Can a foreign investor become liable for hidden debts after buying a Turkish power plant? Learn the risks involving bank loans, taxes, EMRA fines, contractor claims, land liabilities, shareholder loans, environmental exposure and SPA protection.

Buying an existing power plant in Turkey can provide a foreign investor with immediate access to an operating energy business, established generation infrastructure, grid rights, land arrangements and existing electricity revenues. However, an acquisition can also transfer something much less visible: the financial and legal history of the project company. Undisclosed bank debt, unpaid taxes, contractor claims, shareholder loans, regulatory exposure, environmental liabilities, employee claims, land disputes and guarantees may remain hidden until after completion. The critical issue is therefore not simply whether the seller personally owes money. It is whether the company being acquired already carries the liability.

The answer to the central question is important: yes, a foreign buyer can economically become exposed to hidden debts in a Turkish power plant acquisition, particularly where the transaction is structured as a share purchase. This does not ordinarily mean that purchasing shares automatically makes the buyer personally responsible for every company debt. Rather, the target company continues to exist after closing together with its assets and liabilities. The foreign investor now owns a company whose value may be reduced by those undisclosed obligations. Different rules can arise in asset/business transfers, mergers, guarantees and other transaction structures, so the acquisition structure must be analyzed separately. Turkey’s official investment guidance likewise emphasizes that M&A liability differs according to transaction structure and that energy acquisitions can be subject to sector-specific regulation. (Türkiye Yatırım Ofisi)

Why Share Acquisitions Create Hidden Debt Risk

Suppose a foreign investor agrees to pay EUR 50 million for all shares in a Turkish solar, wind, hydro or thermal generation company. The investor calculates the price assuming the target has EUR 10 million of bank debt. Six months after closing, a tax audit identifies another substantial historical liability, an EPC contractor commences proceedings for unpaid invoices and a former shareholder claims repayment of a shareholder loan that was never disclosed.

The investor did not personally create these debts. Nevertheless, because the target company remains the debtor, their economic impact falls directly on the acquired investment. Cash that the investor expected to receive as dividends may instead be required to satisfy creditors. Project assets may be exposed to enforcement. Financing covenants may be breached. In severe circumstances, undisclosed liabilities can destroy the economics of the acquisition.

This is why the distinction between share acquisition and asset/business acquisition is fundamental.

Share Deal: The Company Remains the Same Debtor

In a typical share deal, the buyer purchases shares from the seller. The project company itself is not replaced merely because its shareholder changes. Existing contractual obligations, tax exposures, employee liabilities, regulatory history and litigation remain relevant to that company.

The buyer therefore acquires the equity value remaining after those liabilities.

This explains why an apparently attractive purchase price can become extremely expensive if the target’s true debt position is materially worse than disclosed.

Asset Deal: Different Liability Questions Arise

An asset or business transfer requires a different analysis. Turkish law contains rules concerning transfers of businesses and assets with their liabilities. Official Turkish investment guidance identifies Article 202 of the Turkish Code of Obligations as particularly relevant to transfers of enterprises and notes potential transferee liability for business debts under the applicable conditions. (Kars Yatırım Destek Ofisi)

Therefore, a buyer should never assume that an asset deal automatically eliminates historical liability.

For a power plant, an asset transaction also creates additional complexity because generation rights, grid arrangements, land rights, permits, financing documents and project contracts cannot simply be treated like ordinary machinery.

Hidden Bank Loans

Bank financing should be one of the first areas investigated.

The target may have project finance facilities, working-capital loans, overdrafts, shareholder-related financing or other borrowing. The amount shown as outstanding principal may not represent the complete exposure because accrued interest, break costs, default interest, hedging liabilities and fees may also exist.

The buyer should obtain the entire financing package rather than relying on the seller’s debt schedule.

Undisclosed Security Interests

The debt itself may be only part of the problem.

Lenders may hold mortgages, share pledges, account pledges, assignments of electricity receivables, assignments of insurance proceeds or security affecting other project assets.

A buyer should prepare a complete debt and security map showing every creditor, obligation, security interest and required release.

Share Pledges

A particularly serious problem arises where the shares being purchased are pledged.

The SPA should provide closing mechanics ensuring that the relevant pledge is released simultaneously with the transfer and payment where release is required.

The foreign buyer should not transfer the full purchase price and rely on the seller’s promise to obtain the lender’s release later.

