Planning to invest in or acquire a Turkish company? Learn how foreign investors can check company debts, lawsuits, enforcement proceedings, tax liabilities, social security debts, bank loans, guarantees and hidden liabilities before investing in Turkey.

Investing in an existing Turkish company can be considerably faster than establishing a business from the beginning. A foreign investor may acquire an established customer base, employees, contracts, licenses, real estate, machinery and commercial relationships through a single transaction. However, purchasing shares in an existing company also creates an important risk: the investor may acquire an interest in a company carrying historical debts, lawsuits, enforcement proceedings and contingent liabilities that were not immediately visible during negotiations. Before purchasing shares or making a substantial capital investment, foreign investors should therefore conduct a coordinated legal, financial, tax and corporate due diligence investigation in Turkey. Checking only the company’s balance sheet or asking the seller whether the business has debts is not sufficient.

The investigation should determine not only what the company currently owes but also what it may become liable to pay after the investment. This includes tax assessments relating to previous years, pending employee claims, disputed supplier invoices, enforcement proceedings, corporate guarantees, bank security, customs investigations, regulatory penalties and litigation that has not yet reached a final judgment. Turkey provides several official systems that can assist with parts of this investigation. MERSIS maintains centralized company and commercial-registry information, while the Ministry of Justice’s UYAP Institution Portal enables private companies to monitor cases in which they are parties before judicial and administrative courts and enforcement offices throughout Turkey. (Dys Ticaret)

Why Should Foreign Investors Check a Company’s Debts Before Buying Shares?

A share acquisition normally involves acquiring shares in an existing legal entity rather than creating a completely new company. Consequently, changing shareholders does not simply erase liabilities already belonging to the company. If a company owes money to banks, suppliers, employees or public authorities before the acquisition, those corporate liabilities can continue to affect the company after ownership changes.

Suppose a foreign investor agrees to pay EUR 5 million for a Turkish manufacturing company because the financial information indicates that the company has only EUR 500,000 of debt. After closing, the investor discovers another EUR 1.5 million of bank, supplier and tax exposure. Even where the buyer later has contractual remedies against the seller, the acquired company itself may still need to deal with those creditors. This can fundamentally change the economics of the investment.

Start With the Exact Identity of the Company

Before investigating debts, confirm exactly which legal entity is being acquired. Similar trade names, group structures and multiple subsidiaries can create confusion. Obtain the company’s full legal name, MERSIS number, trade registry number, tax information, registered address and current corporate structure.

MERSIS is the centralized commercial registration system maintained under the Ministry of Trade. It electronically maintains company registration, amendment and deregistration information and stores information required to be registered and announced through the commercial registry system. (Dys Ticaret)

MERSIS – Ministry of Trade

Corporate identity verification is only the beginning. MERSIS should not be treated as a comprehensive debt-search system capable of revealing every financial or litigation risk affecting a company.

Review the Trade Registry History

Foreign investors should obtain and review the target company’s historical commercial-registry records rather than examining only its current status. Changes in shareholders, directors, managers, capital and representation authority may provide important information about the company’s history.

Frequent changes do not automatically indicate wrongdoing. However, unusual changes shortly before a proposed sale can justify additional investigation.

For example, if several directors resigned shortly after a major tax inspection began, the buyer should understand why.

Identify Who Can Legally Represent the Company

Determine who currently has authority to bind the company.

Is one director authorized individually?

Are two signatures required?

Were previous directors granted broad authority?

Did the company issue powers of attorney?

Representation authority matters because undisclosed guarantees, loans and commercial agreements may have been executed by individuals authorized to act for the company.

Check the Company’s Financial Debt

Request a detailed schedule of all financial indebtedness.

The schedule should identify every bank loan, overdraft facility, credit line, financial lease, factoring arrangement and similar financing obligation.

Do not accept a single figure stating “Total Bank Debt: EUR 2 million.”

Review the underlying agreements.

