EPC Contractor Goes Bankrupt During an Energy Project in Turkey: How Can Foreign Investors Protect the Project? – 2026 Updated Guide

What happens if an EPC contractor goes bankrupt during an energy project in Turkey? Learn how foreign investors can protect construction, enforce guarantees, secure equipment, use step-in rights, replace contractors and pursue claims under the 2026 Turkish insolvency framework.

The bankruptcy or serious financial distress of an EPC contractor can place an entire energy investment at risk. A solar, wind, electricity storage, hydroelectric or conventional power project may have secured financing, land rights, regulatory approvals, grid capacity and substantial equipment orders, yet the insolvency of the engineering, procurement and construction contractor can suddenly stop construction and create disputes over equipment, advance payments, subcontractors, warranties, project documentation and completion costs.

For foreign investors developing energy projects in Turkey, contractor insolvency should therefore be treated as both an insolvency-law problem and a project-continuity problem. Recovering money from the contractor may be important, but preserving the project can be considerably more valuable.

The investor must quickly determine whether the contractor is merely experiencing liquidity difficulties, has applied for concordat protection, has entered a restructuring process, or has actually been declared bankrupt. These situations have materially different legal consequences under Turkish law.

As of 2026, restructuring and insolvency proceedings in Turkey continue to be governed principally by Enforcement and Bankruptcy Law No. 2004 and relevant provisions of Turkish Commercial Code No. 6102. Concordat remains one of the principal judicial restructuring mechanisms available to financially distressed companies. (CMS Law)

Why EPC Contractor Insolvency Is Particularly Dangerous

An EPC contractor usually occupies a central position in an energy project’s contractual structure. It may be responsible for engineering, procurement, construction, equipment integration, testing, commissioning and achievement of guaranteed performance.

When the contractor becomes insolvent, several project functions can fail simultaneously.

Construction may stop. Employees and subcontractors may leave the site. Suppliers may refuse further deliveries. Equipment manufacturers may suspend warranty support. Engineering documents may become inaccessible. Performance guarantees may approach expiry. Advance payments may remain unrecovered, and the project company may need to appoint a replacement contractor at substantially higher cost.

The legal strategy must therefore focus on keeping the project capable of completion while preserving monetary claims against the original contractor.

Financial Distress, Concordat and Bankruptcy Are Different

Foreign investors should not use “bankruptcy” as a general description for every contractor experiencing financial difficulty.

A contractor may simply have cash-flow problems without being subject to formal insolvency proceedings. Alternatively, it may seek concordat protection to restructure its debts while continuing operations.

Under Turkey’s concordat framework, a debtor that cannot pay its debts when due, or faces a risk that it will become unable to do so, may seek judicial protection and propose a restructuring arrangement. (CMS Law)

During a concordat moratorium, important restrictions generally apply to enforcement proceedings against the debtor. Existing proceedings may be suspended and new enforcement actions are generally restricted, subject to statutory exceptions. (Aktaş Avukatlık)

Actual bankruptcy produces a substantially different situation. The contractor’s assets become subject to administration within the bankruptcy estate, and creditors generally pursue their claims through the insolvency framework and applicable statutory ranking. (Global Practice Guides)

Identifying the contractor’s precise legal status is therefore the first urgent step.

Can the Investor Terminate the EPC Contract Because of Bankruptcy?

Potentially, but termination should never be assumed to be automatic.

The EPC agreement should first be examined for insolvency-related events of default. Typical provisions may address bankruptcy, liquidation, suspension of payments, appointment of an administrator, abandonment of works, inability to perform, material financial deterioration or similar circumstances.

However, concordat requires particular caution.

Under Turkish insolvency rules, contractual provisions that make a concordat application itself a termination trigger can be subject to statutory restrictions. Turkish insolvency guidance specifically notes that provisions treating an application for concordat as an event of default may not be effective merely because the debtor sought concordat protection. (Global Practice Guides)

The investor should therefore distinguish between terminating solely because the contractor sought concordat and terminating because of an independent contractual breach, such as abandonment, failure to proceed, missed milestones or another enforceable default.

Wrongful termination can create substantial counterclaims and further delay the project.

Secure the Construction Site Immediately

When serious contractor financial distress becomes apparent, the project company should establish exactly what is located at the site and who owns it.

A detailed inventory should identify completed works, partially completed works, construction materials, spare parts, equipment, tools, temporary facilities, imported components and documents.

