terminate an expensive lease during concordat?

A burdensome continuing contract preventing the restructuring may be terminated with the commissioner’s favourable opinion and court approval under Article 296.

Who controls the business during concordat?

The debtor generally continues under commissioner supervision. The court may require approval for specified acts or give the commissioner wider operational authority.

Can the franchisee sell an outlet during the moratorium?

A sale may require commissioner and court approval, particularly where it involves real estate, permanent business installations or other restricted transactions.

Can new finance be obtained?

Yes. Commissioner-approved new debt receives special treatment under the concordat framework.

Are tax debts reduced by an ordinary concordat?

Public receivables under Law No. 6183 are excluded from the ordinary binding effect described in Article 308/c and require separate analysis.

Must the franchisor register its claim?

The franchisor should notify and document its claims within the statutory concordat or bankruptcy procedure.

Does concordat release personal guarantors?

Not automatically. Guarantees and co-debtor rights must be analysed separately under Article 303 and the relevant guarantee documents.

What happens if the concordat fails?

The request may be rejected, and a debtor subject to bankruptcy may be declared bankrupt where the statutory conditions exist.

What enters the bankruptcy estate?

The debtor’s attachable assets form the estate. This may include equipment, inventory, receivables, vehicles and transferable rights owned by the debtor.

Does the franchise trademark enter the franchisee’s bankruptcy estate?

Not where the trademark belongs to the franchisor. The estate holds only the franchisee’s contractual licence position, subject to the agreement and mandatory law.

Can the outlet continue operating after bankruptcy?

Temporary continuation may be possible where it benefits the estate and the necessary trademark, lease and regulatory rights remain available.

Can the outlet be sold as a whole?

Assets and rights forming a commercial and economic unity may be sold together where a combined sale is expected to generate higher value.

Does purchasing the equipment transfer the franchise?

No. The buyer needs the franchisor’s approval and a valid licence or franchise agreement.

Does purchasing the business transfer the commercial lease?

Not automatically. The lease and landlord-consent requirements must be examined separately.

What happens to employees?

Employment rights and obligations continue to be governed by labour and insolvency rules. Article 296 preserves special employment termination provisions.

Can the franchisor remove branded equipment immediately?

Only after confirming ownership and legal authority. Estate assets should not be removed without consent or an enforceable right.

What happens if the franchisor becomes insolvent?

Franchisees may face disruption to trademark licensing, technology, supply and support. The agreements should regulate succession and transition.

What happens if a master franchisee becomes insolvent?

Sub-franchisees may need a direct transition, assignment or temporary licence from the brand owner. These rights should be agreed in advance.

What is the most important preventive measure?

The parties should monitor financial distress early and include workable restructuring, transfer, step-in, contract-continuation and guarantee-release provisions before an insolvency occurs.

This article provides general legal information as of July 2026 and does not constitute legal, financial, tax, accounting or restructuring advice. Every franchise insolvency should be assessed according to the company’s financial condition, contracts, creditor structure, security, leases and current Turkish legislation.

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