Obtain Bank Confirmations

Bank confirmations can provide stronger evidence than a spreadsheet prepared by management.

For every banking relationship, determine the outstanding principal, accrued interest, available credit facilities, security granted, guarantees, blocked accounts and potential defaults.

Also ask whether the bank has issued letters of guarantee on behalf of the company.

Check for Corporate Guarantees

A company can have substantial financial exposure without having borrowed the money itself.

For example, the target company may have guaranteed a EUR 3 million loan obtained by another company controlled by the seller.

At the time of due diligence, the borrower may be making payments normally.

Therefore, nothing may appear as an immediately payable EUR 3 million debt.

But if the borrower defaults after closing, the target company’s guarantee may become extremely important.

Review Guarantees Given for Shareholders and Affiliates

Related-party guarantees deserve particular scrutiny.

Foreign investors should determine whether company assets have been used to support debts belonging to shareholders, directors, subsidiaries, sister companies or other related businesses.

Ideally, unwanted group guarantees should be released before closing rather than becoming the buyer’s post-acquisition problem.

Check Supplier Debts

Obtain a detailed accounts-payable ageing schedule.

Identify the company’s largest suppliers and determine how long invoices have remained unpaid.

A company may report EUR 1 million in supplier debt, but the commercial significance is very different if EUR 800,000 has been overdue for nine months.

Long-overdue supplier balances can indicate financial distress or unresolved disputes.

Compare Supplier Statements Against the Company’s Accounts

For major suppliers, consider obtaining balance confirmations through the target company and appropriate professional procedures.

Compare supplier records with the company’s accounting entries.

Differences may reveal unrecorded invoices, disputed obligations or inaccurate accounting.

Search for Lawsuits Through UYAP

Litigation due diligence is essential.

The Ministry of Justice states that UYAP Institution Portal enables private companies and public institutions to follow case files in which they are parties before judicial and administrative courts and enforcement offices throughout Turkey. (UYAP)

UYAP Institution Portal – Ministry of Justice

For acquisition due diligence, appropriate access should be arranged through the target company and authorized representatives.

What Lawsuits Should Be Reviewed?

Do not review only lawsuits in which the company is a defendant.

Cases where the company is the claimant can also reveal important risks.

For example, the target may show a EUR 2 million receivable as an asset on its balance sheet while litigation reveals that collection is highly uncertain.

The investor should therefore examine both liability litigation and material receivable litigation.

Commercial Lawsuits

Review disputes with suppliers, customers, distributors, dealers, agents, contractors and business partners.

Determine the amount claimed, procedural status, available evidence and potential exposure.

A pending commercial case should not simply be valued at the amount written in the statement of claim.

Legal merits must be assessed.

Employee Lawsuits

Employment disputes can create significant liabilities, particularly where similar practices affect many employees.

One overtime lawsuit may indicate a broader payroll problem affecting hundreds of workers.

The investor should therefore investigate whether an individual employment case represents an isolated dispute or a systematic employment-compliance issue.

Administrative Lawsuits

Companies operating in regulated industries may also have administrative disputes involving licenses, permits, regulatory sanctions or government decisions.

These can be economically significant even when the monetary claim itself appears small.

A license cancellation dispute, for example, can threaten the business model itself.

Check Enforcement Proceedings

This should be a separate due diligence workstream.

UYAP Institution Portal covers files involving enforcement offices as well as judicial and administrative courts. (UYAP)

An enforcement proceeding may indicate that a creditor has already commenced formal collection against the company.

Every material enforcement file should be individually investigated.

What Can Enforcement Proceedings Reveal?

They may involve unpaid supplier invoices, bank debts, lease obligations, promissory notes, judgments, employee receivables or other creditor claims.

A substantial number of enforcement proceedings can also reveal liquidity problems that are not obvious from the company’s financial presentation.