Photographic and video evidence should be created.

Serial numbers should be recorded for major equipment such as turbines, transformers, inverters, battery units and other high-value components.

The investor should then determine whether title to those materials and equipment has already transferred to the project company under the EPC agreement.

This issue can become critical after bankruptcy.

Equipment physically located at the project site does not necessarily belong to the project company merely because it was intended for the project.

Who Owns Equipment That Has Already Been Paid For?

Ownership should be analyzed separately from payment.

The EPC contract may provide that title to equipment transfers upon payment, manufacture, delivery to site, incorporation into the works or another specified event.

Foreign investors should examine these provisions before contractor insolvency occurs.

If the investor has paid substantial amounts for transformers, turbines, modules, inverters or battery equipment that remain in the contractor’s warehouse or another jurisdiction, establishing ownership may become substantially more difficult.

The investor should therefore identify where every major item is located and what documentary evidence proves title.

Invoices alone may not resolve every ownership dispute.

Advance Payment Guarantees Can Become Critical

Many EPC contracts require the employer to make a substantial advance payment after contract signing.

The contractor should ordinarily provide an advance payment guarantee protecting the investor if the advance is not properly applied or becomes repayable under the contractual conditions.

When contractor insolvency becomes imminent, the investor should immediately review the guarantee.

Critical questions include the guaranteed amount, expiry date, reduction mechanism, demand conditions, governing law and issuing bank.

If the guarantee is close to expiry, delay can be extremely dangerous.

The investor should not assume that continuing negotiations with the contractor automatically preserve rights against the issuing bank.

Performance Bonds and Contractor Bankruptcy

Performance bonds can become one of the strongest protections available to the project company.

Their purpose is generally to provide financial security against specified contractor defaults.

The investor should determine whether the bond is on-demand or conditional, whether insolvency or contractual default permits a demand, whether notice must first be served under the EPC agreement, and when the security expires.

The wording of the guarantee must be analyzed independently.

A right to terminate the EPC agreement does not necessarily mean that the investor automatically has the right to call the performance bond.

Conversely, the guarantee may provide valuable security even where recovery from the insolvent contractor itself would be difficult.

Parent Company Guarantees

Where the EPC contractor is a special-purpose subsidiary of a larger international group, a parent company guarantee can significantly improve the investor’s position.

The guarantee may require the parent company to perform the contractor’s obligations or compensate the employer following specified defaults.

Foreign investors should determine whether the guarantee survives contractor insolvency and whether any procedural requirements must be satisfied before enforcement.

The financial position of the guarantor should also be investigated.

A guarantee from another distressed group company may provide considerably less protection than expected.

Step-In Rights Can Save the Project

Step-in rights are among the most valuable provisions in a well-drafted EPC agreement.

They may allow the project company to take control of certain subcontracts, equipment orders, construction arrangements or other project relationships when the EPC contractor defaults.

Without step-in rights, the employer may need to renegotiate every important subcontract individually.

This can cause months of delay.

Foreign investors should determine whether the EPC contractor is required to procure direct agreements or assignments from critical subcontractors and suppliers.

Important relationships may include turbine manufacturers, module suppliers, inverter manufacturers, transformer suppliers, battery suppliers, civil contractors and specialist commissioning contractors.

Can Subcontractors Continue the Project?

Potentially.

Subcontractors may be willing to continue working directly for the project company, particularly where they have already mobilized personnel and equipment.

However, the investor should not simply begin paying the EPC contractor’s subcontractors without examining the contractual and insolvency consequences.

The amount owed by the original contractor, ownership of materials, outstanding claims, warranties and new scope of work should be documented carefully.

A replacement agreement may be necessary.

The project company should also avoid inadvertently paying the same construction cost twice.

Protect Engineering Documents and Intellectual Property

Project continuity may depend on access to engineering documents just as much as physical equipment.

The investor should secure copies of designs, drawings, calculations, software, equipment specifications, testing procedures, construction schedules, commissioning documentation and as-built information.

The EPC contract should contain sufficient intellectual property licenses allowing the project company and a replacement contractor to use the necessary documents to complete, operate and maintain the plant.

Without such rights, replacement of the contractor may create substantial legal and technical difficulties.

Access credentials to project management systems and technical databases should also be secured where legally permissible.

Manufacturer Warranties Must Be Preserved

Contractor bankruptcy can create another hidden risk: loss of equipment warranty support.

