Escrow and Holdback Disputes in Turkish M&A Transactions: Who Is Entitled to the Funds? (2026 Updated Guide)

Escrow or holdback funds are disputed after a Turkish M&A transaction. Learn when buyers and sellers can claim retained purchase price, how indemnity claims affect release, and how foreign investors can protect their rights.

Escrow and holdback mechanisms are frequently used in mergers and acquisitions to prevent the entire purchase price from being released to the seller at closing. A portion of the consideration may remain unavailable for an agreed period to secure indemnification claims, purchase-price adjustments, tax exposure, undisclosed liabilities, warranty breaches or other post-closing risks. Problems arise when the release date arrives but the buyer alleges a claim, the seller argues that the claim is speculative or the escrow agent refuses to release the money because the parties have issued conflicting instructions. In Turkish M&A transactions involving foreign investors, entitlement to the retained funds will normally depend heavily on the wording of the share purchase agreement, escrow agreement, indemnification provisions, release conditions and dispute-resolution mechanism.

What Is an Escrow Arrangement in an M&A Transaction?

Under an escrow structure, part of the transaction consideration is placed with an agreed third party and released when contractual conditions are satisfied. The parties may use the arrangement to protect against specified post-closing liabilities.

The escrow agreement should identify the amount, duration, release mechanism, permitted claims and circumstances in which the escrow agent may or must retain the funds.

What Is a Holdback?

A holdback achieves a similar commercial objective but may operate differently. Instead of transferring the entire purchase price and depositing part with a third-party escrow agent, the buyer may retain an agreed amount and pay it later if specified conditions are satisfied.

The distinction can become important when enforcement begins because the person physically holding the money and the contractual conditions governing payment may differ.

Who Owns the Escrow Money?

There is no universal answer simply because the funds are described as “escrow.”

The transaction documents must be examined to determine the parties’ contractual rights to the funds, the conditions for release and the legal structure under which the escrow holder possesses the money.

A seller should therefore not assume that the amount automatically became unrestricted property at closing, while a buyer should not assume that money can be retained indefinitely merely because a possible claim exists.

The Share Purchase Agreement Is the Starting Point

The SPA should be reviewed together with the escrow agreement and any closing documents.

Important provisions include representations and warranties, indemnities, limitations of liability, claim-notification procedures, survival periods, baskets, thresholds, caps, purchase-price adjustments and dispute-resolution clauses.

Why Do Escrow Disputes Usually Arise?

Common disputes concern alleged undisclosed tax liabilities, regulatory penalties, pending litigation, customer claims, employee liabilities, accounting irregularities, environmental exposure, intellectual-property problems, breaches of warranties and inaccurate financial information.

Another frequent dispute is whether the buyer properly notified the claim before the contractual deadline.

A Buyer Cannot Necessarily Retain Funds Merely by Alleging a Claim

The contract may require more than a general assertion that the seller breached the SPA.

A valid claim notice may need to identify the relevant warranty or indemnity, describe the factual basis, provide available supporting information and specify or estimate the claimed loss.

The exact contractual language is decisive.

Claim Notices Should Be Reviewed Carefully

Where the buyer sends a notice shortly before the escrow release date, determine whether the notice complies with the SPA.

Review the recipient, delivery method, timing, description of the alleged breach and any contractual requirement concerning quantification.

Does a Defective Claim Notice Preserve the Escrow?

Not necessarily. If the agreement establishes mandatory claim procedures, failure to comply may become a significant defense for the seller.

However, whether a defect invalidates the claim depends on the contractual wording, governing law and circumstances.

Survival Periods Can Determine Entitlement

Representations and warranties commonly survive closing only for specified periods. Tax, title, authority or fundamental warranties may have different survival periods from ordinary business warranties.

The parties should determine whether the underlying claim remained legally and contractually alive when notice was given.

General Indemnity and Specific Indemnity Claims Are Different

A transaction may contain specific indemnities for known risks in addition to general warranty protection.

A specific indemnity may have different thresholds, caps, limitation periods or evidentiary requirements.