Undisclosed Shareholder Loans

Shareholder loans deserve separate investigation because they can be overlooked when buyers focus on third-party bank debt.

The seller or an affiliate may have financed the target through shareholder loans. Unless these arrangements are addressed in the SPA, the seller may potentially remain a creditor after selling the shares.

The transaction documents should determine whether shareholder loans are repaid, capitalized, waived, assigned or otherwise settled at closing.

Related-Party Debt

The target may owe money to companies controlled by the seller for management services, engineering, maintenance, equipment, electricity trading or financing.

These balances should be independently reconciled.

A seller should not be able to receive the purchase price and subsequently claim substantial additional amounts through affiliated companies unless that outcome was expressly agreed.

EPC Contractor Claims

Power plants frequently involve substantial construction contracts.

The EPC contractor may allege unpaid invoices, variations, additional works, extension costs or other contractual claims.

The absence of litigation does not prove that no liability exists. A claim may have been asserted through correspondence without proceedings having commenced.

Legal due diligence should therefore examine notices, disputed invoices and settlement correspondence as well as court and arbitration files.

O&M Liabilities

Operation and Maintenance agreements can contain unpaid fees, performance disputes, termination payments and long-term commitments.

The foreign investor should determine whether the target is current on all payments and whether a change of control gives the O&M contractor termination or renegotiation rights.

An unfavorable long-term O&M obligation can function economically like hidden debt.

Equipment Purchase Debt

Turbines, solar panels, inverters, transformers, batteries and other equipment may not have been fully paid for.

Some equipment may also be financed or leased.

Physical possession of equipment does not automatically establish that the project company owns it free of third-party claims.

Tax Liabilities

Historical tax exposure is one of the most important hidden-liability categories in a share acquisition.

The target may face corporate tax, VAT, withholding, stamp tax, payroll or other assessments concerning periods before the foreign investor acquired the company.

The fact that an assessment arrives after closing does not necessarily mean that the underlying exposure arose after closing.

The SPA therefore normally requires detailed tax protection.

Pending Tax Audits

The buyer should not ask only whether tax debt currently exists.

It should ask whether the company is being audited.

A company can have no finalized tax assessment on signing day while already facing an investigation capable of generating substantial liability later.

Pending and historical tax audits should therefore be disclosed separately.

EMRA Administrative Exposure

Electricity generation companies operate within the regulatory framework administered by the Energy Market Regulatory Authority. Electricity Market Law No. 6446 regulates electricity-market activities and the rights and obligations of participating legal entities. (LEXPERA)

The foreign buyer should investigate the target’s complete regulatory history rather than checking only whether its generation license remains valid.

A valid license does not establish that no historical violation exists.

Regulatory Violations Can Become Financial Liabilities

Regulatory non-compliance can create administrative sanctions after the buyer has acquired the target.

This remains a current issue in 2026. EMRA stated in its June 23, 2026 announcement that relevant generation license holders must comply with progress-report obligations and that failure to do so may result in sanctions under Article 16 of Electricity Market Law No. 6446. (EPDK)

The buyer should therefore investigate whether the target complied with reporting, licensing and other applicable regulatory obligations during the seller’s ownership period.

Generation License Problems Can Create More Than a Fine

Some regulatory problems affect the fundamental economics of the project.

If an undisclosed issue threatens generation rights, installed capacity or operation of the facility, the buyer may face a loss far greater than the amount of an administrative penalty.

The SPA should therefore distinguish ordinary regulatory liabilities from matters threatening the generation license itself.

Grid-Related Liabilities

Outstanding system-use payments, connection-related costs, contractual penalties and historical disputes with relevant network entities should be reviewed.

The seller’s financial statements may not adequately explain all disputed amounts.

The buyer should request contractual correspondence and claims information in addition to accounting records.

Landowner Claims

A power plant may owe unpaid rent or compensation to landowners.

Wind and solar projects can involve numerous parcels and counterparties. A small number of disputed land rights can become operationally significant if they affect turbines, panels, access roads, cables or transmission infrastructure.

Land due diligence should therefore identify both property rights and outstanding financial obligations.

Expropriation Liabilities

Electricity Market Law No. 6446 contains provisions relating to expropriation required for licensed and pre-licensed electricity-market activities. (LEXPERA)

Existing or historical compensation disputes should be investigated carefully.

The investor should establish whether the target has outstanding obligations arising from project land arrangements and whether proceedings remain pending.

Environmental Liabilities

Environmental exposure can remain hidden for years.

