How an acquisition is structured often has a significant effect on its success. Investors often establish a special purpose vehicle (SPV) for acquisition transactions and SPVs commonly borrow funds from banks or other financial institutions to finance these operations. The repayment of funds (with interest) and the performance of tax obligations require a well-planned financial structure. One of the most well-known types of financial structure is debt pushdown.

An acquisition structure involving debt pushdown is implemented as follows:

  • The investor incorporates an SPV. Given that the SPV's sole purpose is to acquire the target's shares, the SPV has no business operations.
  • The SPV borrows funds from banks or other financial institutions to finance the costs incurred in the acquisition of the target's shares.
  • Following acquisition, the SPV and the target merge by upstream or downstream merger.1
  • As a result, the SPV's receivables and liabilities are transferred to the target and the SPV ceases to exist.
  • All funds borrowed from banks are thereby pushed down to the target and the SPV's costs, debts and interest payments incurred during and following the acquisition of the target's shares are paid by the target.

The new Commercial Code 6102 introduced a financial assistance prohibition. Based on the opinion that a merger in the abovementioned scenario is part of the initial acquisition of a target by an SPV, some Turkish scholars and legal practitioners argue that the debt pushdown mechanism should be considered to fall within the scope of the financial assistance prohibition and viewed as a circumvention thereof.2

In contrast, the majority of Turkish legal scholars argue that the upstream or downstream merger of an SPV with a target following the acquisition of shares does not fall within the scope of the financial assistance prohibition.3

The debt pushdown mechanism and its results are yet to be tested in the Turkish courts. The absence of precedent gives some cause for caution among legal practitioners advising on M&A transactions. Given that the target provides no security to the SPV for the acquisition of its shares, an upstream or downstream merger involving debt pushdown cannot be considered within the scope of the financial assistance prohibition. From a general legal perspective, even if such a merger negatively affects the financial status of the target, the Commercial Code's merger provisions allow for mergers through the acquisition of insolvent companies or companies in liquidation.

Originally published by International Law Office.


(1) If an SPV merges into a target, it is a 'downstream merger'; whereas if a target merges into an SPV, it is an 'upstream merger'.

(2) Article 380 of the Commercial Code prohibits transactions concerning the grant of advances, loans or security by the target for the acquisition of the target's shares by a third party.

(3) Leveraged Buyout ve Anonim Şirketin Finansal Yardım Yasağı (Leveraged Buyout and Financial Assistance Prohibition in Joint Stock Corporations), by Dr Fatih Arıcı and Cem Veziroğlu, 2014.

© Kolcuoğlu Demirkan Koçaklı Attorneys at Law 2015

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