The claim should therefore be classified correctly.

Basket and Threshold Provisions Matter

Some SPAs prevent the buyer from recovering until individual or aggregate losses exceed agreed thresholds.

A buyer may have suffered some loss without yet having a contractual right to deduct the amount from escrow.

Liability Caps Must Be Checked

Even where the seller is liable, the recoverable amount may be limited contractually.

The escrow balance itself should not automatically be treated as the seller’s maximum or minimum liability unless the agreement provides accordingly.

Escrow Is Not Necessarily the Same as the Seller’s Liability Cap

An escrow account may simply provide security for claims.

The seller’s overall liability can be higher, lower or differently structured depending on the SPA.

Has the Buyer Actually Suffered a Loss?

This can become a central issue. A buyer may identify a potential liability before any payment has been made.

The SPA should be reviewed to determine how “Loss” is defined and whether contingent, anticipated or unresolved third-party liabilities can support continued retention.

Contingent Claims Create Difficult Disputes

Suppose a tax audit begins before the escrow release date but no final assessment exists. The buyer may argue that the potential exposure requires continued retention. The seller may argue that there is no established liability.

The answer should be derived from the contractual definition of claims and the escrow retention mechanism.

Tax Claims Often Have Special Rules

M&A agreements frequently treat tax liabilities separately because they can arise long after closing.

Review tax covenants, tax indemnities, conduct-of-tax-claims provisions, limitation periods and control of proceedings before determining entitlement to the escrow.

Third-Party Claims Require Procedural Compliance

If a customer, regulator, employee or other third party asserts a claim, the SPA may regulate who controls the defense, whether settlement requires consent and what information must be shared.

Ignoring those provisions can affect indemnification rights.

The Buyer Must Usually Avoid Inflating the Claimed Loss

A claim should reflect the contractual measure of recoverable loss. Where the buyer seeks to retain the entire escrow for a substantially smaller disputed amount, the seller should examine whether partial release is required.

Can the Undisputed Portion Be Released?

Often this depends on the escrow agreement.

A well-drafted agreement may permit the undisputed balance to be released while only the amount reasonably connected with a pending claim remains blocked.

This issue can become financially significant in high-value acquisitions.

Purchase Price Adjustment Disputes Are Different

Not every escrow dispute is an indemnification dispute. Funds may also secure completion accounts, working-capital adjustments, net debt calculations or other purchase-price mechanisms.

In such cases, the accounting provisions and expert-determination mechanism may control the dispute.

Working Capital Disputes Require Accounting Analysis

The parties may disagree about receivables, inventory, provisions, deferred revenue or accounting consistency.

These disputes often require both legal interpretation of the SPA and financial analysis of the closing accounts.

Leakage Claims Can Affect Escrow Release

In locked-box transactions, buyers may claim that value was improperly transferred to the seller or related parties between the locked-box date and closing.

The SPA’s definition of permitted and prohibited leakage becomes central.

Warranty Breach Must Be Connected to the Contract

A disappointing acquisition is not automatically a warranty breach.

The buyer should identify the representation allegedly made by the seller and demonstrate why it was inaccurate according to the contractual standard.

Disclosure Can Defeat a Warranty Claim

The seller should examine the disclosure letter, data room and other contractually recognized disclosures.

If the relevant fact was properly disclosed under the agreed disclosure standard, the buyer may have difficulty establishing a warranty breach.

Data Room Disclosure Is Not Automatically Sufficient

Whether information uploaded to a virtual data room qualifies as effective disclosure depends on the SPA and disclosure provisions.

The seller should not assume that merely placing a document somewhere in the data room eliminates liability.

Knowledge Qualifications Matter

Some warranties may be given only to the seller’s knowledge.

Where applicable, determine how “Seller’s Knowledge” is defined and which individuals’ knowledge is attributed to the seller.

Materiality Qualifications Can Affect Claims

The relevant representation may contain materiality thresholds. A minor discrepancy may therefore not constitute a contractual breach even though the underlying statement is not perfectly accurate.