Possible liabilities include contamination, waste-management violations, remediation obligations, administrative penalties and environmental litigation.

These risks can be particularly substantial for older industrial and thermal facilities, although renewable projects also require environmental review.

Environmental due diligence should therefore be conducted alongside legal due diligence.

Employee Liabilities

The target may have accrued employment obligations that are not obvious from headline financial statements.

Review salaries, bonuses, accrued leave, severance exposure, employee disputes and occupational matters.

The buyer should also investigate whether contractors have been used in circumstances capable of creating additional employment-related exposure.

Occupational Health and Safety Claims

Power generation involves significant operational risks.

Historical workplace accidents can produce civil, administrative and other legal consequences that emerge after closing.

The buyer should request details of serious accidents, investigations and unresolved compensation claims.

Litigation That Was Never Disclosed

The seller should provide a complete litigation schedule, but the buyer should independently verify material proceedings where possible.

Review court litigation, arbitration, enforcement proceedings and administrative cases.

Particular attention should be paid to disputes involving EMRA, tax authorities, municipalities, environmental authorities, landowners, contractors, employees, lenders and shareholders.

Threatened Claims Matter Too

A claim does not need to have reached court to represent a liability.

Formal notices, default letters, termination notices, contractor claims and settlement demands should be included in due diligence.

The SPA’s litigation warranty should therefore not be limited to proceedings already filed.

Guarantees Given for Other Companies

A project company may have guaranteed debts of a shareholder, affiliate or another group company.

This can create a significant hidden exposure even where the target itself never received the borrowed funds.

Due diligence should therefore identify guarantees, sureties, letters of comfort and security provided for third-party obligations.

Off-Balance-Sheet Liabilities

Some of the most dangerous liabilities do not appear clearly as conventional debt.

Long-term contractual commitments, guarantees, indemnities, disputed contractor amounts, environmental obligations and contingent tax exposures can materially affect value without appearing as ordinary borrowing.

A buyer should therefore investigate debt-like items and contingent liabilities, not simply bank debt.

YEKDEM Misrepresentation

Renewable-energy projects deserve particular attention where valuation depends on YEKDEM.

For 2026, EMRA required eligible production license holders seeking YEKDEM participation to submit applications within the applicable period. (EPDK)

If the seller’s valuation assumes renewable support that the project cannot actually obtain or retain, the economic effect can resemble a substantial hidden liability because future revenues are lower than represented.

Hidden Liability Can Also Be Lost Revenue

Foreign buyers sometimes define hidden liabilities too narrowly.

Suppose the seller represents that a plant will receive EUR 8 million of annual revenue but the regulatory structure supports only EUR 6 million.

There may be no traditional “debt,” but the EUR 2 million annual revenue gap can materially reduce the investment’s value.

Due diligence should therefore examine hidden revenue risks as carefully as hidden debts.

Purchase Price Mechanism Is the First Protection

The SPA should define how debt affects the price.

If the transaction is priced on a cash-free/debt-free basis, the definition of debt becomes extremely important.

A narrow definition can allow substantial debt-like liabilities to remain inside the company while the seller receives a price calculated as though they did not exist.

The definition should be drafted specifically for the target.

Locked-Box Leakage Protection

Where a locked-box mechanism is used, the buyer should protect against value being extracted between the locked-box date and closing.

Leakage provisions may cover dividends, payments to seller affiliates, shareholder loan repayments, unusual management charges and other transfers of value.

Permitted leakage should be specifically identified.

Completion Accounts

A completion-accounts mechanism can adjust the final purchase price according to actual debt, cash and working capital at closing.

The definitions and accounting principles should be extremely precise.

Many post-M&A disputes arise not because the parties disagree that an adjustment exists but because they disagree about how “Debt,” “Cash” or “Working Capital” was defined.

Debt-Free Warranty

Depending on the agreed transaction economics, the seller may provide specific warranties concerning indebtedness.

The warranty should be coordinated with the purchase-price mechanism.

Otherwise, the buyer may inadvertently attempt to recover the same issue twice or discover that the relevant liability falls into a contractual gap.

No Undisclosed Liabilities Warranty

The buyer may negotiate a warranty stating that the target has no liabilities other than those appropriately disclosed or reflected in specified accounts, subject to agreed qualifications.

The exact drafting matters greatly.

Sellers usually resist unlimited formulations, making the definition and disclosure standard critical.

