What options do we have if a party fails to meet a closing condition of a share purchase agreement under Turkish Law?
Parties of a share purchase agreement may agree on certain conditions, such as payment of share purchase price, delivery of a guarantee letter or approval of share purchase by Company, that must be fulfilled until a certain time (“Closing Date”) before a share purchase agreement may be deemed as “executed”. Such conditions are generally reffered to as “closing conditions”.
In practise, parties are most commonly exercising their termination rights if a party fails to meet a closing condition of a share purchase agreement. However, the termination right is not the only option for a party who would like to “complete”, but not end the transaction.
First of all, it is worth to be mentioned that the satisfaction of a closing condition under a share purchase agreement might be also classified as the performance of an obligation under a so called “synallagmatic contract”, what brings us to the result, that the provisions of the Turkish Code of Obligations with regard to “synallagmatic contracts” may be applied in case a party fails to fulfill one or more of his performance duties.
According to Art. 125 of the Code, “where the obligor under a synallagmatic contract is in default, the obligee may compel the performance in addition to suing for damages in connection with the delay”.
If we inpret this provision under consideration of a non-performance of a closing condition of a share purchase agreement, we would come to the result, that a party, for example seller of shares, may sue the buyer to perform his duty to pay the share purchase price in consideration of the registry of the buyer as a shareholder in the share ledger of Company. Additionally, the seller would be entitled in such case to request an interest for damages in connection with the delay of the payment of share sales price.
In the event, the buyer would have met the condition of paying the share purchase price, but seller would breach his obligation to obtain the approval of share transfer by the board of directors and registry of buyer as a shareholder to the share ledger, then the buyer would be entitled to request from Court to be registered as a shareholder to the share ledger. In such case, the buyer might also additionally claim the compensation of his profit loss, which he would not suffer if he had been registered as a shareholder on the closing date.
Another interesting question is what a seller might do, if the buyer would not deliver a bank guarantee letter until the closing date as a guarantee of his payment duty on a later date. Would be the seller entitled to request the payment of the “undue” sales price instead of the delivery of a bank guarantee letter?
This question has not a certain answer since the Turkish Law does not clearly regulate the claim of performance of “undue debts”. First of all, Article 42 of the Turkish Enforcement and Bankruptcy Law regulates that a creditor may start an enforcement procedure for the delivery of a guarantee if the debt is based on a court resolution, law or a contract. On the other hand, there is also an option to claim directly the sales price based on Art. 124 of the Turkish Code of Obligations, which stipulates that “no time needs to be set where it is evident from the conduct of the obligor that a time limit would serve no purpose” and Art. 125 stipulating that “if performance has not been rendered by the end of the set time limit or setting a time limit for performance would serve no purpose, the obligee may compel performance”. In the event of non- delivery of a bank guarantee on the closing date, there would be a certain evidence that the obligor, namely the buyer will not make the payment of share sales price on the due date, wherefore the creditor, namely the seller would not be obliged to wait until the due date of the sales price and might directly sue the buyer for the performance of his payment debt.
Another important issue about the right to demand performance is the order of the closing conditions as Art. 97 of the Turkish Code of Obligations stipulates that “a party to a synallagmatic contract may not demand performance until he has discharged or offered to discharge his own obligation, unless the terms or nature of the contract allow him to do so at a later date”. In other words, if the parties have agreed in the share purchase agreement, that the share transfer shall be approved by the board of directors and registered to the share ledger before the payment of share sales price, the seller may not demand the payment of sales price before performing such closing condition.
The parties might also not demand performance, if the share purchase agreement regulates that the non-performance of the closing conditions until the closing date may result authomatically with the termination of the contract. In such event, the non-performance of the closing conditions is accepted as a “condition subsequent”.
As a main result, the non-performance of closing conditions must not result with the termination of the share purchase contract. The parties may also demand the performance of the closing conditions through a court order, what would have the result of the completion of the share purchase transaction.