Breach of Warranty After Buying a Turkish Company: How Can a Foreign Buyer Claim Compensation? (2026 Updated Guide)

A foreign buyer discovers undisclosed liabilities after acquiring a Turkish company. Learn how warranty claims, indemnities, purchase price mechanisms, evidence and compensation claims may protect the buyer.

Buying a Turkish company does not always end when the shares are transferred and the purchase price is paid. Serious disputes frequently emerge months after closing when the foreign buyer discovers that information provided during negotiations was inaccurate or incomplete. Undisclosed tax liabilities, customs exposure, employee claims, hidden litigation, regulatory violations, overstated financial statements, uncollectible receivables or undisclosed related-party transactions can materially reduce the value of the acquired business. In these circumstances, one of the foreign buyer’s first questions is whether the seller has breached warranties contained in the Share Purchase Agreement (SPA) and whether compensation can be recovered.

The answer depends heavily on the wording of the SPA, governing law, disclosure process, contractual limitation provisions and evidence establishing the loss. A foreign buyer should therefore avoid treating a warranty dispute as merely a disagreement over the company’s post-acquisition performance. The key issue is whether a contractual representation or warranty was inaccurate when given and whether that breach caused a recoverable loss.

What Is a Warranty in a Company Acquisition?

In an acquisition agreement, the seller commonly makes contractual statements concerning the target company. These statements allocate information and risk between the parties and provide the buyer with contractual protection against specified problems.

The precise legal consequences depend on the agreement and applicable law.

Common Warranties in Turkish Company Acquisitions

SPAs may contain warranties concerning corporate authority, ownership of shares, financial statements, taxes, customs liabilities, material contracts, employees, litigation, intellectual property, regulatory compliance, permits, real estate, data protection, environmental matters and undisclosed liabilities.

Foreign buyers should review the exact warranty allegedly breached rather than relying on general allegations that the company was worth less than expected.

What Is a Breach of Warranty?

A warranty claim generally arises where a contractual warranty was inaccurate according to the contractual standard applicable when it was given.

For example, if the seller warranted that no material litigation existed but a significant lawsuit had already been filed and was not properly disclosed, the buyer may have a potential warranty claim.

Undisclosed Tax Liabilities

Tax exposure discovered after closing is one of the most commercially significant acquisition risks. A post-closing tax audit may reveal liabilities relating to periods controlled by the seller.

The buyer should determine whether the SPA contains tax warranties, a specific tax indemnity or both.

Customs Liabilities Discovered After Closing

A customs audit can reveal historical problems concerning tariff classification, customs valuation, origin, royalties or other import declarations.

The fact that Customs approaches the acquired company after closing does not necessarily mean the economic risk belongs to the buyer under the SPA.

Historical customs warranties and indemnities should be examined immediately.

Hidden Employee Claims

Unpaid overtime, severance liabilities, social-security problems, employee classification disputes or pending workplace claims can emerge after acquisition.

Review employment warranties and disclosure materials to determine whether the potential liability was properly communicated before closing.

Undisclosed Litigation

The seller may have warranted that all material litigation, investigations and administrative proceedings were disclosed.

The buyer should establish when the dispute or investigation began and what the seller knew at the relevant time.

Regulatory Violations

Licensing deficiencies, administrative fines or historical non-compliance can substantially affect regulated businesses.

Foreign investors should determine whether the SPA contains separate warranties concerning permits, regulatory compliance and governmental investigations.

Financial Statement Warranties

A buyer may discover that inventory was overstated, liabilities understated, receivables uncollectible or revenue improperly recognized.

The accounting issue should be analyzed against the precise financial warranties rather than assuming every accounting adjustment constitutes contractual breach.

Hidden Related-Party Transactions

Payments to shareholders, directors or affiliated companies can become particularly contentious after closing.

The buyer should preserve accounting ledgers, bank records, agreements and invoices demonstrating the transaction and its relationship with the former owners.

First Review the SPA

Before sending an aggressive demand letter, review the complete transaction agreement.