Fraud Allegations Require Separate Analysis

A buyer may attempt to characterize an ordinary warranty dispute as fraud or intentional concealment, particularly where contractual liability limitations would otherwise restrict recovery.

Such allegations should be analyzed carefully because they can affect contractual limitations and create wider legal exposure.

Foreign Sellers Should Preserve the Transaction Record

The seller should retain the SPA, disclosure letter, data-room archive, Q&A correspondence, board documents, financial information and negotiation records.

Years after closing, these materials may become essential to defending an escrow claim.

Foreign Buyers Should Preserve Due Diligence Records

The buyer should similarly retain due diligence reports, management responses, disclosures and transaction correspondence.

These documents may help establish what was represented, disclosed and relied upon.

What Can the Escrow Agent Do When the Parties Disagree?

The escrow agent’s powers normally depend on the escrow agreement.

Where conflicting instructions are received, the agent may be prohibited from deciding the underlying merits and may instead continue holding the disputed funds until joint instructions, a final judgment, arbitral award or another contractually specified event occurs.

The Escrow Agent Is Not Usually the M&A Dispute Judge

The parties should not expect the escrow holder to determine whether a warranty was actually breached unless the agreement expressly gives the agent a defined decision-making function.

The substantive dispute generally remains between buyer and seller.

Can the Seller Force Release of the Funds?

Potentially, where the contractual release conditions have been satisfied and no valid claim justifies continued retention.

The appropriate remedy depends on the governing law, dispute-resolution clause and structure of the escrow arrangement.

Can the Buyer Obtain an Injunction to Prevent Release?

Where there is a genuine risk that funds will be released before the underlying dispute can be resolved, interim protection may become relevant.

The available mechanism depends on the arbitration or court provisions and the circumstances of the transaction.

Arbitration Clauses Are Common in Cross-Border M&A

Foreign investors should review whether the SPA requires arbitration and whether interim measures can be requested from an arbitral tribunal, emergency arbitrator or competent court.

The escrow agreement should also be checked for consistency with the SPA’s dispute-resolution clause.

Conflicting Dispute-Resolution Clauses Can Create Problems

An SPA may provide for arbitration while the escrow agreement contains a different jurisdiction clause.

This can create procedural disputes before the parties even reach the merits.

Transaction documents should therefore be interpreted together.

Expert Determination May Apply to Accounting Issues

Purchase-price adjustment disputes are frequently referred to an independent accountant or expert rather than ordinary arbitration.

Determine which issues are reserved for expert determination and which remain legal disputes.

Governing Law Must Be Identified

A Turkish target company does not necessarily mean every transaction document is governed by Turkish law.

Cross-border M&A agreements may select another governing law while mandatory Turkish rules remain relevant to certain aspects of the transaction.

The governing-law clause should therefore be examined before assessing entitlement.

Interest on Escrow Funds Can Become a Separate Dispute

The documents should state whether escrow funds earn interest and who receives it.

In long-running disputes, interest can become commercially significant.

Currency Risk Should Also Be Considered

Where the purchase price and escrow are denominated in different currencies or converted during the transaction, exchange-rate movements may create additional disagreement.

The contract should determine how currency differences are allocated.

Can the Buyer Set Off Other Claims Against the Escrow?

Only after examining the contractual provisions.

The buyer may not necessarily be entitled to use escrow funds for claims unrelated to the purposes for which the escrow was established.

Release Mechanics Must Be Followed Precisely

The agreement may require joint instructions, certificates, notices or confirmation that no unresolved claims remain.

Failure to follow the release procedure can delay payment even where the substantive entitlement is relatively clear.

Avoid Last-Minute Claim Notices

Buyers should not wait until the final day of the escrow period to investigate known issues.

Late claims can create disputes about procedural compliance, prejudice and whether the claim was genuinely preserved.

Sellers Should Monitor the Release Calendar

The seller should know the exact expiration dates of general warranties, special indemnities and escrow periods.