In many projects, manufacturer warranties are initially issued to the EPC contractor and later assigned to the project company.

If the EPC contractor becomes insolvent before the assignment occurs, the investor may discover that valuable module, inverter, turbine, transformer or battery warranties remain contractually held by the insolvent contractor.

Foreign investors should therefore identify every manufacturer warranty and determine whether it has already been assigned.

Direct warranties from critical manufacturers can substantially reduce this risk.

Appointing a Replacement EPC Contractor

Replacing an insolvent contractor is rarely as simple as signing a new turnkey contract.

The replacement contractor will usually conduct its own technical due diligence before accepting responsibility for partially completed works.

It may refuse to provide a full performance guarantee for engineering or construction performed by the original contractor.

The project company may therefore need to divide responsibility between existing works and replacement works.

An independent technical audit should be conducted before the replacement contractor mobilizes.

This can identify defective or incomplete works and create a baseline against which future responsibility can be measured.

Can the Investor Claim the Additional Completion Cost?

Potentially.

If contractor default requires the investor to appoint a replacement contractor at a higher price, the additional cost of completion may form part of the employer’s damages claim, subject to the EPC agreement and applicable law.

The calculation should be carefully documented.

The investor should distinguish between the original remaining contract price and the reasonable additional cost required to complete the same contractual scope.

Changes or improvements voluntarily introduced by the investor should be separated from genuine replacement costs.

The insolvent contractor may argue that the new contractor’s higher price reflects additional scope rather than damages caused by the original default.

Can Lost Electricity Revenue Also Be Claimed?

Potentially, depending on the contract.

Contractor insolvency can delay commercial operation for months and result in substantial lost generation revenue.

However, EPC agreements frequently contain exclusions of lost profits, consequential damages and overall liability caps.

The investor should determine whether delay liquidated damages continue to apply, whether they constitute the exclusive remedy and whether termination affects accrued liquidated damages.

If additional lost revenue remains recoverable, the investor will need evidence concerning the commercial operation date that would otherwise have been achieved, expected electricity generation and the applicable revenue structure.

Filing Claims in the Bankruptcy Estate

If the contractor is declared bankrupt, the investor should preserve and register its monetary claims in accordance with Turkish insolvency procedures.

Claims may include unpaid liquidated damages, repayment obligations, additional completion costs, defective-work claims and other contractual damages, depending on the circumstances.

However, obtaining recognition of a claim does not guarantee full recovery.

The amount ultimately recovered depends on the bankruptcy estate, creditor ranking, available assets, secured claims and other statutory priorities. (Global Practice Guides)

This is why security obtained before insolvency can be substantially more valuable than an unsecured damages claim filed afterward.

Project Financing and Lender Rights

The project lenders should generally be informed in accordance with the financing documents when a major EPC default or insolvency occurs.

Financing agreements frequently contain covenants relating to material project contracts, construction milestones and contractor replacement.

Lenders may also have direct agreements providing consent or step-in rights.

Replacing the EPC contractor without satisfying financing-document requirements can therefore create a second default at the project-company level.

The restructuring strategy should coordinate EPC, financing and regulatory obligations simultaneously.

Regulatory Deadlines Continue to Matter

Contractor insolvency does not automatically suspend the project’s regulatory obligations.

The project company should immediately examine whether construction delays threaten licensing milestones, grid connection obligations, land rights, permits or other regulatory deadlines.

This is particularly relevant to projects involving transmission infrastructure.

A notable 2026 development occurred on February 18, when TEIAS announced the entry into force of procedures governing transmission facilities jointly constructed by legal entities on behalf of TEIAS for the connection of generation facilities. (TEİAŞ)

Where an insolvent EPC contractor is responsible for infrastructure linked to a grid connection obligation, replacement arrangements should therefore also be reviewed against the applicable TEIAS framework.

Construction Works Performed on Behalf of TEIAS

Foreign investors should pay special attention where the project company is constructing transmission infrastructure under a connection arrangement.

TEIAS explains that investments made by users on its behalf under connection agreements become subject to a reimbursement process after completion and provisional acceptance, with the relevant investment amount calculated under the applicable methodology. (TEİAŞ)

If the EPC contractor becomes insolvent before those facilities are completed, the investor should determine how unfinished works, equipment ownership, contractor replacement and provisional acceptance will be handled.

A purely contractual solution with the replacement contractor may not be sufficient if TEIAS approvals or technical requirements are also affected.

