Introduction
Closing is the stage at which the shares are transferred to the buyer, the purchase price is paid to the seller, and control over the target company is effectively transferred. While the signing stage formalizes the parties’ intentions within a contractual framework, the closing stage is where the legal and economic consequences of those intentions are actually implemented. A successful closing requires payment instructions, security arrangements and corporate authorizations to be structured and coordinated in a consistent manner.
What Is the Difference Between Signing and Closing?
Signing is the stage at which the parties undertake to complete the share transfer and payment of the purchase price at a later date; closing is the date on which these obligations are actually performed. In transactions where regulatory approvals or third-party consents are required, the two dates may be separate. The fulfillment of the conditions precedent, on its own, does not mean that closing has occurred.
Main Reasons for Separating the Signing and Closing Dates
- Approval from the Turkish Competition Authority
- Sector-specific regulatory approvals
- Required corporate resolutions
- Change-of-control approvals
Even in transactions completed on the same day, the sequence of performance must be clearly determined. Merely specifying a “Closing Date” in the agreement is not sufficient; the place, sequence of actions, documents to be delivered and confirmation mechanisms should also be clearly regulated.
Why Is the Principle of Simultaneous Performance Important at Closing?
Pursuant to Article 97 of the Turkish Code of Obligations, in a contract imposing reciprocal obligations, a party may not demand performance from the counterparty unless it has performed or offered to perform its own obligation. This principle forms the basis for ensuring that the share transfer and payment of the purchase price are carried out in a coordinated and simultaneous manner in M&A transactions.
How Is This Ensured in Practice?
- Closing documents may be signed in advance and held subject to instructions.
- The purchase price may be maintained in a secure account.
- The share transfer instruction may become effective upon confirmation that the other closing obligations have been duly performed.
Under the principle of the integrity of closing, unless otherwise agreed, the closing actions constitute parts of a single transaction as a whole. Accordingly, even if one party has partially performed its obligations, a “partial closing” cannot be asserted.
What Are the Obligations of the Seller, Buyer and Target Company at Closing?
A. Seller
- Share certificates and transfer declarations
- Required corporate resolutions
- Documents evidencing the absence of encumbrances, resignations and corporate records
- Third-party consents and the closing confirmation certificate
B. Buyer
- Payment of the purchase price for the shares
- Authorization resolutions and payment documents
- Deferred consideration / post-closing security arrangements
C. Target Company
- Registration of the transfer in the share ledger
- Changes to the board of directors
- Arrangement of representation authorities and completion of registry/public disclosure procedures
In practice, a closing agenda/checklist is used to coordinate the closing actions, while the closing minutes executed following closing record the documents delivered and payments made. However, the closing minutes do not replace the legally required transfer formalities.
How Should the Share Transfer and Payment Flow Be Structured?
The method of transfer varies depending on the type of target company and the nature of the shares.
A. Registered Shares
The transfer is carried out through endorsement and delivery, subject to the applicable provisions of the articles of association and the law. Registration of the transfer in the share ledger is of particular importance.
B. Bearer Shares
Pursuant to Article 489 of the Turkish Commercial Code, in addition to the transfer of possession, notification to the Central Securities Depository (MKK) is mandatory. The rights attached to the shares cannot be exercised unless such notification has been made.
C. Shares Tracked in Book-Entry Form
The transfer is completed through a book-entry transfer between MKK accounts via investment institutions. The following should be checked in advance:
- Operational hours and account details
- Whether the shares are publicly traded or non-traded
- Any existing restrictions or measures over the shares
Payment Flow
- Allocation of the purchase price among the sellers
- Bank account details and the applicable exchange rate
- Bank charges and applicable tax withholdings
The agreement should clearly specify when the payment will be deemed “completed” (i.e., upon the issuance of the payment instruction or upon the funds being credited to the relevant account). The value date and transfer periods may affect whether closing can be completed on the same day.
How Do Security Mechanisms Work and When Are They Released?
Security arrangements secure not only the payment of the purchase price but also post-closing obligations, deferred consideration and indemnification liabilities. The principal mechanisms include escrow accounts, purchase price holdbacks and bank letters of guarantee.
Escrow Release Conditions
- Partial release of the undisputed amount
- Submission of an objection within a specified period
- Retention of the disputed amount in the account until final resolution of the dispute
Key Considerations for Letters of Guarantee
- Amount and validity period
- Conditions for making a demand
- Procedure for partial encashment and release
If existing financing security arrangements (guarantees, pledges and mortgages) need to be released at closing, the relevant confirmation and release documents should be prepared before closing. Security should not be released before the obligation it secures has been performed, and the release should be incorporated into the simultaneous performance mechanism.
What Happens If Closing Does Not Occur?
A. Available Options
- Granting an additional period
- Postponement of closing
- Converting the outstanding matter into a post-closing obligation
- Termination of the agreement
B. Post-Closing Obligations
- Notification, registration and announcement procedures pursuant to Article 198 of the Turkish Commercial Code
- MKK and public disclosure obligations applicable to publicly held companies
- Updating the share ledger, registration of board changes and signature authorities
- Discontinuation of the use of names, trademarks and systems belonging to the seller group
Any actions deferred to the post-closing period should be set out in a separate list, together with their respective deadlines and the consequences of non-compliance.
Conclusion
The success of a closing depends less on determining the commercial terms than on transforming those terms into an actionable sequence of steps. The share transfer, payment of the purchase price, delivery of documents and release of security should not be structured as independent actions, but rather as interdependent obligations forming an integrated closing process.
Frequently Asked Questions (FAQ)
What is closing?
Closing is the stage at which the shares are transferred to the buyer, the purchase price is paid to the seller, and control is effectively transferred.
Does signing take place on the same day as closing?
It may; however, where regulatory approvals or consents are required, the signing and closing dates may be separate.
Why is the principle of simultaneous performance important?
Pursuant to Article 97 of the Turkish Code of Obligations, a party may not demand performance from the counterparty without performing its own obligation. This principle links the share transfer and payment of the purchase price.
When is an escrow account released?
An escrow account may be released upon the expiry of a specified period, fulfillment of an obligation, or joint instructions of the parties.
Is notification to MKK mandatory for the transfer of bearer shares?
Yes. Pursuant to Article 489 of the Turkish Commercial Code, such notification is mandatory; otherwise, the rights attached to the shares cannot be exercised.
What happens if closing does not occur?
Depending on the terms of the agreement, the parties may grant an additional period, postpone closing, convert the outstanding matter into a post-closing obligation, or terminate the agreement.