Do Not Count Every Enforcement File as Confirmed Debt

An enforcement proceeding does not necessarily mean that the claimed amount is legally owed.

The company may have objected.

Proceedings may be disputed.

Part of the debt may already have been paid.

The investor should therefore determine the procedural and financial status of every material file.

Review Closed Enforcement Files Too

Current files are not the whole story.

Historical enforcement proceedings can reveal recurring payment problems.

If a supposedly profitable company has faced dozens of supplier enforcement proceedings over the previous three years, the investor should understand why.

Check Whether Company Assets Are Under Attachment

Enforcement proceedings may have resulted in attachment measures affecting bank accounts, vehicles, real estate, receivables or other corporate assets.

An asset shown on the company’s balance sheet may therefore not be freely available.

The due diligence investigation should determine whether material assets are encumbered.

Check Tax Debts

Tax due diligence should be performed separately from general accounting review.

Request current documentation concerning outstanding tax obligations and examine historical tax filings, assessments, payment arrangements and disputes.

A current tax clearance or no-debt document can be useful evidence concerning presently identified overdue obligations, but it does not eliminate the need for historical tax review.

A Tax Clearance Document Is Not Enough

This distinction is extremely important.

A company may currently have no overdue tax debt but still face a major future assessment concerning historical transactions.

Suppose tax authorities begin examining invoices issued three years earlier.

No final tax debt may exist on the date of the acquisition.

Six months later, the audit results in a substantial assessment.

The investor therefore needs to investigate potential tax exposure, not merely today’s payable balance.

Review Tax Inspections

Ask whether the company has received any inspection notices, requests for information, audit reports or assessment notices.

Review ongoing and completed tax audits.

Also investigate whether material tax disputes are pending before the courts.

Check Social Security Debts

Employee-related public liabilities should receive independent attention.

Turkey’s Social Security Institution provides an electronic “E-Borcu Yoktur” system through which qualifying employers can obtain electronic no-debt documentation after activation. (SGK Portalı)

SGK also provides a verification application allowing electronically issued no-debt documents to be checked using their barcode information. (SGK Portalı)

SGK Employer Applications

Foreign investors should request current SGK documentation and verify its authenticity where applicable.

Historical Social Security Exposure

Again, current no-debt documentation is not necessarily the end of the investigation.

Review whether employees have been properly registered, whether payroll corresponds with actual remuneration and whether previous workplace inspections identified irregularities.

Potential historical exposure can be materially different from presently recorded debt.

Check Employee Accruals

Not every employment liability appears as an immediately payable debt.

Long-service employees may have accumulated significant potential severance and unused annual-leave entitlements.

If the buyer intends to restructure the workforce after acquisition, these liabilities can become economically important very quickly.

Check Workplace Accident Claims

Review workplace accidents, occupational disease allegations and related proceedings.

A serious historical accident can create future financial exposure even if litigation has not yet concluded.

Insurance coverage should also be investigated.

Check Customs Liabilities

Companies engaged in importing or exporting require dedicated customs due diligence.

Review tariff classification, customs valuation, origin documentation, preferential tariff treatment, exemptions and previous customs audits.

Historical declarations can potentially create future assessments.

Review Customs Broker Relationships

Do not assume that using a customs broker eliminates company risk.

Obtain significant customs correspondence and determine whether authorities have previously challenged declarations.

For companies importing substantial volumes, sampling individual customs declarations may be appropriate.

Check Regulatory Fines and Investigations

Identify every regulator relevant to the company’s business.

Depending on the industry, this may involve competition, energy, environmental, financial, telecommunications, consumer, customs or other authorities.

Ask whether the company has received inspection notices, requests for information or administrative sanctions.

Pending Investigation Versus Existing Fine

A regulatory investigation may not yet appear as a payable liability.

That does not mean it should be ignored.

If an authority is investigating conduct capable of producing a substantial penalty, the investor needs to understand that contingent exposure before determining the purchase price.