The SPA may contain detailed provisions governing what constitutes a warranty claim, how notice must be delivered, the applicable limitation period, financial thresholds, liability caps and dispute-resolution procedure.

Check the Governing Law

International acquisitions involving Turkish companies may select Turkish law or another governing law for contractual issues.

The governing-law clause can materially affect interpretation of warranties, damages, limitation clauses and remedies.

Check the Dispute Resolution Clause

Determine whether disputes must be brought before Turkish courts, foreign courts or arbitration.

Do not commence proceedings before confirming jurisdiction and any mandatory pre-dispute procedure.

Warranty and Indemnity Claims Are Not Identical

The SPA may contain general warranties and separate indemnities covering particular identified risks.

An indemnity may operate differently from a warranty claim depending on the contractual wording.

The buyer should identify every potentially applicable contractual remedy.

Review the Disclosure Letter

A seller may argue that the relevant matter was disclosed before closing and therefore does not constitute a warranty breach.

The buyer should examine whether the disclosure was sufficiently specific and whether it satisfies the disclosure standard established by the SPA.

Data Room Disclosure Can Become a Major Dispute

Sellers sometimes argue that a document somewhere in the virtual data room disclosed the problem.

Whether general data-room availability defeats a warranty claim depends on the SPA and agreed disclosure standard.

The buyer should preserve the complete historical data room where possible.

Preserve the Data Room Immediately

After a dispute arises, do not assume that online transaction documents will remain accessible indefinitely.

Preserve the index, documents, upload history and relevant metadata where available.

Due Diligence Does Not Automatically Eliminate Warranty Rights

A seller may argue that the buyer should have discovered the issue during due diligence.

Whether buyer knowledge prevents a claim depends heavily on the contractual framework and applicable law. The SPA may contain specific provisions addressing actual knowledge, deemed knowledge and disclosure.

Identify When the Buyer Learned of the Breach

The discovery date can be important because contractual notice periods may begin running when the buyer becomes aware of circumstances giving rise to a claim.

Create a written chronology immediately.

Warranty Claim Notices Must Be Taken Seriously

Many SPAs prescribe how claims must be notified.

The notice may need to identify the breached warranty, facts, estimated loss and other information required by the agreement.

Failure to comply with contractual notice requirements can create a major procedural defense for the seller.

Do Not Wait Until the Loss Is Fully Quantified

If the SPA contains a short notice deadline, waiting until every euro or dollar of loss is calculated can be dangerous.

The buyer should examine whether a protective claim notice can or should be given while the amount remains under investigation.

Check Contractual Limitation Periods

Warranty claims frequently have contractual survival periods. General warranties, tax warranties and fundamental warranties may have different periods.

The buyer should create a warranty-claim calendar immediately after acquisition and update it when potential claims arise.

De Minimis Thresholds May Apply

The SPA may provide that individual claims below a certain amount cannot be recovered.

Check whether the alleged loss exceeds the contractual minimum.

Basket or Threshold Provisions

Some agreements require total qualifying claims to exceed an agreed threshold before seller liability arises.

Determine whether the threshold operates as a deductible or whether recovery begins from the first amount once the threshold is exceeded.

Liability Caps

Seller liability may be capped at a percentage of the purchase price or another agreed amount.

However, different caps may apply to general warranties, fundamental warranties, tax claims, fraud or specific indemnities.

Fraud or Intentional Concealment Requires Separate Analysis

If the buyer believes the seller deliberately concealed a liability or falsified information, the dispute may extend beyond an ordinary warranty claim.

Preserve evidence before making allegations of intentional misconduct.

How Is Compensation Calculated?

The answer depends on the SPA, governing law and nature of the breach.

Possible approaches may focus on the direct financial liability incurred by the target, the difference in company value caused by the breach, remediation costs or another contractually recoverable measure.

There is no single calculation applicable to every acquisition dispute.

Avoid Double Recovery

A buyer should not seek compensation twice for the same economic loss through overlapping warranties and indemnities.

