Ending a Distributorship in Türkiye: The Portfolio Indemnity Trap

When a foreign manufacturer or brand owner decides to end its relationship with a Turkish distributor, the commercial focus is usually on stock, outstanding invoices and the transition to a new partner. What often surprises suppliers is a claim that arrives after the contract has closed: a demand for an equalisation indemnity — commonly called a portfolio indemnity — grounded in Article 122 of the Turkish Commercial Code (Law No. 6102, “TCC”). The provision was written for commercial agents, but through settled Court of Cassation case law it reaches much further, and it is the single most overlooked exposure in Turkish distribution arrangements.

What the equalisation indemnity is

Article 122 of the TCC gives a commercial agent a right to a payment when the agency relationship ends. The logic is straightforward: an agent spends years building up a base of customers for the principal, and when the contract terminates, that customer portfolio does not leave with the agent — it stays with the principal, who keeps earning from it. The indemnity compensates the agent for the value it created and then surrendered.

Three conditions must be met for the right to arise. First, the principal must continue to derive substantial benefit, after the contract ends, from the customers the agent brought in. Second, the agent must lose the remuneration it would have earned — the commissions or fees flowing from those customer relationships — that it would have received had the relationship continued. Third, payment of the indemnity must be equitable in all the circumstances of the case. All three have to be present; the indemnity is not automatic simply because a contract has ended.

The equalisation indemnity is not a penalty for terminating. It is compensation for a customer portfolio that the principal keeps and continues to profit from after the relationship is over.

When the indemnity is not owed

The right falls away in two situations that turn on who ended the relationship and why. It is not payable where the principal terminated for good cause arising from the agent’s own fault — for example, a serious breach by the agent. Nor is it payable where the agent itself terminated the contract without a good cause attributable to the principal. In both cases, the party claiming the payment has effectively brought about, or is answerable for, the end of the relationship, and the law declines to reward that. The practical consequence is that the reason for termination, and how it is documented, can decide whether any indemnity is due at all.

The trap: distributors, not just agents

Here is where foreign suppliers are most often caught out. Article 122 speaks only of the commercial agent — a party acting in the principal’s name and for its account. A distributor is different: it buys goods and resells them on its own account, at its own risk. On a literal reading, the article should not touch distributorships at all.

Turkish law does not stop at the literal reading. The Court of Cassation has consistently applied Article 122 by analogy to exclusive (sole) distributorship agreements. The analogy is not automatic; it applies where two features are present:

• the distributor has been integrated into the supplier’s distribution network, operating as an extension of the supplier’s sales organisation rather than an independent trader at arm’s length; and
• the distributor is under an obligation to transfer its customer base to the supplier when the relationship ends, so that the supplier inherits the portfolio.

Where those features exist, an exclusive Turkish distributor can claim the same equalisation indemnity as a commercial agent, even though it bought and resold goods on its own account. This is why a foreign supplier terminating a long-standing Turkish distributor can be met with an indemnity demand it never contemplated — the exposure lives in case law, not in the words of the contract.

Calculation and the statutory ceiling

The amount reflects the benefit the principal retains and the remuneration the claimant loses, weighed on equitable grounds. What Article 122 fixes with precision is the ceiling: the indemnity cannot exceed the average annual commission or other remuneration calculated over the last five years of the relationship. If the relationship ran for less than five years, the average is taken over its actual duration.

The table below summarises the mechanics.

Element	Position under Article 122 TCC
Who can claim	Commercial agents; by analogy, integrated exclusive distributors
Core conditions	Continuing benefit to principal; loss of remuneration to claimant; equitable to pay
When not owed	Termination for the claimant’s fault, or unjustified termination by the claimant
Ceiling	Average annual commission/remuneration over the last five years
Advance waiver	Invalid if agreed before the contract ends (Art. 122/4)
Deadline	One-year forfeiture period from termination

For a distributor, “remuneration” is understood in terms of the margin or benefit derived from the arrangement rather than a formal commission, since the distributor does not earn commission in the strict sense — this is one of the points that is contested and fact-specific in practice.

No waiver in advance

A clause that tries to exclude the equalisation indemnity in the distribution or agency contract itself will not hold. Article 122/4 renders any waiver of the right invalid if it is agreed before the contract comes to an end. Suppliers frequently insert a broad exclusion of “any termination or goodwill compensation” into their standard agreements and treat the risk as closed; under Turkish law it is not. What the parties can validly do is settle the claim after the relationship has actually terminated, once the right has crystallised. Any negotiated release therefore belongs to the exit, not to the original contract.

Notice for open-ended contracts

Separate from the indemnity, ending an open-ended distributorship requires reasonable notice. A supplier that walks away abruptly, without giving the distributor a reasonable period to wind down, can face a distinct claim for damages flowing from the failure to give proper notice. Reasonable notice and the equalisation indemnity are two different exposures, and a clean exit has to address both.

A practical approach for suppliers

Managing this risk is a matter of preparation, not last-minute reaction. Before terminating, a supplier should assess honestly whether the Turkish counterparty looks more like an integrated distributor than an arm’s-length reseller, because that assessment drives the whole analysis. It should identify and document any good-cause grounds for termination, since a termination based on the distributor’s fault changes the indemnity position. It should map the last five years of margins or remuneration to understand the realistic ceiling on any claim. And it should treat notice and indemnity as parallel questions to be resolved together at exit — with any release negotiated after termination, when a valid settlement is possible, rather than relying on a waiver buried in the original agreement that Turkish law will not enforce.

Handled early, the portfolio indemnity is a quantifiable cost that can be planned for and negotiated. Handled late, it arrives as an unwelcome surprise after the supplier believed the relationship was already closed.