Tax Indemnity

Historical tax liabilities are frequently addressed through a separate tax covenant or indemnity.

The objective is straightforward: liabilities attributable to the seller’s ownership period should, subject to negotiated limitations, remain economically with the seller.

The agreement should address audits that begin before or after closing but relate to pre-closing periods.

Specific Indemnities

Known risks should not necessarily be left under general warranties.

Suppose due diligence identifies a pending EUR 3 million EPC claim.

The buyer may negotiate a specific indemnity stating who bears that liability if the contractor succeeds.

Specific indemnities can also be appropriate for tax investigations, land litigation, environmental proceedings or identified regulatory exposure.

Escrow

Contractual protection has limited value if the seller cannot pay when a claim arises.

Part of the purchase price can therefore be held in escrow for an agreed period.

The SPA should define the escrow amount, permitted claims, duration and release mechanics.

Holdback

The buyer may alternatively retain part of the consideration.

A holdback can provide direct financial security against specified post-closing claims.

The commercial structure should reflect the size and probability of identified liabilities.

Warranty Caps

The seller will normally seek to cap liability.

The buyer should negotiate different treatment for different categories of claims.

Ordinary business warranties may have one cap, while title warranties, tax liabilities, specific indemnities and fraud-related matters may require different treatment.

Warranty Time Limits

Hidden liabilities do not always appear immediately.

A warranty period that expires before a realistic tax, environmental or regulatory claim could emerge offers little practical protection.

Limitation periods should therefore reflect the nature of the underlying risk.

De Minimis and Basket

Sellers commonly negotiate thresholds preventing very small claims.

These mechanisms can be commercially reasonable, but their combined effect should be tested.

A high de minimis plus a high basket plus a low liability cap can make apparently extensive warranties practically worthless.

Disclosure Letter Risk

The seller typically qualifies warranties through disclosure.

Foreign buyers should examine whether disclosure must be specific or whether every document in the virtual data room is deemed disclosed.

A broad data-room disclosure clause can materially weaken buyer protection.

Seller Solvency After Closing

A buyer should ask a practical question before accepting indemnities:

Will the seller still have money when we make the claim?

If the selling entity is a special-purpose vehicle that distributes the sale proceeds immediately after closing, even a successful warranty claim may be difficult to recover.

Escrow, guarantees, retention or other security may therefore be necessary.

Parent Company Guarantee

Where the seller is part of a substantial corporate group but the actual selling entity has limited assets, the buyer may seek a guarantee from a financially stronger parent company.

The guarantee should be coordinated with the SPA liability regime.

Warranty and Indemnity Insurance

For suitable transactions, warranty and indemnity insurance may form part of the risk-allocation structure.

However, coverage exclusions, known risks, retention and policy terms should be analyzed carefully.

Insurance does not replace proper due diligence.

What If the Hidden Debt Is Discovered After Closing?

The first step is to determine the legal nature of the liability and the contractual protections available under the SPA.

The buyer should determine whether the liability constitutes a breach of warranty, falls under a specific indemnity, affects the completion accounts, constitutes prohibited leakage or results from fraud or misrepresentation.

Notice provisions should be checked immediately because acquisition agreements frequently impose strict procedural requirements and time limits for claims.

Can the Buyer Sue the Seller?

Potentially, depending on the SPA, applicable law and facts.

A buyer may have contractual remedies if the seller breached warranties, violated an indemnity, misrepresented the company’s financial position or concealed material liabilities.

The precise remedy can depend heavily on the agreement’s governing law, liability limitations, disclosure provisions and dispute-resolution clause.

What If the Seller Deliberately Concealed the Debt?

Deliberate concealment raises substantially more serious issues than an ordinary inaccurate warranty.

The buyer should preserve emails, data-room records, financial documents, due diligence responses, management presentations and other evidence showing what was represented before signing.

Contractual and potentially other legal remedies should then be evaluated according to the circumstances.

Red Flags Foreign Buyers Should Never Ignore

Several patterns deserve immediate investigation: unexplained shareholder balances, frequent related-party payments, missing bank confirmations, differences between management accounts and audited statements, unpaid contractor invoices, tax audits, regulatory correspondence omitted from the data room, security interests not reflected in the debt schedule, litigation described as “immaterial,” unusually large accrued expenses and seller resistance to providing direct lender information.

The buyer should also be cautious where the seller insists that a liability “will disappear after the acquisition.”

Debt does not disappear merely because the shareholder changes.