The claim should identify the contractual route and calculation clearly.

Purchase Price Adjustments Should Be Reviewed

Some disputes that initially appear to be warranty claims may actually fall within completion accounts, net debt, working capital or other purchase-price adjustment mechanisms.

Check whether the SPA requires the matter to be handled through a separate accounting procedure.

Earn-Outs Can Create Additional Complexity

If part of the purchase price depends on post-closing performance, a historical warranty breach may also affect earn-out calculations.

The interaction between the warranty claim and earn-out provisions should be examined carefully.

Escrow and Holdback Mechanisms

Where part of the purchase price remains in escrow or has been withheld, determine whether warranty claims can be satisfied from those funds.

Observe any deadline for submitting claims to the escrow agent.

Warranty and Indemnity Insurance

If the transaction has warranty and indemnity insurance, notify the insurer promptly in accordance with the policy.

The insurance notification process may operate independently from the contractual notice to the seller.

Mitigation of Loss

Once the buyer discovers a problem, it should take commercially reasonable measures to prevent unnecessary escalation of the loss where required.

For example, ignoring an administrative deadline and allowing avoidable penalties to accumulate may complicate the damages claim.

Third-Party Claims Require Special Procedures

Tax assessments, employee lawsuits, customer claims and regulatory investigations may qualify as third-party claims under the SPA.

The agreement may regulate who controls the defense, who selects counsel and whether settlement requires seller consent.

Do Not Settle a Third-Party Claim Without Checking the SPA

A buyer facing an urgent external claim may want to settle quickly.

Before doing so, verify whether settlement without seller consent could prejudice contractual recovery.

Preserve Accounting Evidence

Maintain invoices, bank records, ledgers, financial statements, tax records, customs assessments and other documents proving the financial impact.

A contractual breach without evidence of recoverable loss may not produce the compensation expected.

Preserve Transaction Communications

Emails and negotiation records may become relevant to contractual interpretation, knowledge, disclosure or alleged concealment.

They should be preserved systematically once a dispute is reasonably anticipated.

Interview Key Employees

Employees who participated in due diligence, finance, compliance or integration may possess important factual information.

Record the chronology while memories remain fresh.

Consider an Independent Financial Expert

Complex acquisition claims may require valuation, forensic accounting or damages expertise.

An expert can help distinguish ordinary post-acquisition underperformance from financial consequences actually caused by the warranty breach.

Foreign Buyers Should Separate Company Loss From Shareholder Loss

A liability suffered directly by the acquired company and a reduction in the foreign buyer’s investment value are not necessarily identical claims.

The correct claimant and legal basis should be identified before proceedings begin.

Seller Counterclaims Should Be Anticipated

The seller may argue that the buyer breached post-closing obligations, failed to mitigate, mismanaged the target or improperly calculated an earn-out.

Review potential counterclaims before commencing proceedings.

Interim Measures May Be Necessary

If there is evidence that the seller is transferring assets or attempting to frustrate enforcement, available interim measures may need to be evaluated promptly.

The appropriate remedy depends on jurisdiction, dispute-resolution mechanism and evidence.

Arbitration Clauses Require Early Planning

Where the SPA provides for arbitration, examine the seat, institution, language, number of arbitrators and emergency or interim-relief provisions.

Do not prepare the claim as though it were ordinary court litigation.

Foreign Judgments and Awards Raise Enforcement Questions

If proceedings take place outside Turkey but the seller’s assets are located in Turkey, enforcement strategy should be considered at the beginning rather than after obtaining a final decision.

Asset location can materially affect litigation strategy.

Review the Seller’s Current Asset Position

Before spending substantial resources on a claim, determine whether the contractual defendant appears capable of satisfying an eventual judgment or award.

Where appropriate, investigate guarantors, escrow arrangements and other security.

Multiple Sellers Require Allocation Analysis

Where several shareholders sold the company, determine whether their liability is joint, several, proportionate or otherwise allocated by the SPA.

Do not assume every seller is responsible for the entire claim.

