Corporate deadlock and shareholder control in winding up applications

Background and corporate structure

Koza Altin owned 100% of Koza Ltd's ordinary shares but had been excluded from board-level control for nearly a decade by Mr Ipek, the sole director. Mr Ipek held one A ordinary share with no economic rights but carrying significant veto powers under Article 26 of the company's articles, including the ability to block director appointments and removals.

The dispute arose from the 2015 confiscation of Mr Ipek's Turkish assets by the Turkish state, following allegations of terrorist organisation affiliations. This led to protracted litigation across multiple jurisdictions, with the parties engaging in 25 court applications and hearings reaching the Supreme Court.

The deadlock argument

Koza Altin sought summary judgement on its winding up petition, arguing that an insupportable deadlock existed. The company had been capitalised with £60 million but liquid assets had dwindled to just over £7 million by January 2025, whilst mining projects remained non-operational and required substantial further investment.

Mr Justice Thompsell initially found the deadlock argument compelling. The combination of Koza Altin holding all economic rights whilst Mr Ipek retained management control, coupled with their fundamental disagreement over the company's future and Mr Ipek's previous reservation of rights to challenge shareholder authority, created what the judge described as an "insupportable position".

The critical undertaking

During proceedings, Mr Ipek offered an undertaking to accept that Koza Altin's directors were authorised to act on the company's behalf in all matters within lawful shareholder powers. This significantly altered the legal landscape.

The judge concluded that this undertaking potentially broke the deadlock, as Koza Altin could now pass binding resolutions under Article 4 of the Model Articles, directing the company's management. Theoretical "wind-down resolutions" could require asset sales, dividend distributions, and capital reductions to achieve Koza Altin's desired exit.

Legal implications for directors' duties

The judgement explored the complex interaction between shareholder directions and directors' fiduciary duties. Whilst acknowledging that directors cannot be entirely absolved of their duties to act in the company's best interests, the court suggested this would only justify resistance to shareholder directions in limited circumstances—where resolutions were manifestly against the company's interests or unlawfully prejudiced minority rights.

The judge rejected arguments that directors could routinely resist lawful shareholder directions based on subjective views about the company's best interests, noting that shareholders exist to receive returns and can legitimately mandate distributions through proper procedures.

Alternative remedies and clean hands

The court dismissed Mr Ipek's arguments regarding unreasonable refusal of his share purchase offers, accepting Koza Altin's position that Turkish legal advice created genuine concerns about criminal law breaches.

Arguments based on collateral purpose and unclean hands also failed. The judge emphasised that motive is irrelevant where parties seek legitimate relief, and that winding up naturally results in asset distribution to shareholders—this cannot constitute improper "expropriation".

Strike out applications

Whilst refusing to strike out Mr Ipek's defence given the changed circumstances, the court struck out Koza Ltd's defence entirely. The company's focus on an employment partnership agreement and collateral purpose arguments disclosed no reasonable grounds for defending the petition.

The decision reinforces that companies should generally remain neutral in shareholder disputes over winding up, as these fundamentally concern relationships between members rather than corporate interests.

This case demonstrates how strategic procedural moves—particularly undertakings regarding authority challenges—can fundamentally alter the dynamics of corporate control disputes and winding up applications.