Do not assume the escrow agent will automatically transfer funds without the required release instructions.

What If the Buyer Refuses to Cooperate With Release?

The seller should request the contractual basis for continued retention and determine whether the buyer has submitted a valid unresolved claim.

If not, formal enforcement, arbitration or court proceedings may need to be considered.

What If the Seller Demands Release Despite a Valid Claim?

The buyer should preserve evidence of the claim, comply strictly with notice provisions and take any necessary interim steps before the escrow agent becomes contractually obliged to release the funds.

Escrow Disputes Should Be Quantified Claim by Claim

Prepare a matrix identifying each alleged breach, contractual provision, notice date, claimed amount, supporting evidence, applicable threshold, cap, survival period and current status.

This can quickly reveal which portion of the escrow is genuinely disputed.

Review Insurance Coverage

Where warranty and indemnity insurance was obtained for the transaction, determine whether the disputed loss should also be notified to the insurer.

Insurance notice requirements may operate separately from SPA claim-notification requirements.

Foreign Investors Should Coordinate Cross-Border Evidence

Relevant documents may be held by foreign parent companies, advisers, accountants or former directors.

Evidence preservation should begin before employees leave or data-room access expires.

Immediate Strategy for an Escrow Dispute

When an escrow or holdback dispute arises in a Turkish M&A transaction, the parties should immediately review the SPA and escrow agreement together, identify the precise release date, determine whether a valid claim notice exists, classify each claim, check survival periods and liability limitations, quantify the genuinely disputed amount, preserve disclosure and due diligence evidence, review dispute-resolution mechanisms and consider interim protection if release or dissipation of the funds is imminent.

Frequently Asked Questions

Does the seller automatically receive the escrow when the escrow period expires?

Not necessarily. The documents may permit continued retention of amounts connected with properly notified unresolved claims.

Can the buyer block the entire escrow because of one claim?

Not automatically. The escrow agreement should be reviewed to determine whether only the disputed amount may remain withheld.

Is merely notifying a claim enough?

It depends on the contractual notice requirements. The SPA may require specific information concerning the breach and estimated loss.

Can a potential tax liability justify retaining escrow?

Potentially, particularly where the SPA permits retention for contingent tax claims. The tax indemnity and escrow provisions must be read together.

What happens if the buyer misses the claim deadline?

The seller may argue that the claim was not contractually preserved. The result depends on the wording of the relevant limitation and notice provisions.

Can disclosed information defeat the buyer’s warranty claim?

Potentially. The effect depends on the agreed disclosure standard and whether the relevant matter was effectively disclosed.

Can an escrow agent decide who is legally right?

Usually the agent’s role is governed narrowly by the escrow agreement. The underlying M&A dispute may need to be determined through arbitration, litigation or another agreed procedure.

Can the seller seek an order requiring release?

Potentially, depending on the contractual entitlement, governing law and dispute-resolution mechanism.

Can the buyer obtain urgent protection to stop release?

Potentially. Interim measures may be relevant where funds could otherwise be released before the underlying claim is determined.

What is the most important first step?

Read the SPA and escrow agreement together and determine exactly what contractual event gives each party a right to the money. The decisive questions are usually whether a valid claim exists, whether it was notified on time, how much is genuinely disputed and what event permits the escrow agent to release or continue holding the funds.

Client-Focused Legal Support for Turkish M&A Escrow and Holdback Disputes

Escrow disputes in cross-border acquisitions can involve warranty claims, indemnification, tax exposure, purchase-price adjustments, completion accounts, leakage, disclosure disputes, interim measures and international arbitration. Fırat Fesih Kaya Law Office assists foreign investors, international buyers, sellers and shareholders involved in Turkish M&A and post-closing disputes. Lawyer Fırat Fesih Kaya provides legal assistance in interpreting SPA and escrow provisions, challenging improper retention or release of transaction funds, managing indemnification claims, coordinating interim protection and representing foreign parties in post-acquisition commercial 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, Office No:148, 06520 Balgat, Çankaya, Ankara, Turkey