Due Diligence Should Reconcile Legal and Financial Information

The legal team should not examine contracts while the financial team separately examines accounts.

The two workstreams should be reconciled.

If the financial statements show EUR 20 million of bank debt, legal counsel should identify the agreements creating exactly that debt. If counsel finds four loan agreements but only three appear in the debt schedule, the discrepancy should be investigated. If litigation exists but no provision appears in the accounts, financial advisers should determine why.

Cross-checking frequently reveals hidden liabilities that isolated due diligence misses.

Frequently Asked Questions

Does buying shares make the foreign investor personally liable for all company debts?

Not ordinarily merely because the investor becomes a shareholder. However, the acquired company remains responsible for its existing liabilities, meaning those debts can materially reduce the value of the buyer’s investment.

Do old debts disappear when ownership changes?

No. In a share acquisition, changing shareholders does not ordinarily eliminate the target company’s existing obligations.

Can an asset buyer inherit liabilities?

Potentially. Turkish law contains specific rules concerning transfers of businesses and assets, including Article 202 of the Turkish Code of Obligations. The transaction structure must therefore be analyzed carefully. (Kars Yatırım Destek Ofisi)

Can historical tax debt become a problem after acquisition?

Yes. A tax assessment issued after closing can relate to a period before the acquisition. Tax due diligence and contractual tax protection are therefore important.

Can historical EMRA violations affect the buyer?

They can affect the acquired project company. EMRA continues to enforce ongoing obligations of licensed generation companies and warns that non-compliance can result in sanctions under Electricity Market Law No. 6446. (EPDK)

What happens to project finance debt?

It normally remains an obligation of the project company unless the transaction documents and lenders provide for repayment, refinancing or another agreed structure.

Should shareholder loans be repaid before closing?

Their treatment should be expressly agreed. They may be repaid, waived, capitalized, assigned or otherwise addressed depending on the transaction.

How can a foreign buyer protect itself against hidden liabilities?

Protection normally combines legal and financial due diligence with purchase-price mechanisms, warranties, indemnities, tax protection, escrow or holdbacks and carefully drafted closing conditions.

Is a seller warranty enough?

Not always. A warranty is only as useful as its scope, liability cap, claim period, disclosure standard and the seller’s ability to pay a successful claim.

What is the biggest hidden-debt mistake in a power plant acquisition?

Focusing exclusively on bank debt while failing to investigate tax, regulatory, contractor, shareholder, land, environmental and contingent liabilities.

Power Plant Acquisition and Hidden Liability Lawyer in Turkey

A foreign investor acquiring a Turkish power plant should assume that identifying the visible purchase price is only the beginning of the transaction analysis. The investor must establish the project’s true net financial and legal position before becoming the shareholder.

This requires investigation of bank facilities, security interests, shareholder loans, tax exposure, EMRA compliance, grid obligations, EPC and O&M claims, land liabilities, environmental exposure, employment matters, litigation, guarantees and off-balance-sheet commitments. Energy regulatory liabilities deserve particular attention because the acquired company remains a regulated generation business after ownership changes. EMRA’s current licensing materials confirm continuing obligations for licensed generation companies, while its 2026 compliance announcement demonstrates that failures to satisfy applicable reporting requirements can lead to sanctions. (EPDK)

The SPA should then convert those findings into economic protection. Some liabilities should reduce the purchase price. Some should be eliminated before closing. Known risks may require specific indemnities. Uncertain liabilities may justify escrow or holdbacks. Fundamental problems affecting the generation license, grid access or essential project rights may justify refusing to close until the issue is resolved.

For a foreign investor, the objective is not simply to prove that the target company owns a valuable power plant. It is to determine what the company owes, what it may owe in the future because of its past conduct and how much of that risk the buyer is actually agreeing to purchase.

Fırat Fesih Kaya Law Office assists foreign investors, international energy companies, renewable energy funds and project sponsors with power plant acquisitions in Turkey, energy M&A, hidden liability investigations, legal due diligence, EMRA regulatory due diligence, project finance review, tax and contractual risk analysis, SPA negotiations, warranties and indemnities, escrow structures and post-closing acquisition disputes.

Phone: +90 312 434 22 22 | Mobile: +90 532 769 22 22 | Email: info@firatfesihkaya.av.tr | Address: Mevlana Boulevard No: 221, Yıldırım Tower, Balgat, Çankaya, Ankara, Turkey