Fundamental Warranties May Receive Different Treatment

Warranties concerning ownership of shares, authority and title may be subject to different contractual caps or survival periods than ordinary business warranties.

Review the SPA’s definitions carefully.

Tax Indemnities Often Require Separate Handling

A historical tax assessment may be governed by a tax covenant or tax indemnity rather than the general warranty regime.

The buyer should identify the correct contractual mechanism before sending notice.

Customs Claims Can Also Require Separate Contractual Analysis

If the acquired company faces additional customs duties for pre-closing imports, determine whether the SPA specifically allocates historical customs exposure.

Foreign buyers acquiring import-dependent Turkish companies should pay particular attention to this risk.

Regulatory Investigations Should Be Managed in Parallel

The buyer may need to defend the acquired company against an authority while simultaneously preserving a contractual claim against the seller.

These proceedings should be coordinated but treated as legally distinct.

Immediate Action Plan for the Foreign Buyer

When a foreign buyer discovers a possible warranty breach after acquiring a Turkish company, it should immediately review the SPA and disclosure letter, identify the relevant warranty or indemnity, preserve the data room, record the discovery date, calculate contractual notice deadlines, send a compliant claim notice where appropriate, investigate the underlying liability, preserve accounting and transaction evidence, examine caps and thresholds, review escrow or insurance coverage and prepare the contractual dispute strategy before limitation periods expire.

Frequently Asked Questions

Can a foreign buyer claim compensation for liabilities discovered after acquiring a Turkish company?

Potentially. The buyer should determine whether the liability breaches a warranty, falls within an indemnity or triggers another contractual remedy under the SPA.

Does due diligence prevent a warranty claim?

Not automatically. The effect of buyer knowledge and due diligence depends on the SPA’s wording, disclosure provisions and applicable law.

What if the problem was mentioned somewhere in the data room?

The effect depends on the contractual disclosure standard. Merely placing a document in a large data room does not answer every disclosure dispute.

Is a warranty claim the same as an indemnity claim?

No. They may have different triggers, loss calculations, limitations and procedural requirements depending on the SPA.

Can undisclosed tax or customs liabilities create a claim?

Potentially. Tax and customs liabilities relating to pre-closing periods are often addressed through warranties, specific indemnities or other risk-allocation provisions.

How quickly should the seller be notified?

Immediately review the SPA. Contractual notice periods can be significantly shorter than general legal limitation periods.

Can the buyer recover the entire purchase price?

Not automatically. Recoverable compensation depends on the contractual provisions, nature of the breach, causation, loss and applicable limitations.

What if the seller intentionally concealed the liability?

Intentional concealment or fraud can require separate analysis and may materially affect the available claims and contractual limitations.

Can escrow funds be used for the warranty claim?

Potentially, if the transaction documents allow claims to be made against the escrow or holdback and the required procedure is followed.

What is the most important first step after discovering a breach?

Review the SPA before taking substantive action. Identify the exact warranty or indemnity, preserve evidence and protect every contractual notice and limitation deadline before negotiating with the seller.

Client-Focused Legal Support for Post-Acquisition Warranty Claims

Foreign buyers acquiring Turkish businesses may face post-closing disputes involving undisclosed liabilities, financial statement inaccuracies, tax and customs exposure, employee claims, regulatory violations, hidden litigation, seller indemnities, escrow arrangements and purchase price disputes. Fırat Fesih Kaya Law Office assists foreign investors and international companies with post-acquisition disputes arising from Turkish company acquisitions. Lawyer Fırat Fesih Kaya provides legal assistance in reviewing SPAs and disclosure materials, preparing breach-of-warranty and indemnity claims, preserving contractual deadlines, coordinating financial evidence, negotiating compensation and pursuing litigation or arbitration where settlement cannot be achieved.

Phone:
+90 312 434 22 22

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+90 532 769 22 22

Email:
info@firatfesihkaya.av.tr

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Mevlana Boulevard No:221, Yıldırım Tower, Office No:148, 06520 Balgat, Çankaya, Ankara, Turkey