Check Real Estate Encumbrances

If real estate represents a substantial part of company value, conduct separate title due diligence.

Verify ownership, mortgages, attachments, annotations and other restrictions through appropriate authorized procedures.

Never assume that an office, factory or land parcel is unencumbered merely because it appears as a company asset.

Check Vehicle and Machinery Security

Material vehicles, machinery and equipment may also be subject to financing or security arrangements.

Determine whether assets presented as owned by the company are pledged, leased or otherwise encumbered.

Review Financial Leasing Agreements

Some important equipment may not actually belong to the company.

A factory may contain expensive machinery acquired through financial leasing.

The investor should determine ownership, remaining payments and termination consequences.

Check Factoring Arrangements

Receivables shown on financial reports may already have been transferred or assigned under factoring arrangements.

Therefore, the investor should not assume that every customer receivable remains economically available to the target.

Review Customer Advances

Cash can sometimes conceal liabilities.

Suppose the company has EUR 4 million in its bank account but EUR 3 million represents advance payments for products that have not yet been delivered.

The company has cash, but it also has substantial performance obligations.

Customer advances should therefore be analyzed alongside liquidity.

Review Major Contracts

Material contracts can contain hidden economic obligations.

Examine supply agreements, distribution agreements, leases, franchise agreements, licensing agreements, construction contracts, technology agreements and long-term service arrangements.

Look particularly for minimum purchase commitments, termination compensation, penalties and guarantees.

Change-of-Control Clauses

An acquisition itself may trigger contractual consequences.

A major customer may have the right to terminate if control of the target changes.

A bank may require consent.

A license agreement may restrict transfers.

These risks can significantly affect company value even though they are not conventional “debts.”

Review Penalty Clauses

Contractual penalties can represent contingent liabilities.

Determine whether any existing breach has already occurred.

A company may not record the potential penalty because the counterparty has not yet demanded payment.

That does not eliminate the risk.

Check Related-Party Transactions

Transactions involving shareholders, directors and affiliated companies deserve enhanced scrutiny.

Identify money owed by the company to related parties and amounts related parties owe to the company.

Verify the underlying transactions.

Related-party balances can materially distort the target’s true financial position.

Review Shareholder Loans

A foreign buyer may purchase the shares and then discover that the company owes millions to the seller under shareholder loans.

The SPA should clearly determine whether shareholder financing will remain outstanding, be repaid before closing or be included within the transaction economics.

Check Director Withdrawals

Review accounting accounts involving directors and shareholders.

Large unexplained withdrawals can indicate personal use of corporate money or other transactions requiring further investigation.

Compare accounting entries with bank statements.

Search for Off-Balance-Sheet Liabilities

This is one of the most important steps.

Potential off-balance-sheet liabilities can include guarantees, litigation, tax investigations, regulatory proceedings, contractual penalties, environmental liabilities and employee claims.

A balance sheet alone cannot reveal the complete legal risk profile of a company.

Check Insurance Coverage

Review major insurance policies.

Determine coverage limits, deductibles and exclusions.

Also identify existing claims.

If management states that a EUR 2 million lawsuit is “fully insured,” obtain evidence supporting that conclusion.

Check Environmental Risks

Industrial companies require additional environmental investigation.

Review environmental permits, waste-management practices, contamination issues and previous inspections.

Remediation obligations can become extremely expensive.

Intellectual Property Liabilities

Technology, manufacturing and consumer businesses may depend heavily on trademarks, patents, software and licenses.

Verify ownership and investigate infringement disputes.

A company may appear financially healthy while its core intellectual property is being challenged.

Data Protection Risks

Review significant data breaches, complaints and regulatory matters.

For data-intensive businesses, historical compliance problems can produce future liabilities and reputational damage.

Review the Company’s Accounting Records Against Bank Statements

This comparison can reveal significant discrepancies.

The accounting system tells the investor how management classified transactions.

The bank statement shows where money actually moved.