Insurance Should Be Reviewed Immediately

Construction all-risk insurance, delay-in-start-up coverage and other project policies should be reviewed when contractor insolvency affects the works.

Insolvency itself may not constitute an insured physical loss.

However, events occurring around the insolvency may create insured claims, particularly where defective works, physical damage or other covered events have occurred.

Notice should be provided to insurers where required.

The investor should avoid compromising insurance rights while negotiating with the contractor or replacement contractors.

Due Diligence Before Selecting an EPC Contractor

The strongest insolvency strategy begins before the EPC contract is signed.

Foreign investors should investigate the contractor’s financial statements, existing project portfolio, debt levels, corporate group, litigation, guarantees and ability to finance procurement.

The contract should contain robust performance security, advance payment guarantees, parent guarantees where appropriate, step-in rights, equipment-title provisions, direct manufacturer warranties, subcontract assignment mechanisms and detailed termination rights.

Security expiry dates should extend beyond the period during which the corresponding risk remains material.

A low EPC price can ultimately become extremely expensive if the contractor lacks the financial capacity to complete the project.

Frequently Asked Questions

1. What should a foreign investor do first if an EPC contractor becomes insolvent in Turkey?

The investor should immediately determine whether the contractor is merely financially distressed, under concordat protection or formally bankrupt. It should then secure the site, review guarantees, preserve documents, identify equipment ownership and assess project-continuity options.

2. Can an EPC contract automatically be terminated when the contractor applies for concordat?

Not necessarily. Turkish concordat rules restrict the effectiveness of certain contractual consequences triggered solely by a concordat application. Independent contractual defaults and the precise statutory framework should be analyzed before termination. (Global Practice Guides)

3. Can the investor call the contractor’s performance bond?

Potentially. The answer depends on the guarantee wording, triggering event, demand conditions and expiry date. The security instrument should be reviewed immediately.

4. Can the investor recover an advance payment?

Potentially. An advance payment guarantee may provide an important recovery mechanism where its contractual conditions are satisfied. Claims against the contractor itself may also exist.

5. Can subcontractors be transferred to the project company?

Potentially. Step-in, assignment or direct agreement provisions may allow important subcontractors to continue the project. Otherwise, new agreements may need to be negotiated.

6. Who owns equipment already purchased for the project?

Ownership depends on the EPC agreement, payment arrangements, delivery status and applicable property rules. Physical presence at the site does not always conclusively determine title.

7. Can a foreign investor hire a replacement EPC contractor?

Yes, subject to the existing contract, termination rights, financing documents, regulatory requirements and project circumstances. An independent technical audit should normally be completed before the replacement contractor assumes responsibility.

8. Can additional completion costs be claimed from the bankrupt contractor?

Potentially. Additional reasonable costs caused by contractor default may form part of the investor’s claim, subject to contractual limitations, applicable law, causation and insolvency rules.

9. What is the most important protection against EPC contractor bankruptcy?

There is no single protection. A combination of performance bonds, advance payment guarantees, parent company guarantees, step-in rights, equipment-title provisions, direct manufacturer warranties and effective termination rights generally provides much stronger protection than relying on an unsecured damages claim after bankruptcy.

Legal Support for EPC Contractor Insolvency and Energy Projects in Turkey

The insolvency of an EPC contractor can threaten construction, grid connection, financing, regulatory deadlines and the entire economic viability of an energy investment. Foreign investors should act before construction stops completely or valuable guarantees expire.

Fırat Fesih Kaya Law Office provides legal assistance to foreign investors, international energy companies, renewable energy developers, lenders and project owners in EPC contractor insolvency, concordat and bankruptcy proceedings, performance bond enforcement, advance payment recovery, contractor replacement, step-in arrangements, project completion disputes and energy-sector arbitration and litigation in Turkey.

If your EPC contractor is experiencing severe financial distress, has applied for concordat, abandoned construction or entered bankruptcy proceedings during a solar, wind, storage, hydroelectric or other energy project in Turkey, you may contact our office for a project-specific legal assessment. Early legal intervention can help secure project assets, preserve guarantees, protect regulatory rights and establish a legally workable strategy for completing the project with a replacement contractor.

Phone: +90 312 434 22 22
Mobile Phone: +90 532 769 22 22
Email: info@firatfesihkaya.av.tr
Address: Mevlana Boulevard No: 221, Yildirim Tower No: 148, 06520 Balgat, Cankaya, Ankara, Turkey