If accounting records identify a EUR 200,000 “supplier payment” while the bank statement shows a transfer to a director’s personal account, further investigation is necessary.

Conduct a Cash Flow Review

Profitability does not necessarily mean financial health.

A company can report accounting profits while repeatedly failing to pay creditors.

Compare operating cash flows with reported profits.

Persistent negative cash flow can help explain why enforcement proceedings and overdue supplier debts exist.

Request a Complete Litigation Schedule

Management should prepare a written schedule containing every material lawsuit and enforcement proceeding.

For each file, identify the parties, claim amount, court or enforcement office, procedural stage, company lawyer and estimated exposure.

Then independently reconcile this schedule against authorized UYAP information.

Request a Complete Debt Schedule

Prepare a similar schedule for financial obligations.

Include bank loans, shareholder loans, supplier debts, leases, factoring, guarantees, public debts and disputed liabilities.

Do not permit a vague category called “Other Liabilities” to contain material amounts without explanation.

Build a Due Diligence Risk Matrix

A practical risk matrix can contain:

Risk – Creditor/Claimant – Amount – Origin Date – Due Date – Disputed? – Litigation/Enforcement Status – Security – Maximum Exposure – Probability – Proposed Protection.

This allows investors to compare fundamentally different risks in one structured framework.

Classify the Company’s Liabilities

The investor should separate liabilities into four groups.

Confirmed liabilities are amounts clearly payable.

Disputed liabilities are amounts claimed by third parties but contested by the company.

Contingent liabilities depend on future events.

Potential historical liabilities arise from previous conduct but have not yet produced a formal claim.

This classification gives a much more accurate picture than simply asking, “How much debt does the company have?”

Red Flags Before Investment

Foreign investors should investigate unexplained delays in providing bank statements, incomplete UYAP information, missing tax records, inconsistent financial statements, unexplained related-party balances, frequent cash withdrawals, large consultancy payments without supporting documentation and management reluctance to provide direct access to advisers.

One irregularity does not prove wrongdoing.

A pattern of inconsistencies may justify forensic due diligence.

What If the Seller Says the Company Has No Debt?

Do not rely on the statement alone.

Require documentary verification.

More importantly, convert important seller statements into representations and warranties in the SPA.

A verbal statement made during negotiations provides substantially less transactional protection than carefully drafted contractual provisions.

Representations and Warranties

The seller may be required to warrant matters concerning financial statements, tax compliance, litigation, indebtedness, guarantees, employment matters and regulatory compliance.

The warranties should reflect the actual risks identified during due diligence.

Generic provisions copied from another transaction may not adequately protect the investor.

Specific Indemnities

Where due diligence identifies a known risk, consider allocating it specifically.

For example, if a tax investigation is already pending, the buyer may require a specific tax indemnity covering that investigation.

If a substantial employee case exists, the parties may specifically allocate that exposure.

Purchase Price Adjustment

Hidden or additional debt can directly reduce equity value.

If due diligence reveals EUR 2 million more financial debt than initially represented, the buyer may renegotiate the purchase price rather than simply accepting the risk.

Escrow and Holdback

Some liabilities cannot be quantified before closing.

An agreed portion of the purchase price may potentially be retained or secured until the relevant risk is resolved.

This can provide stronger practical protection than relying solely on a future compensation claim.

Conditions Before Closing

Certain risks should be resolved before the acquisition completes.

The buyer might require repayment of shareholder loans, release of corporate guarantees, removal of particular security interests or settlement of specified debts as conditions to closing.

When Should a Foreign Investor Walk Away?

Sometimes the most important result of due diligence is deciding not to invest.

Major warning signs include management refusing access to fundamental financial records, unexplained differences between accounting and bank records, undisclosed enforcement proceedings, questionable corporate guarantees, serious regulatory investigations and repeated inconsistencies in seller disclosures.

No purchase price discount can automatically compensate for a business whose actual liabilities cannot reliably be determined.

What Should Be Checked Immediately Before Closing?

Due diligence should not end several weeks before the money is transferred.

Conduct an appropriate bring-down review shortly before closing.

Determine whether new litigation, enforcement proceedings, tax notices, bank defaults or other material liabilities have appeared since the original due diligence review.

Why the Closing Date Matters

A company can change dramatically between signing and closing.

A new lawsuit can be filed.

A creditor can commence enforcement.

A regulator can issue a decision.

A bank can call a loan.

A final pre-closing verification can prevent the investor from completing a transaction based on outdated information.

Frequently Asked Questions

1. Can a foreign investor check whether a Turkish company has lawsuits?

Yes. With appropriate company authorization and access, UYAP Institution Portal allows private companies to follow files in which they are parties before judicial and administrative courts. (UYAP)

2. Can enforcement proceedings against a Turkish company be checked?

Yes. UYAP Institution Portal also covers enforcement-office files involving the company. (UYAP)

3. Can MERSIS show all company debts?

No. MERSIS is primarily a centralized commercial-registration system. It is useful for corporate and registry information but should not be treated as a comprehensive database of every debt, lawsuit or contingent liability. (Dys Ticaret)

4. Can SGK debt documentation be verified?

Yes. SGK provides electronic no-debt services and a barcode-based verification application for electronically generated documentation. (SGK Portalı)

5. Is a tax no-debt document enough before buying a company?

No. It can provide useful information about current debt status, but historical transactions may still create future tax assessments. Historical tax due diligence remains necessary.

6. Should closed lawsuits and enforcement files also be reviewed?

Where material, yes. Historical files can reveal recurring payment problems, employment practices or commercial disputes relevant to evaluating the company.

7. How can a buyer identify hidden bank debt?

Request complete banking documentation, debt schedules and confirmations and reconcile them against financial statements and bank records.

8. What are off-balance-sheet liabilities?

They can include guarantees, contingent litigation, regulatory investigations, contractual penalties and other exposures that are not immediately visible as conventional payable debt.

9. What happens if significant debt is discovered before closing?

The investor may renegotiate price, require repayment, seek specific indemnities or security, impose closing conditions, restructure the transaction or decide not to proceed.

10. Should due diligence be repeated immediately before closing?

Material matters should be updated before closing because lawsuits, enforcement proceedings, tax notices and other liabilities can arise between the original review and completion.

Legal Due Diligence for Foreign Investors Before Investing in a Turkish Company

Checking a Turkish company’s financial position before investment requires much more than obtaining its latest balance sheet. A comprehensive investigation should examine bank and supplier debts, lawsuits, enforcement proceedings, tax and social security liabilities, corporate guarantees, security interests, employee exposure, customs risks, regulatory investigations, material contracts and potential off-balance-sheet obligations.

Official systems can support important parts of this process. The Ministry of Trade’s MERSIS system provides centralized corporate registration information, while the Ministry of Justice’s UYAP Institution Portal enables qualifying companies to monitor judicial, administrative and enforcement files in which they are parties. SGK also provides electronic employer no-debt and document-verification services. (Dys Ticaret)

Fırat Fesih Kaya Law Office provides legal assistance to foreign investors, international companies and foreign buyers concerning company due diligence in Turkey, Turkish company acquisitions, debt investigations, lawsuit and enforcement proceeding reviews, hidden liabilities, corporate guarantees, share purchase agreements and foreign investment risk analysis.

Legal assistance may include reviewing corporate records, analyzing litigation and enforcement proceedings, examining material contracts and guarantees, coordinating tax and financial due diligence, preparing risk reports, negotiating warranties and indemnities and structuring contractual protections before closing.

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

For foreign investors, the key question before acquiring a Turkish business should not simply be “How much debt does this company have today?” The more important question is “What existing or historical event could require this company to pay money after I become the owner?”